Opinion: The Semiconductor Shortage – WSJ

President Joe Biden holds a semiconductor during his remarks before signing an Executive Order on the economy, Feb. 24.


Doug Mills/Zuma Press

A global computer chip shortage has constrained worldwide production of goods from iPhones to Sony PlayStations to


trucks. President


has called for $37 billion from Congress to boost U.S. semiconductor manufacturing, but government industrial policy isn’t needed to correct this supply-demand problem.

A new executive order mandates a 100-day review of supply chains for semiconductors and three other “critical” products including electric-car batteries. “Resilient, diverse, and secure supply chains are going to help revitalize our domestic manufacturing capacity and create good-paying jobs, not $15 an hour—which is what we need to do someday,” Mr. Biden said.

Secure and resilient supply chains are important, but the President is trying to exploit domestic manufacturing problems to promote industrial policy as

Donald Trump

did with steel and aluminum tariffs.

The economic backdrop for Mr. Biden’s order is a chip shortage that has idled auto plants in the U.S. and abroad. Cars have become like smartphones on wheels and can include thousands of chips—electric vehicles even more.

IHS Markit

recently projected the shortage will affect global production of a million vehicles in the first quarter.

Governments helped create the chip shortage, starting with their lockdowns last spring. Auto makers reduced orders for new chips as car purchases plunged. They didn’t anticipate how demand for cars would rebound, fueled by trillions of dollars in government spending and near-zero interest rates. Germany and China also increased electric-vehicle subsidies.

Meantime, manufacturers pivoted to more profitable chips that power laptops, consumer electronics and data centers. Demand for these chips has surged amid the pandemic and will grow in the 5G era, which will enable artificial intelligence and the Internet of Things.

So foundries worldwide are scrambling to fulfill orders, and auto makers are a low priority. U.S., Japanese and European auto makers have sought help from their governments to procure more chips. These supply-chain problems should ease this summer, but semiconductor firms are using the scramble for chips to lobby Washington to support domestic manufacturing. This isn’t necessary.

Silicon Valley companies used to design and manufacture their own chips. But most leading U.S. semiconductor companies like




have sought to focus on their strength in design and outsource manufacturing—namely, to Samsung and

Taiwan Semiconductor Manufacturing

Company (TSMC).


—among the last remaining large U.S. integrated chip companies—is under pressure from investors to farm out more production and focus on design where it has lost a competitive edge. China, Taiwan, Japan and South Korea account for about 75% of chip manufacturing capacity in part due to their skilled workforce, geographic supply-chain synergies and government subsidies.

While U.S. companies make up nearly half of global chip sales, America accounts for only 12% of global chip manufacturing. America’s comparative chip advantage is engineering, and those jobs are high-paying.

Some defense experts understandably worry that China will absorb Taiwan and impose an embargo on TSMC chips, which are used in U.S. fighter jets. China has set a goal of dominating semiconductor manufacturing—it now makes about 15%—and producing 70% of its own supply by 2025. But it is still years behind.

The Trump Administration last spring used soft power and promised subsidies to persuade TSMC to build a $12 billion plant in Arizona. Congress last year authorized incentives in the National Defense Authorization Act without appropriating funds. And now Mr. Biden is lobbying Congress for $37 billion.

But new plants are expensive, one reason manufacturing has consolidated. Twenty years ago a chip plant cost $1 billion. TSMC is constructing a nearly $20 billion foundry in southern Taiwan. Samsung, which manufactures some chips in the Austin region, is seeking subsidies from some states for a $17 billion foundry. Europe’s leaders have also dangled tens of billions of dollars to boost their domestic industries. This could soon become an expensive bidding war.

If U.S. semiconductor firms that farm out chip production are worried about their supply chains, they and the U.S. government can prod TSMC and Samsung to diversify their manufacturing base. U.S. companies have significant clout as the world depends on them for cutting-edge chip designs. The U.S. accounts for 50% of chip manufacturing equipment and 52% of intellectual property design.

But direct U.S. government support for industry outside of war or other emergency is a slippery slope. It invites political mediation that leads to the misallocation of resources and investing mistakes. The U.S. government can help to ensure adequate chip supply without getting into the chip business.

Wonder Land: Today we’re on a road to normalcy not because of politicians and media enforcers. Our thanks lie with medical personnel who treated patients and discovered treatments on the fly. And private vaccine developers. Images: Reuters/AFP via Getty Composite: Mark Kelly

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Appeared in the March 13, 2021, print edition.

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