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To Meet Demand, U.S. Must Increase and Incentivize Semiconductor Production

A current increase in global demand for semiconductors or ‘chips’ is outpacing both supply and manufacturing capacity, resulting in several sectors - from autos to healthcare to energy to consumer products and devices - facing a shortage in this foundational hardware. The increased demand for chips is the result of both increased demand for devices that enable our work- and learn-from-home environment and increased demand for other products and services as the U.S. recovers from the COVID-19 pandemic. As a result, industries are caught in a market-based supply and demand imbalance, as calls grow for policymakers to intervene in the marketplace, effectively choosing winners and losers.

This wasn’t always the case. In fact, at the height of the pandemic, some of these industries canceled their chip orders due to lower consumer demand. With demand for chip-enabled products now skyrocketing, an unprecedented shortage of chips could slow the U.S. economic recovery while also risking immediate interruptions to critical services like distance learning, telework, and healthcare delivery.

Chips are vital to nearly every industry across the global economy. For the past year, technology has been essential to connecting educators and students, to enabling businesses and employers to stay productive, open, and secure, and to supporting the government and health response to a pandemic unprecedented in modern times. And the demand for devices enabling this connectivity, productivity, and pandemic response continues.

According to USAFacts.org, 65 percent of U.S. households with children are utilizing online learning. Semiconductor chips power the products and technologies that allow those students to learn from home and enable remote work for millions around the globe. Technologies made with chips can bridge the digital divide that plagues as many as 16 million students who lack access to the high-speed broadband and devices needed to learn remotely. Semiconductors also play a central role in speeding the deployment of technologies like 5G that will pave the way for future innovations.

As technology continues to support the global response to COVID-19, industries must remain vigilant in managing their supply chains. Further, any actions taken by the Biden-Harris Administration in response to this situation should avoid picking winners or losers that prioritize specific industries over another. Doing so would exacerbate the digital divide at a time when governments should be looking for ways to help those most impacted by the pandemic and economic slowdown, including rural and underserved schoolchildren.

In the short-term, semiconductor manufacturers are working around the clock to address the increased demand for chips. To avoid future supply shortages, the U.S. government should look to increase and incentivize domestic chip production. Doing so offers two benefits: an increase in production to rectify the current issues of demand outpacing supply, and a boost to the U.S. economy that creates thousands of new jobs.

In his upcoming budget request, President Biden should significantly fund the Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act. By doing so, the administration can address supply issues and incentivize U.S. manufacturing, research and development, and design efforts that can stimulate all sectors of the American economy and further the administration’s goal to ‘build back better’.

Without question, the technologies and industries critical to our ongoing COVID-19 response, the U.S. economic recovery, and the future competitiveness of the United States rely on readily available semiconductors. As the U.S. looks to mitigate the public health and economic crises caused by COVID-19, it should avoid actions that could deliberately or inadvertently inhibit these technologies.

Public Policy Tags: Federal Advocacy, Public Sector