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Biden admin fears alarming chip shortage could shut down factories across US; companies are down to just 5 days of inventory
SeongJoon Cho/Bloomberg via Getty Images

Biden admin fears alarming chip shortage could shut down factories across US; companies are down to just 5 days of inventory

The U.S. supply of computer chips has reached such alarmingly low levels that countless American manufacturers are now at a heightened risk of shutting down, the Biden administration announced this week.

What are the details?

The plethora of American companies that use semiconductors — such as automakers, medical device manufacturers, and other electronic device producers — now have just five days of inventory on shelves, compared to 40 days in 2019.

Amid a continued global supply chain crisis, demand for semiconductors has reportedly skyrocketed, outstripping supply even as chip makers near their maximum output.

The worrying data was uncovered in a "Risks in the Semiconductor Supply Chain" report released by the Department of Commerce on Monday that surveyed 150 chip consumers starting in September 2021.

The supply shortage has U.S. manufacturing plants in a vulnerable state.

"If a COVID outbreak, a natural disaster, or political instability disrupts a foreign semiconductor facility for even just a few weeks, it has the potential to shut down a manufacturing facility in the U.S., putting American workers and their families at risk," the Commerce Department noted in a press release.

There is essentially "no room for error," noted Commerce Secretary Gina Raimondo.

The department added that bottlenecks are most concentrated in industries that use "legacy logic chips (used in automobiles, medical devices, and other products), analog chips (used in power management, image sensors, and radio frequency), and optoelectronics chips (including for sensors and switches)."

What else?

In response to the shortage, the Biden administration urged Congress to act quickly to pass the CHIPS Act, which would free up to $52 billion in federal funding for domestic semiconductor manufacturing.

“The semiconductor supply chain remains fragile, and it is essential that Congress pass chips funding as soon as possible,” Raimondo said in a statement. “With sky-rocketing demand and full utilization of existing manufacturing facilities, it’s clear the only solution to solve this crisis in the long-term is to rebuild our domestic manufacturing capabilities."

"Every day we wait on this funding is a day we fall further behind," she added.

But industry executives aren't optimistic that the funding would help alleviate the crisis, the Washington Post reported. They argued federal funding could help build up the long-term supply of chips but wouldn't help in the short term because chip factories take years to build.

Chip consumers that were surveyed by the department similarly estimated that shortages wouldn't go away in the next six months, and some suggested it could take until 2023.

Even barring a disaster like widespread factory shutdowns, American consumers are still poised to bear the brunt of the shortage's consequences, which include rising inflation.

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