Every day, the average person will come into contact with hundreds of chips. The term “chip”, which refers to the entirety of an integrated circuit contained within a microchip, has become somewhat synonymous in everyday conversation with semiconductors. This is in spite of the fact that semiconductors, which are elements that function in between insulators and conductors, are merely one element of a circuit, used to allow an electrical current to flow in some cases and not in others (1). Common semiconductors such as silicon, germanium, gallium arsenide, and others are used by the majority of manufacturers in building integrated circuits that are later installed in computers, cars, microwaves, and countless other devices. Many have complained that the COVID-19 pandemic has caused a shortage in semiconductors. In reality, the shortage has impacted microchips themselves, due to insufficient supply from manufacturing companies.
With the entire world on lockdown in the beginning of 2020, the transportation industry came to a grinding halt, and automotive manufacturers drastically cut down on their chip orders (2). The demand for chips, however, was simply relocated; as more and more people began to work from home and seek entertainment in quarantine, electronics and digital appliance manufacturers found themselves with an uptick in sales and sought an increased supply of microchips as a result (2).
It’s important to note, however, that the complexity of chips and the subsequent cost of production can vary greatly depending on what the chip is being manufactured for. As semiconductor producers adjusted their factories according to the market’s appetite for sophisticated processors and electronic semiconductor circuits, their prices rose accordingly. When people began to emerge into the outside world and travel once more, the demand for transportation skyrocketed, and the vehicle market scrambled to create fresh stock for eager waiting customers. However, they found themselves faced with an insurmountable challenge: the chip factories which once churned out low-cost, simplified chips for cars were now focused on a new clientele, and their motors and navigation systems simply could not function without these advanced circuit mechanisms.
This story of supply and demand racing to keep up with one another is by no means new. It is merely the typical cycle seen in any market. But why, then, has it gained so much visibility? The first answer is surprisingly simple; even though the auto industry only makes up 10% of the overall demand in chips, it’s extremely important to many leading world governments such as the United States’ and the U.K.’s, due to the great deal of domestic revenue it generates (3). As a result, many pieces of active legislation have actually been passed in an attempt to alleviate the circuit shortage. The CHIPS and Science Act of 2022, for example, provided over 50 billion dollars to American research and production of integrated semiconductor secrets, so that U.S. auto and technology manufacturers can source their supplies domestically without the added hassle of international imports (4). The widespread nature of chips in nearly every area of production and industry, be it transportation, electronics, and household goods, has also added to the notoriety of the scarcity issue. A surprising aspect of the chip market and its conspicuousness is its underlying involvement in the U.S.-China conflict.
Over 50% of microchip manufacturing happens in one firm in Taiwan: the Taiwanese Semiconductor Manufacturing Company, or TSMC (4). This means that this small island is single handedly responsible for nearly a third of the United States’ digital computing power (2). As a result, the American motive behind protecting the nation’s sovereignty extends beyond a Good Samaritan dedication to upholding democracy, and ventures into the territory of capitalist self-interest. Even so, the political nature of public support for Taiwan cannot be ignored, given the salience of the issue. While it’s unlikely that China would destroy the chip plants in an invasion of Taiwan, considering their own reliance on the technology, they would most likely take control of them in order to profit. And considering the rocky nature of Chinese-American trade relations, there’s a high possibility that they may withhold the sale of chips to factories in the United States, forcing them to turn to Korean factories or other manufacturers elsewhere (4).
At this very moment, the chip shortage appears to be following a cyclical pattern. Experts predict the surge in demand will subside as the pandemic recedes and the travel infatuation dies down, and the competition for semiconductor chips will die down accordingly (5). However, it will be interesting to see how this market, which is now proven to be extremely volatile, will be impacted by future world events, and if it will change further as a result. Perhaps Taiwan will lose their long-held monopoly, or perhaps will evolve to rely on some new innovation. Either way, it is certain that those in the forefront of the manufacturing industry will hold not only a great deal of economic power, but also an incredible amount of sociopolitical influence as well.
- Sean Speer and Chris Miller. “Why are chips so important, anyway? Professor Chris Miller on the fight for the world’s most critical technology.” The Hub, November 24, 2022. Accessed February 17, 2023, https://thehub.ca/2022-11-24/why-are-chips-so-important-anyway-professor-chris-miller-on-the-fight-for-the-worlds-most-critical-technology/.
- Tamera Max. “Understanding the Current Global Semiconductor Shortage, Preparing for the Future.” S&P Global, August 19, 2022. Accessed January 19, 2023, https://www.spglobal.com/engineering/en/research-analysis/understanding-the-current-global-semiconductor-shortage.html.
- Samuel K. Moore. “How and Why the Chip Shortage Will End, in 4 Charts.” IEEE, June 29, 2021. Accessed February 3, 2023, https://spectrum.ieee.org/chip-shortage.
- David Shepardson and Patricia Zengerle. “U.S. Senate passes bill to boost chip manufacturing, compete with China.” Reuters, July 28, 2022. Accessed January 27, 2023, https://www.reuters.com/business/majority-us-senate-backs-bill-boosting-chipmakers-compete-with-china-2022-07-27/.
- J.P. Morgan. “Supply Chain Issues and Autos.” August 11, 2022. Accessed February 3, 2023, https://www.jpmorgan.com/insights/research/supply-chain-chip-shortage.
