The U.S. must get “serious” about rebuilding its semiconductor manufacturing sector, Commerce Secretary Gina Raimondo was set to tell business leaders during a visit to Detroit Monday.
The U.S. is at an “inflection point,” Raimondo said, and can no longer depend on foreign sources for the critically needed chips that have caused massive disruption to the auto industry and other sectors of economy. The Biden administration is pressing Congress to provide $52 billion in funding to support the revival of American chip production.
“We’re at an inflection point and we have to make choices,” Raimondo said during a meeting with reporters ahead of her appearance at the Detroit Economic Club. “If we’re serious about restoring American leadership in the global economy, we have to start by rebuilding our semiconductor industry so we can meet the demands of this moment.”
Automakers take a devastating hit
The global auto industry will fall about 7.7 million vehicles short of original production estimates due to the chip shortage, losing about $210 billion in revenues, according to a September report by AlixPartners.
Detroit automakers have been hit especially hard, Ford, General Motors and Stellantis repeatedly curbing production of some of their most profitable vehicles, such as the Chevrolet Silverado, Ford F-150 and Ram 1500 pickups.
There are signs that supplies are beginning to be replenished, Hyundai Motor America telling TheDetroitBureau.com earlier this month that the automaker expects production to largely get back to normal by year-end. But Tyson Jominy, a senior J.D. Power analyst last week cautioned it likely will take until late in 2022 to get dealer inventories rebuilt due to the chip shortage.
Semiconductors were invented in the U.S. and, for many years, the country had a robust manufacturing network. But much of that has moved overseas, about 75% of global production now based in Asian countries including China, Taiwan, Japan and Singapore.
A pincer approach
The Biden administration has engaged in a two-pronged approach to deal with the shortages. It has reached out to trade partners like Taiwan, as well as individual chip manufacturers. About 150 companies have responded with information about their inventories and production which, said Raimondo, “exceeded my expectations.”
The White House may yet rely on the Defense Production Act to get other chipmakers to reply, the Commerce Secretary said.
Longer term, the administration’s goal is to build back the U.S. semiconductor production base. And White House officials say that will require the $52 billion that would be allocated under the CHIPS Act. The measure specifically sets aside $2 billion for the production of “mature” chips used by the auto industry. These are generally older design semiconductors that often go to the back of the line with manufacturers because they are low profit.
House yet to act on aid bill
The CHIPS Act was approved by the Senate in June but it has yet to be taken up by the House of Representatives which only a month ago passed another key piece of Biden legislation, the $1.2 trillion infrastructure bill.
It is unclear when the House might begin debating its version of the semiconductor aid package. But it is seen as essential to meeting another key goal of the president: the shift to battery-electric vehicles. He has laid out a timetable calling on the industry to have plug-based vehicles account for 40% to 50% of U.S. sales by 2030.
With EVs requiring even more chips than conventionally powered vehicles, “I’m telling you now we will not hit those goals if Congress doesn’t quickly (fund) the CHIPS Act,” said Raimondo.