Global Chip Shortage

Global Chip Shortage

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A microchip is a set of circuits on a tiny sliver of silicon. Microchips are used in all sorts of products, like phones, computers, and even cars. These chips have become central to the $3 trillion tech industry so the shortage has been felt across the entire industry.

The Cause

The global microchip shortage, like many of the unfortunate events of the past one-and-a-half years, resulted from the pandemic. A massive increase in demand, fueled by pandemic-induced free-time for devices like cell phones and laptops, surpassed production rates to the point where supply could no longer keep up with demand. Additionally, many microchip factories and producers had to shut down when the pandemic hit. The largest microchip producer, TSMC, has even raised its prices by 20% to make up for lost revenue from decreased production. However, the pandemic was not the only driving factor of this shortage. Commerce Secretary Gina Raimondo said that the United States has not invested in semiconductor production in a long time, which has contributed to the shortage. In 1990, 37% of microchips sold worldwide were made in the United States. As of 2021, that number has sunk to 12%.

Automobile Industry: The Hardest Hit

The most greatly impacted product from the microchip shortage, however, is the automobile shortage. A modern car contains more than 100 microchips and cars consume about 15% of the world’s chip production. The main reason that the automobile industry was more deeply affected than other industries, however, was a severe miscalculation they made at the beginning of the pandemic. When the pandemic began, automakers incorrectly predicted that people would stop buying cars, which would cause car sales to plummet. They canceled the orders they had in place with microchip manufacturers, believing they would have no need for the microchips. These manufacturers then shifted to the tech industry, giving them priority since the auto industry canceled most of its orders. By the time automakers realized their mistake, the majority of chip capacity was being used by computers, phones, and video games. 

The Effect

The shortage could cost the automobile industry $210 billion by the end of the year, according to the global consulting firm AlixPartners. The firm also predicts that automakers will decrease their production by 7.7 million vehicles this year. Automakers aren’t the only ones footing the bill. Prices for computers, phones, and numerous other technologies have already risen and will continue to rise. With a shortage of microchips has also come a shortage of video cards and video game consoles. Sony and Microsoft have said that PS5 and Xbox Series X shortages will continue through 2023. Goldman Sachs has estimated that at least 169 industries have been impacted by the shortage. As we near the holiday season, it is becoming increasingly apparent that supply will simply be unable to keep up with surging demand for technological devices.

The chip shortage, caused by pandemic-disrupted supply chains, a soaring demand of technological devices, and a lack of investment, has affected everyone – from massive corporations losing billions of dollars to higher prices for you and me. The shortage is predicted to last until at least 2022, so until then we can continue to expect skyrocketing prices and a long wait time for the PS5.

About the author

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I write about economics and finance. I am a senior at Laurel Springs High School.