the CHIPS regulation proposal and on the backs of the recently passed US Innovation and Competition Act (USICA).
Okay, let’s break it down.
A letter was sent Wednesday to House Majority Leader Nancy Pelosi, Minority Leader Kevin McCarthy and their Senate counterparts – Chuck Schumer and Mitch McConnell – demanding that Capitol Hill get the CHIPS Act passed quickly. The main rationale is that domestic manufacturers (especially car manufacturers) have struggled due to the shortage of semiconductors and are now endangering the employment status of hundreds of thousands of Americans.
“There is no doubt that our nation’s auto manufacturing industry – more than any other industry – has been hit hardest by the global semiconductor shortage,” Whitmer wrote in the letter. “Production at auto plants across the country has been inactive, impacting more than 575,000 US auto-related jobs.”
Whitmer was joined by Governor Gavin Newsom of California, Laura Kelly of Kansas, Andy Beshear of Kentucky, JB Pritzker of Illinois, Tom Wolf of Pennsylvania, Roy Cooper of North Carolina, Tony Evers of Wisconsin and Kay Ivey of Alabama – the latter is the only Republican.
Giving the semiconductor industry has been popular with the Biden administration, and the Senate has already voted in the affirmative to provide businesses with government money. But Reuters said there was a pushback in the House due to the open nature of the bill.
Semiconductor funding passed in the US Senate earlier this year from 68-32 as part of the broader US Innovation and Competition Act, or USICA. But he did not go to the House of Representatives.
Elements of the broader bill have drawn opposition from some House members who fear there are no safeguards to prevent research funds from benefiting China, the United States’ main global competitor.
“We understand that the House of Representatives has its own priorities over the policies and programs included in USICA, we hope the two chambers will come together quickly to find common ground with respect to this legislation, including full funding for the CHIPS Act re- shoring provisions, as soon as possible ”, reads the letter from the governors.
Your author would like to echo these concerns by adding some of his own. Rather than focusing solely on boosting the chip’s output, a large part of the proposed funding is reserved for research and development. Likewise, tax breaks seem more focused on helping an industry that has one of the most in-demand goods imaginable right now, instead of building new players that could help maximize domestic production.
But perhaps the dumbest thing you can imagine is how little goes into the chips that automakers actually use. Of the proposed $ 52 billion, only $ 2 billion will be used to prioritize older chips that go into cars. This has actually contributed massively to the semiconductor shortage since we learned about it. When the restrictions for COVID began, people were not buying cars. They were buying laptops, tablets and other small devices based on the latest technologies because there was nowhere to go. Faced with their own problems, the suppliers shifted production accordingly and realized that the new chips would make them more money in the long run. This left the automotive sector (which continued to outsource the production of the necessary hardware) in a sticky spot.
While the industry has figured out how to stay more or less profitable by launching rolling production shutdowns, the industry at large is estimated to have lost $ 200 billion this year. due to huge production shortages. The latest math has 2021 producing around 4 million fewer cars than expected. But it’s not all the fault of the absent semiconductors. Electronic components (resistors, capacitors, connectors, etc.) have become difficult to find in general and their predominantly Asian suppliers have chosen to prioritize domestic markets. This has raised prices and reduced availability across the planet, however, it is hitting Western nations particularly hard.
It’s not just electronics. Commodities are also rising in price as global supply chains continue to struggle. One of the most recent examples of this is the magnesium deficiency that occurs in Asia. The car industry dials have begun to ring alarm bells that economic woes have led to the closure of factories that are about to create additional demand for the item. China, responsible for 85% of the global magnesium supply, is assumed to have halved its total production. While some auto makers said they were not worried about the limited amount of magnesium they use, others said they were worried they were just weeks away from another crisis. The European Association of Automobile Manufacturers, ACEA, also said it expects problems even from here to early 2022.
One wonders how the CHIPS Act should do anything other than keep the US as the leading chip designer and why this should matter when providing the older chips that will ultimately help boost automotive production. The US still has the market cornered when it comes to cutting-edge technology, but has given up a significant amount of capacity to China from building 37% of the world’s semiconductors (in 1990) to just 12% (in 2020) . That lack of capacity (thank you, NAFTA) appears to be what is hurting the industry the most in general and it is not clear that the CHIPS Act addresses this issue in a serious way. Extend this premise to as many other legislative actions that likewise seem to prioritize the wishes of lobbyists – at the expense of creating useful, financially prudent and manageable solutions for the American people – as you wish.
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