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The U.S. is trying to remake the chip supply chain, despite the glut

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A closeup of a silicon wafer shows a rainbow of colors reflecting off its shiny surface.

A recent surplus of semiconductor chips has caused prices to tank. Annabelle Chih/Getty Images

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We are a long way from the shortage of semiconductor chips during the early days of the pandemic. Now there is an abundance of those chips, found in everything from smartphones to military weapons technology.

The pandemic’s pressure on the global supply chain led the United States to consider how policy changes might help reduce the odds of another chip shortage. But what might the current glut of chips mean for those efforts?

Prices have tanked over the last year because of the chip surplus, and the outlook ahead for the semiconductor industry isn’t great, said Willy Shih, professor of management practice at Harvard Business School. 

“We’re seeing inventory corrections in areas that have experienced excesses,” he said.

That shouldn’t remove the urgency of trying to remake the global chip supply chain though, Shih added.

“The risk is that people focus on the short term and don’t look at the long-term problem,” he said.

For American policymakers, that long-term problem boils down to promoting U.S. chip manufacturing while protecting national security, according to Jacob Feldgoise of Georgetown University’s Center for Security and Emerging Technology.

The CHIPS and Science Act, which became law this summer, helps subsidize chipmakers in the United States with tens of billions of dollars to make them more competitive with China.

“That money has already been dispersed by Congress, and the Commerce Department still actually needs to unveil their application process for that money,” Feldgoise said.

Ongoing tensions between China and major chip producer Taiwan have heightened national security concerns and have motivated U.S. political leaders to place even more focus on chip policy, according to Chris Miller, author of the recent book “Chip War: The Fight for the World’s Most Critical Technology.”

The U.S., the Netherlands and Japan reportedly just reached a deal that would restrict exports of advanced chipmaking machinery to China — part of a broader push.

“This is very much a strategy of cutting China out of the key tech supply chains that make advance computing possible,” Miller said.

Miller added that he doesn’t expect U.S. policymakers to reverse course any time soon.

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