Why are There Weak Links in the Chip Supply Chain and Who is Impacted?

The world’s manufacturing supply chains are showing signs of strain and semiconductors or “chips” are among the hardest hit. The combination of the pandemic policy decisions and the growing demand for electric vehicles created a perfect storm for the industry.

“This is an industry issue, of course. We’re working every single day with a cross-functional team to look for opportunities of how do we minimize the impact”, said GM’s Chairman and CEO Mary Barra. In January, Honda said it will cut domestic output at one of its Japanese factories, while Nissan is adjusting production of its note hatchback model. GM announced this week that it’s extending temporary shutdowns at three of its North American plants because of the ongoing semiconductor shortage.

It’s not just car makers. A shortage of chips affects everything from 5G phones to medical devices. Huawei Chief Security Officer, Andy Purdy, had this to say, “A combination of a coronavirus and the impact on not to be too technical. The entity left with the ability of American companies to sell the loss and others. It’s really had a very negative effect on us.”

The shortage has gotten so bad that President Biden stepped in this week with an executive order directing a government wide supply chain review for critical goods. “We need to make sure these supply chains are secure and reliable. I’m directing senior officials of my administration to work with industrial leaders to identify solutions to this semiconductor shortfall”, said President Biden. The problem has been brewing since 2019. And President Donald Trump’s trade war with China also played a part in the supply crunch. Roughly 10% of the world’s chip production comes from SMIC, a semiconductor company that’s partially owned by the Chinese government. In 2020, the US restricted American companies from selling to SMIC.

The US continues to look for long term solutions to this supply chain crunch, but for now the country is working to quickly improve domestic production rates.

*Bloomberg contributed to this content

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