Analyzing the Impact: The Global Semiconductor Shortage and the Shrinking U.S. Chip Manufacturing Capacity

Semiconductor industry

The global semiconductor shortage has revealed significant challenges in the manufacturing capacity of computer chips within the United States. President Joe Biden’s executive order to review critical product supply chains has shed light on the alarming statistic. Only 12% of global semiconductor fabrication occurs domestically, compared to 37% in 1990, as reported by the Semiconductor Data Industry Association (SIA). This heavy reliance on foreign fabrication raises concerns related to lower capability. High global demand, and limited investment, pose a threat to the manufacturing industry in the United States.

Declining Manufacturing Capacity: The Impact of Reliance on Foreign Fabrication

One of the key issues contributing to the decline in U.S. chip manufacturing capability is the increasing dependence on international partners for chip fabrication. Despite U.S. companies holding 47% of the global chip sales market. A mere 12% of these chips are manufactured within the country. The importance of chip design innovation cannot be understated as the demand for faster and more advanced electronics continues to grow.

To stay at the forefront of technological advancements, access to the most advanced fabrication technologies is crucial. Currently, Taiwan and Samsung in South Korea are developing 3-nanometer fabs, while the U.S. lacks a 7-nanometer fab. Intel’s 7-nanometer fab is expected to commence production only in late 2022 or early 2023, leaving the U.S. without the means to produce the most advanced chips.

Meeting High Global Demand: Navigating the Effects of the Semiconductor Shortage

The high global demand for electronics, particularly exacerbated by the COVID-19 pandemic, has placed tremendous pressure on chip fabs to ramp up production. During the pandemic, the automotive industry reduced semiconductor chip orders, anticipating a decrease in demand. However, as production resumes, the industry now faces a shortage of chips necessary for various vehicle systems, such as safety, control, emissions, and driver information systems.

This shortage has led to calls for wafer and semiconductor companies to expand production or temporarily reallocate existing production to cater to the demand for auto-grade wafers. However, such reallocations would inevitably result in shortages elsewhere within the supply chain. Moreover, the manufacturing process itself is time-consuming, with long lead times and estimated production durations of up to three months, further exacerbating the challenges faced by the semiconductor industry.

Limited Federal Investment: Addressing the Funding Gap in U.S. Semiconductor Manufacturing

Limited federal investment is another critical factor contributing to the decline of the U.S. semiconductor manufacturing sector. Countries like Taiwan, South Korea, Singapore, and China have made significant investments in their semiconductor industries, encompassing not only the development of state-of-the-art facilities but also substantial funding for research and development (R&D) and tool development to support the next generation of fabs.

In stark contrast, the U.S. has lagged in providing comparable incentives and investments. Taiwanese semiconductor giant TSMC, for example, has plans to invest billions of dollars in fabs, including a $12 billion investment in a fab in Arizona. However, the anticipated monthly production capacity of the Arizona fab is around 20,000 wafers, significantly lower than the millions of wafers produced in TSMC’s existing facilities in Taiwan and China.

President Biden’s Executive Order: A Promising Step Towards Industry Revitalization

President Biden’s executive order to review supply chains is a crucial step toward identifying the necessary investments and actions required to strengthen the U.S. semiconductor industry and overcome the challenges it currently faces. By conducting a comprehensive analysis of supply chain vulnerabilities, the government can gain valuable insights into the areas that require immediate attention and support.

This includes identifying opportunities for increased federal investment in semiconductor manufacturing yield, incentivizing research, and development initiatives, and fostering collaboration between industry stakeholders and academic institutions to drive innovation and technological advancements.


In conclusion, Addressing the issues of lower capability, high global demand, and limited investment is essential for the country to maintain its position as a leader in the electronics industry. Through coordinated efforts and effective policies, the U.S. can bolster its semiconductor manufacturing capacity, foster domestic innovation, and ensure a robust and resilient supply chain for critical products


  1. “Semiconductor Industry Association: 2021 State of the Semiconductor Industry Report.” Semiconductor Industry Association. 2021.
  2. “2020 Annual Report.” Semiconductor Industry Association. 2020.
  3. Lohr, S. “Semiconductor Shortage: What to Know.” The New York Times. May 3, 2021.
  4. Henning, D. “Semiconductor shortage puts the brakes on auto sales.” The Washington Post. June 3, 2021.
  5. Harding, R. “Biden signs executive order to address chip shortage through supply chain review.” Reuters. February 24, 2021.
  6. “2021 Key Business Issues.” Semiconductor Industry Association.

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button