According to an article in Foreign Affairs, the shortage of electronic chips started before the current pandemic due to a change in US foreign policy.
The global markets are experiencing a shortage of chips or components for all sorts of electronics, resulting in longer delivery times for products. Ukrainenu has previously spoken to Jesper Holst, CEO of the Danish electronics company EKTOS, about the shortage in the world market and how companies are fighting to adapt to the new reality.
Many blame the current pandemic for the longer delivery. In an article at Foreign Affairs magazine, Chad P. Bown, Reginald Jones Senior Fellow at the Peterson Institute for International Economics, argues that it started before. He says that the current problem, which is hitting all kinds of manufacturing sectors, is mainly because of U.S. trade policy.
“One of the biggest culprits was a sudden shift in U.S. trade policy. In 2018, motivated by national security concerns, the Trump administration launched a trade and tech war with China that jolted the entire globalized semiconductor supply chain. The fiasco contributed to the current shortages, hurting American businesses and workers,” writes Bown.
He argues that the problems started with Huawei. The former U.S. President Trump wanted to block Huawei, which is a big producer of electronic components, out of fear of the Chinese company’s influence globally. When the U.S. went after Huawei, it also disrupted the international supply chains for chips, hitting investments in the sector and hurting other companies than simply Huawei – also the company’s supplying to Huawei.
The pandemic made everything worse
Therefore, the shortage of electronic chips started way before the pandemic and only got worse when the pandemic finally hit the global markets. With the pandemic, the demand for electronic equipment also only grew as people spend more time at home.
“By cutting off Huawei’s access to semiconductors, the full suite of U.S. export controls imposed in 2019 and 2020 may ultimately hurt the company’s 5G equipment sales enough to protect U.S. national security, although it is too early to say for sure. Nevertheless, the extreme collateral damage from the episode demands that policymakers find a new way to ensure the resilience of the semiconductor supply chain,” argues Bown.
“U.S. trade policy also squeezed supply. In July 2018, the Trump administration imposed 25 percent tariffs on imported chips as part of its trade war. Despite growth in the global semiconductor market, the tariffs meant that the United States was buying half as many chips from China in 2020 as it was before the trade war, and imports from elsewhere did not replace those missing semiconductors. Making matters worse, Chinese buyers, fearful of the ever-tightening U.S. export controls, hoarded chips…”
Biden is trying to fix it
Bown argues that the Biden administration has reached agreements with Japan, South Korea, and the EU to fix the problem of supply in the future. However, the details of the deals are still being worked out, and a solution is, therefore, still far away.
“By the time U.S. President Joe Biden took office, the COVID-19 pandemic had laid bare the extent of the semiconductor crisis. Carmakers overreacted to the initial shock of COVID-19 and, in early 2020, slashed orders for chips. By the time the auto companies realized their mistake, chipmakers were already at capacity supplying the suddenly booming market for work-from-home goods. The perfect storm only got worse: Arctic weather in Texas, a drought in Taiwan, and an earthquake and fire in Japan all worked to slow production,” argues Bown, who writes that much needs to be done.
“With their overarching goal now set, Washington and its partners must turn to the hard work of hammering out the details. Only then will they be able to protect their national security and stave off another economic crisis,” he argues.