The Microchip Shortage and What it Means for American Tech Industries

Nanditha Ram ‘25

Microchips affect every part of a modern person’s schedule. Without them, the world would be far less advanced, with most of our modern technology being unfeasible. However, in the past year, the industry has all but collapsed, and politicians and manufacturers alike scramble to fix the problem. Here’s what you should know about the global microchip shortage:


First, what is a microchip?


A microchip, also called a semiconductor, contains all the processing and memory power of a piece of technology. Most devices contain many microchips for specific functions. For example, a car contains upwards of 100 microchips, each serving specific aspects of the car [1]. 


Each chip is made up of an integrated circuit on top of a silicon piece. Inside the circuit, billions of microscopic devices, called transistors, serve as “gates”, allowing electrical current to travel throughout the circuit. This process determines where specific information is stored/formed on the circuit. Essentially, transistors control the flow of information, giving a microchip its function. 


Before microchip development, electronic devices used large, expensive technology to accomplish the same tasks. Computers, for example, were impossible to own for an average person due to their size and cost. The invention of the microchip in the fifties completely revolutionized device technology, as the processing power of giant computers could fit into inch thick technology, which was significantly cheaper to produce. Smart devices could now be part of the average household. 


Technology continues to advance each year; In 1965, scientist Gordon Moore discovered that the number of transistors on a microchip doubles about every two years, while the cost of computers halves – an observation that still drives the tech industry today [4]. Essentially, the advancement of the device industry in efficiency and cost is mostly a result of microchip advancements. The market is so expansive that economists are referring to chips as the “new oil industry”[3].


So, why is there a shortage?


The rise of COVID-19 is the main reason for the shortage, as for a lot of industries right now. 92% of microchip factories are located in Taiwan, and when COVID-19 first hit, this area was hit the hardest [4]. To limit the pandemic’s spread, much of the staff were forced to stay home—therefore, the production of microchips greatly slowed. 


Also, in an attempt to curb COVID-19’s spread, most international ports, such as the Yantian Port, which transports 90% of the world’s electronics, were shut down [1]. Therefore, the limited supply of chips that could be produced took months to move overseas. 


At the same time, people in other countries were also forced to stay home, which created a greater demand for smart devices. During the pandemic,  everything needed to happen virtually: school, work, entertainment, exercise; in America alone, the average amount of devices per household more than doubled [3]. Therefore, smart device companies began taking a substantial amount of orders, despite microchip production being stalled, creating an overwhelming chip demand that couldn’t be filled by manufacturing companies. Furthermore, when ports reopened, they were unable to keep up with this backlog, therefore greatly slowing transportation. 


The supply chain issue mentioned above cannot be easily solved. Even as COVID continues to slow, the demand for microchips continues to increase, and is still far higher than the supply. After orders are placed, the manufacturing and shipping process takes months. Consequently, even as companies place large orders, they are unable to make enough products in time to reverse effects. 


How is America affected? 


The chip shortage will affect most device industries in the USA, and major chip/tech companies estimate that it will last until at least 2022 [4`]. Consumers are already seeing the effects in, most notably, the car, smartphone, and console industries. The car industry is most impacted. 


During the pandemic, car sales dipped significantly, so producers ordered less chips in preparation. In fact, the Taiwan Semiconductor Manufacturing Company, the largest chip maker in the world, produced only 3% of their chips for the car industry in the last year, with most going to household device companies [4]. Now, as consumer demand for cars increases, supply is again too limited. 


Many companies in these industries have already stated plans to slow production. For example, Nissan and Toyata are each planning to make 500,000 less vehicles this year due to the shortage, and Apple is planning to make 10 million less iPhone 13 units. All companies warn of a much smaller variety of technology in the coming months than Americans are used to, at a higher cost. 


How do political tensions factor in? 


As stated, most microchips right now are made in Taiwan. Current conflicts between this territory and mainland China could cause great disruptions in the microchip industry if conflicts progress. 


This possibility, along with growing concerns about American dependency on foreign manufacturers, have caused American politicians to push for the development of a domestic chip industry. If microchips stopped being exported to the US, it would damage more than 120 industries, including key industries, such as  By keeping chip production domestic, if shortages happen in the future, they will not affect American industries as much. To start this process, the Biden administration is pushing for a $50 billion investment into the chip industry[3].American chip companies, like Intel, are also planning increased production, and international companies look to set up outpost factories in America.


But the creation of these new factories will take years and trillions of dollars, and the effects will take even longer to show. As of now, Americans should expect more expensive, less readily available technology than usual this Christmas season.