By on November 10, 2021

There’s an initiative to convince Congress to pass legislation that would pour billions of dollars onto chip manufacturers at play that’s being led by Michigan Governor Gretchen Whitmer. A letter, signed by nine other governors, was issued asking like-minded lawmakers to send $52 billion in economic aid so that the chip shortage so that the supply issues that have been plaguing various industries (including the automotive sector) can finally be resolved.

Backed by the U.S. Semiconductor Industry Association (SIA), the “CHIPS for America Act” is just one of several programs designed to use the National Defense Authorization Act to create federal funding for chip suppliers. The governors (all of which are from states manufacturing automobiles) say they want a cash injection by the end of 2021 so that domestic chip manufacturing can build new factories right away. But SIA lobbyists are pressing for numerous plans that would result in extensive tax breaks and annual investments from the government that is all focused around the proposed CHIPS legislation and piggybacks on the recently passed U.S. Innovation and Competition Act (USICA).

Alright, let’s break this down. 

On Wednesday, a letter was sent to House Majority Leader Nancy Pelosi, Minority Leader Kevin McCarthy, and their Senate counterparts — Chuck Schumer and Mitch McConnell — requesting that Capitol Hill swiftly push through the CHIPS Act. The presiding logic is that domestic manufacturers (particularly automakers) have been struggling due to semiconductor shortages and are now endangering the employment status of hundreds of thousands of Americans.

“There is no question that our nation’s automotive manufacturing industry — more than any other sector — has been hit hardest by the global semiconductor shortage,” Whitmer wrote in the letter. “Production at auto plants across the country has been idled, impacting more than 575,000 auto-related American jobs.”

Whitmer was joined by Governor Gavin Newsom of California, Laura Kelly from Kansas, Andy Beshear of Kentucky, J.B. Pritzker of Illinois, Pennsylvania’s Tom Wolf, Roy Cooper of North Carolina, Tony Evers of Wisconsin, and Kay Ivey of Alabama — the latter being the only Republican.

Giving the semiconductor industry has been popular with the Biden administration and the Senate has already voted in the affirmative to provide businesses with government money. But Reuters has reported that there’s been pushback in the House due to the open-ended nature of the proposed legislation.

From Reuters:

The semiconductor funding passed the U.S. Senate earlier this year by 68-32 as part of the broader U.S. Innovation and Competition Act, or USICA. But it has not passed the House of Representatives.

Elements of the broader bill have drawn opposition from some House members who worry that it does not have safeguards to prevent research funds from benefiting China, the United States’ primary global competitor.

“We understand that the House of Representatives has its own priorities with respect to the policies and programs included in USICA, we hope the two chambers will now come together quickly to find common ground with respect to this legislation, including full funding for the CHIPS Act re-shoring provisions, as soon as possible,” reads the governors’ letter.

Your author would like to echo those concerns while adding a few of his own. Rather than focusing exclusively on bolstering chip output, much of the proposed funding is reserved for research and development. Tax breaks likewise seem more focused on helping an industry that has one of the most in-demand goods imaginable right now, instead of building up new players that could help maximize domestic production.

But perhaps the dumbest aspect imaginable is how little goes toward the chips automakers actually use. Of the proposed $52 billion, only $2 billion will be used to prioritize the older chips that go into cars. This has actually been a massive contributor to the semiconductor shortage since we became aware of it. When COVID restrictions began, people weren’t buying cars. They were buying laptops, tablets, and other small devices relying on the latest technologies because there was nowhere to go. Confronting problems of their own, suppliers shifted production accordingly and realized newer chips would net them more money in the long term. This left the automotive sector (which has continued to outsource the production of necessary hardware) in a sticky spot.

While the industry has figured out how to remain more-or-less profitable by launching rolling production stoppages, the industry at large is estimated to have lost $200 billion this year due to massive massive production shortfalls. The latest math has 2021 yielding roughly 4 million fewer cars than planned. But it’s not entirely the fault of absent semiconductors. Electronic components (resistors, capacitors, connectors, etc.) have become difficult to source in general and their predominantly Asian suppliers have opted to prioritize the home markets first. This has increased prices and lowered availability across the planet, however, it’s hitting Western nations particularly hard.

It’s not just electronics either. Raw materials are also going up in price as global supply chains continue to struggle. One of the more recent examples of this is the magnesium shortages taking place in Asia. Quadrants of the automotive industry have begun ringing alarm bells that economic troubles have resulted in factory closures that are about to create extra demand for the element. China, which is responsible for 85 percent of global magnesium supply, is assumed to have cut its total output by half. While some automotive manufacturers have stated they are not concerned due to the limited amount of magnesium they use, others have said they’re worried they’re just a few weeks out from another crisis. Europe’s automobile manufacturer association, the ACEA, has also stated that its also expecting problems between now and the start of 2022.

One wonders how the CHIPS Act is supposed to do anything other than keep the United States as the preeminent chip designer and why that’s supposed to be important when it’s supplying the older chips that will ultimately help boost automotive production. The U.S. still has the market cornered when it comes to cutting-edge tech but it has ceded a significant amount of capacity to China by going from building 37 percent of the world’s semiconductors (in 1990) to just 12 percent (in 2020). That lacking capacity seems to be what’s hurting the broader industry most and it’s not evident that the CHIPS Act addresses this in a serious manner. Extend that premise to as many other legislative actions that similarly seem to prioritize the wishes of lobbyists — at the expense of creating helpful, financially prudent, and manageable solutions for the American people — as you want.

[Image: sitthiphong/Shutterstock]

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50 Comments on “Opinion: Governors Begging Congress for Semiconductor Cash Won’t Fix Anything...”

  • avatar

    R&D investment is an investment in the future. Kinda like going to college or getting a trade.

    • 0 avatar

      Handing $50billion out to lobbyists, is not an “investment” in anything but more lobbying.

      When you have a limited set of resources, you only have so much to allocate to each use. Arbitrarily branding one use “R&D”, or “Investment” doesn’t make either one somehow “better” than other uses.

      It could well be that simply hiring more salesmen (out of all things….) to listen to customers who wanted resources spent on more, and cheaper, old chips, and less on pie-in-the-sky “R&D” into newfangled ones designed to impress welfare queens on “Wall Street,” would be better use of limited capital.

      The only way to know, is to let a completely unconstrained market (as in including no central bank bailing out losers..) play out. People betting their own money, and living, or dying, based on the outcome of their own bet. Last thing anyone benefits from, is a bunch of five year planners on lobbyists’ payroll directing resource allocation.

    • 0 avatar

      Lou, I like how you phrased this – it is indeed an investment. So the question becomes where should we invest to get the highest ROI.

      Try finding someone in the trades in Dallas. Or any big city really.

      The supply/demand for solid tradespeople is completely out of whack in the US. Great opportunity for enterprising, smart young people to make a career for themselves. But many of those kids can’t afford to go to trade school.

      Another opportunity for the feds to step in and help people help themselves. Pity they just crapped the bed on the Build Better plan where they axed funding for community college. And the idea of subsidizing funding for trade school wasn’t even suggested.

      It’s almost as though the money’s not for the dirty people who work for a living.

  • avatar

    Got put all those invasive migrants to use somehow.

    • 0 avatar

      As if “invasive migrants” are going to be able to work in high tec. The USA does not produce enough STEM grads. H1B visa types are about the only thing keeping the US tech industry going.

      Sounds like you’ve been watching too much Tucker Carlson. Replacement theory and all that sort of nonsense.

      • 0 avatar

        “H1B visa types are about the only thing keeping the US tech industry going.”

        Nope, wage suppression.

      • 0 avatar

        “As if “invasive migrants” are going to be able to work in high tec.”

        They would be. For a lot less “training” than average cost of a current four year college degree. The guys dragging themselves halfway across Latin America on nothihng but a hope and a prayer and their own ingenuity, are the top very few percent among their peers for determination, drivenness and (non-financial) resourcefulness. While college grads in the US, are, on average, at best average, now that everyone goes to college (this ain’t the age of Einstein and two others going to college no more…) Top few percent vs average, ain’t kind to the latter…

        STEM grads are a bit of an elite. But highly unlikely any more so than the guys digging under border fences while under fire….

        The real problem, is that “high tech” (aside from perhaps the very, very bleeding, still mostly academic, edge; like MRNA vaccines…) is a competitive field by now. Every country has colleges churning out STEM grads. Hence, costs matter. And in America, every STEM grad doing something useful, has to carry on his shoulders, a pile of ambulance chasers, lobbyists, “investors”, FIRE racketeers, mooches living off of unearned rent etc., etc.

        IOW, every leech under the sun producing nothing, has to “make money” off of STEM grads’ doing useful work here. Resulting in it simply being too expensive to set up shop here to do anything useful, no matter how many STEM trained border jumpers we may have access to. So, the Chinese do it instead. They are, after all, only a Communist hellhole. Which, while hardly all that, is still a huge improvement on a financialized dystopia like the one we live in. Hence, while their five year planers plan to build stuff, “we” sit on our rears cheering for the Fed and government to rob someone else, in order to pretend the mold in our house walls, and mandating someone else do something, somehow adds value.

      • 0 avatar

        And, boom, the Canuck squarely plants his mukluk on a rake again:

        Tucker? Try laying off the Terrance and Philip.

      • 0 avatar
        Ol Shel

        Native Americans may agree with your bashing of invasive migrants. You’ve sure made a mess of this once-fine land.

        We’ve had Reaganomics and trickle-down in this country for over 40 years now. Only in the past 5 years have Republicans even pretended to oppose job exportation and immigrant labor. Our government was designed by the economic elite to reward those with the deepest pockets. It is working splendidly. For them.

  • avatar

    That wrench is way the wrong size.

  • avatar

    How did NAFTA contribute to semiconductor manufacturing being sent to China? Are the Mexicans or the Canadians doing the manufacturing now?

  • avatar
    el scotto

    The car manufacturers have pooped in their own dining containers. Or they’re just stupid. Or both. I know how I’d bet. The auto companies bet the economy would be worse for a lot longer than it was and cancelled huge chip orders. Chip manufacturers being staunch free-market capitalists said, “No problem, we’ll just make chips for other stuff. More profitable chips too.”

    We are all being forced to pay MSRP or higher for new vehicles because the car makers made incredibly stupid decisions. Microchips and microprocessors are incredibly complex and capital intensive things to make. Consider the irony of car makers not acknowledging that.

    Microchips and microprocessors are not like most car parts that have been around for the last 100 years. Need 100,000 yards of GM mouse fur headliner? Why contact the factory in East Frog Hair IN and get the line running again!

    This leads to a possible QOTD. Which carmaker has cheaped out their vehicles the most? Carmakers are notoriously cheap; often demanding lower prices from their suppliers as a way of doing business. Oh, they want the same quality but just for 10% less. Big Ed and Eddy Jr, can figure out a way to cut their cost at the mouse fur headliner factory in East Frog Hair In. The employees won’t like it a bit but Big Ed and Eddy will still be able to every month spend the amount their country club requires.

    So Big Car Maker Purchasing VP flew to Taiwan to “negotiate” chip prices. OH the Purchasing VP has the requisite MBA and is PMP or ISO 9000 certified or whatever the new hot thing is. He looks at the engineers and demands a 10% price cut across the board or no business. The microchip company tries to explain the engineering, thousands of hours of research and the difficulty of actually making a microchip. Purchasing VP expounds on how he represents one of the largest car makers in the world and tells them, 10% off or we’ll go somewhere else.

    The chipmaker smiles and says some comforting things like we had a great business relationship, blah, blah blah. Inwardly they’re thinking 10% off? F-them we can make chips that cost twice as much and every one of them will be sold.

    In the end corporate hubris and arrogance. We’ve beat up our suppliers in the past, we can do it again and get promoted!!! Completely underestimating the future demand for chips left them as forlorn as a hooker after the fleet has pulled out. Ignorance of a product that goes in their own vehicles is laughable at best and pitiable at worst. Microchips are not like mouse fur headliners. No one else wants 100,000 yards of mouse fur headliner material. Microchips have other and usually more profitable users.

    Now think back about the auto bailout. Suppliers usually sell their wares to ALL of the carmakers. A third of their customers disappear; suppliers can’t afford to stay in business to support the other two thirds.

    A bunch of MBA-carrying purchasing managers pushed back and/or cancel orders with chip makers. The chip makers said fine; we’ll make more profitable chips for your tablet. This is an artificial shortage created by the stupid and the greedy.

    BTW, any news about the purchasing agents who canceled or downsized their chip orders? Proably nothing.

  • avatar

    “A letter, signed by nine other governors, was issued asking like-minded lawmakers to send $52 billion in economic aid so that the chip shortage so that the supply issues that have been plaguing various industries (including the automotive sector) can finally be resolved.”

    Give us money! Because… reasons…

    The other governors who signed were the states of Alabama, Illinois, Wisconsin, North Carolina, Kentucky, Pennsylvania, Kansas and California.

    Funny thing here, six of the nine states have their pensions funded 70% or less with three of those six under 56%. How much of this is yet another backdoor fiscal state bailout, Gov Whitmer?

    IL: 39%
    KY: 46%
    PA: 56%
    MI: 61%
    AL: 69%
    KS: 70%
    CA: 72%
    NC: 87%
    WI: 96%

    Go Wisconsin, I am impressed with your fiscal jurisprudence in this area.

    • 0 avatar
      SCE to AUX

      PA – winning in its own mind.

    • 0 avatar

      Someone hasn’t been listening to the fraud being committed at the nation’s largest public employee union pension, CalPERS.

      You’d be better served believing in the tooth fairy than anything coming from the criminals at CalPERS.

      The Sacramento Bee, local news stations and Naked Capitalism have been covering this problem for years.

      That 72% funded is a ‘weapons of mass destruction’ level myth.

      • 0 avatar

        CalPERS fraud aside -which I don’t doubt could be true- the PRK has enough financial strength to meet its pension obligations. Taxes, bonds, public asset sales, hell at some point they may mint their own currency. Most if not all of those other states will never be in such a position and they will simply fail short of more free JPow funny money.

    • 0 avatar
      Rick T.

      Doesn’t really matter in Illinois as the payments on those pensions are constitutionally required:

      Membership in any pension or retirement system of the
      State, any unit of local government or school district, or
      any agency or instrumentality thereof, shall be an
      enforceable contractual relationship, the benefits of which
      shall not be diminished or impaired.
      (Source: Illinois Constitution.)”

      Reminds me again how I am glad I fled from there 10 years ago.

  • avatar

    My employer (semiconductor company) has already said they don’t want any of the money, because it’s short-term focused, not long-term. And we’re doing fine without a handout, thank you very much.

  • avatar

    Why not ask for trillion? They should take the inflation into account. Global cabal handled pandemic brilliantly. All these problems are well thought part of plan to switch to Green Economy. Next thing to disappear are meat and milk which will be replaced by soy milk, soy meat and soylent as a final solution for overpopulation.

  • avatar

    If Whitmer is for it, it’s immediately suspect.

  • avatar
    Jeff S

    @el scotto–You gave the best explanation of anyone as to why there is a chip shortage. We are not getting the full story and the truth about the chip shortage.

  • avatar

    I know there wasn’t a crystal ball back in 2017 that could have predicted this, but good one GM:

    On my way to and from South Bend, I passed through Kokomo. I went off of the main path to see this for myself. Trucks as far as the eye can see.

    @Jeff S: Absolutely agree. I’m not big on conspiracy theories, but there’s a whole lot more about this chip shortage than anyone is telling us. It has been, what, 20 or so months since the first worldwide shutdowns began? Any probably 17-18 months since things started opening back up in both the US and China (EU a little later). I think this all boils down to short-sighted 100% greed. Chip makers intentionally produce fewer chips to make theirs more valuable. Electronics makers and auto companies make fewer but higher profit vehicles under the guise of “we don’t have any more chips.” But the manufacturers can still record profits because they make the same or more with less. But in the end, if no one can afford to replace their broken or worn out product with a new one because the price is too high, that will eventually spell a disaster for the economy. And in the meantime, the tens of thousands of trucks at the Kentucky Speedway and the thousands at the closed plant in Kokomo, and around the same number just a short walk from where I’m sitting now shows that there is still a lot of work to be done.

    I hope this turns out like the manufactured oil “shortage” and outrage around 2007-08 when gas prices hit close to $5/gal in my neck of the woods and the media was screeching about how there’s less oil and how we use oil in everything like plastics, medicine coatings, fertilizers, fuels and so on. It was supposed to wipe us all out and lead to total collapse. We did have a hit that year, but it wasn’t totally due to oil running low. We recovered and got through their manufactured shortages for greed. And I think we’ll eventually do the same here.

    • 0 avatar
      el scotto

      @theflyersfan Thanks for the links. I remember going through Kokomo as a kid and seeing all the Delco plants. Kokomo, Anderson, and I knew it was over when GM moved Truck and Bus out of Indy.

      • 0 avatar
        Rick T.

        I spent my formative years in Kokomo. There were many two Delco or Chrysler families and those jobs provided a VERY good living for those families.

        • 0 avatar
          el scotto

          @RickT Sir, native Hoosier here. The UAW allowed a lot of families to live a solid middle-class life style. In Indy upper car company managers were treated like minor aristocracy. UAW wages also allowed a lot of Midwestern kids to go to college.

  • avatar
    schmitt trigger

    El Scotto:
    Having myself worked for 44 years in the electronics industry, and 13 of those for automotive components, I say your analysis is right on the bullseye.

    The most ironic part about the Kokomo story is that Delco at one point of time was the World’s largest automotive electronics company.
    Not only they did assemble the electronic modules, they also manufactured their own semiconductors. In certain segments like power transistors they were actually World leaders.
    But… Mismanaged and screwed over the way only GM knows how to screw a business.

    • 0 avatar
      el scotto

      @schmitt trigger Sir, thank you for your informative reply. Dad was an aeronautical engineer and a hard-core Pontiac man. He’d have fits if an AC/Delco part wasn’t replaced with an AC/Delco part. No NAPA stuff for him!

  • avatar

    Two things I have read about the chip shortage as it affects auto manufacturers:

    Demand from the auto companies is for older, if not already obsolescent, chip designs. Chip factories are expensive and time consuming to build. Chip manufacturers aren’t going to invest their money in new factories to build chips with a limited future when then can put it into factories to build the latest and greatest chips with the longest future.

    Tesla has weathered the shortage better than most by grabbing anything with adequate processing power. They then adapt the low level software, that communicates directly with the chip, to force compatibility with the rest of Tesla’s software.

  • avatar

    Canceled orders explains some of this but not all. It’s been well over a year since the automakers put on the brakes. In that time one of the automakers would have had the bright idea to pay more and steal market share, but that hasn’t really happened yet. Think about it say you offer 35% over market price for your semi conductors. Several studies say the average car has 300-600 worth of semiconductors in them (over 1k for EVs) so even in a worst case if we add $350 to the cost to build the car but we now cancel all rebates incentives etc (because we have cars to sell) we would pull market share with limited profit impact.

    On another note. Supply chains are crazy and the few semiconductors we use at work have been a real pain to come by, at any price. Normally we could buy them at any one of 100’s of electronic supply houses around the country now we have to do global searches to find what we need without 6-9 month lead times.

  • avatar

    If you believe this action by the government will do anything to actually improve this issue, you must also believe that Oswald was the lone gunman in the Kennedy assassination. I’m cranky today and this kind of stuff pushes me over the edge.

    • 0 avatar

      After Kennedy’s assassination, several riflemen duplicated the shots that Oswald is accused of making. That means it was possible. The question that remains is whether Oswald was that good a shot.

      • 0 avatar

        Instead of taking the shots at the point where he had the greatest chance of accomplishing the feat – when the limo was approaching his position straight on – why did he wait to take the shots when there were fleeting obstructions – trees – interfering with his line of sight? It’s off topic and I don’t ask for a reply – Jeff makes the bigger point I was trying to express. To blindly trust the government is utter folly.

  • avatar
    Jeff S

    After visiting the book depository in Dallas Oswald could have been the lone assassin since he was a trained sniper and won awards for his marksmanship but that is besides the point and I agree that the Government cannot improve the chip shortage. As for the oil shortage there are no shortages of oil itself but there is a lack of capacity to refine all the oil available. The same thing is true of the lumber industry in that trees to produce lumber and paper from are not scarce but when 4 major players in the lumber industry that mill the lumber have limited capacity and have an incentive to limit the supply of processed lumber with higher prices. Restrict supply and the price goes up. There is a lot more to these shortages than we are told and the question is how much of the shortages are due to actual shortages and how much are actually due to limiting the supply to create shortages.

    • 0 avatar

      @Jeff S – lumber prices went up because companies could not keep up with demand. People weren’t able to collectively spend billions on vacations/travel so they put money into renovations. Add to that some big natural disasters.
      There are various reasons why lumber producers could not keep up with demand. Antiquated/outdated mills can’t increase all that much. In BC our mills can easily crank out more lumber. That’s typically what happened in the past. We cranked up production and prices stabilized. This time around, we are running out of easily accessible timber. We’ve cut too much and haven’t kept up with reforestation. Wild fires and tinder dry forests kept loggers out of the forest.

  • avatar
    Jeff S

    I thought there was an abundance of Canadian lumber from some of the videos I saw that showed lumber coming from Canada piling up in the US as prices continued to rise. Yes I realize that demand for lumber shot up and that lumber mills were operating at their peak but I also wonder how much incentive the mills have to increase supply if the prices are high. They can make more money by selling less lumber at a higher price.

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