The electronics aisles at Walmart, Costco, Target, BestBuy and the car dealerships of Ford, General Motors and Chrysler around the country will soon all be empty — not because a fourth wave of the COVID-19 virus will wreak havoc (hopefully not), but because the U.S. ran out of semiconductor chips. That has been the dire situation of the automobile and electronics industries, which have been scrambling for semiconductor chips that power their products since mid-January of this year.
Since the start of 2021, the American automobile industry, in particular, has had to stop production at several plants owing to an acute shortage of chips. This shortage was a product of fires in factories in Japan and COVID-19, which confined much of the world’s populations to their homes, leading to an increase in demand for computers, mobile phones and routers. This unprecedented demand, followed by delays in production led to an acute shortage of chips and supply has been taking its own sweet time to catch up with demand.
This apocalyptic situation, coupled with the ongoing strategic competition between the United States and China, has transformed the Arizona desert into a fertile land for manufacturing. Intel CEO Pat Gelsinger noted Asia supplies 80 percent of the world’s semiconductor chips. This gives economies in the region leverage over the United States and also presents significant risks to the U.S. supply chain.
To reduce America’s dependence and overreliance on East Asia for chips, the Biden administration has been proactive with legislations such as the Endless Frontier Act, which includes a $110 billion in federal funding for research and development in semiconductor related fields. With the results of the supply chain review, the Biden-Harris administration has also supported nearly $75 billion in direct investments from the private sector in domestic semiconductor manufacturing and research and development (R&D). Furthermore, the review recommended $50 billion in investments to advance domestic manufacturing of critical semiconductors and promote semiconductor R&D. And Arizona is the most to gain from these developments.
Arizona has been a top choice of automobile and chip manufactures owing to its availability of talent, a business friendly environment, low energy costs and the overall infrastructure that has created a business ecosystem for high tech manufacturing. Starting with Apple’s data center in 2015, several technology companies have chosen locations outside of California in favor of Arizona. As of 2021, the state houses the Tesla rival, Lucid motors, TSMC, one of the world’s largest chip makers from Taiwan, Intel, Caterpillar, Blue Yonder and Zoom to name a few.
Arizona’s proximity to California and to Mexico makes it an ideal destination for automobile manufacturers who’d like to source and move goods between the states. Supply chain experts like Bindiya Vakil, CEO and founder of Resilinc, have been advocating for nearshoring. As the CEO puts it in her interview on Bloomberg’s Balance of Power program “one cannot have chips manufactured in America and the rest of the supply chain in Asia”.
Given the geopolitical tensions between Taiwan and China, and the looming possibility of China’s invasion of Taiwan, nearshoring might be an attractive option for chip manufacturers and the Arizona desert, where General Motors tested parts for tanks during World War II, might just be the place where America revives its manufacturing.
As Doug Ducey, the governor of Arizona put it, “Arizona has been known for 5c’s – copper, cattle, cotton, climate and citrus — and now chips, cars and construction will be added to that list”.
President Biden and his predecessor have invoked adages that talk of the good old times such as “building back better” and “making America great again.” Reviving chip manufacturing might be a step in those directions. In the 90’s America was a leader in chip manufacturing with over 37 percent of chips manufactured in the world being manufactured in the U.S. However, fast forward to 2020, less than 13 percent were manufactured in the states.
In a decade’s time, as America builds back better through states like Arizona, it could finally become great again.
Akhil Ramesh is a non-resident Vasey fellow at the Pacific Forum. He has worked with risk consulting firms, think tanks and in the blockchain industry in the United States, India and in the Philippines. His analysis has been published in The South China Morning Post, The Diplomat, Asia Times and the Jerusalem Post. Follow him on Twitter: @akhil_oldsou