What caused the global semiconductor chip shortage?

The U.S. government is seeking ways to alleviate a semiconductor chip shortage, which is affecting companies around the globe and was sparked by some regulations implemented – and decisions made – during the COVID-19 pandemic.

The shortage affected the auto sector heavily throughout this year. General Motors recently announced that it would reduce some truck production in North America due to the global chip shortage, while Ford has also pulled back production at several factories.

There are expectations that other tech sectors could feel similar effects soon.

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So what caused the shortage that is affecting companies and consumers around the world?

Tom Coughlin, Institute of Electrical and Electronics Engineers fellow and Coughlin Associates president, told FOX Business that semiconductor chips are used in most electronic devices and provide a variety of functions ranging from computing to storage and memory.

"During the pandemic some of these semiconductor fabs and many of the manufacturers of the components, equipment and materials used to manufacture semiconductors experienced shutdowns and slowdowns in their manufacturing," Coughlin explained. "In addition, many of the customers of semiconductor chips, reduced their orders on chips during the early days of the pandemic, as they expected reduced demand for their products."

When the economy began to recover, Coughlin added, supply could not keep up with demand.

It has also been noted that increased telework opportunities caused a rise in some consumer electronics purchases, which typically contain semiconductor chips.

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As previously reported by FOX Business, the Biden administration is looking to open as many as 8 semiconductor chip factories in the U.S. within 18 months of the date that Biden signs the Innovation and Competition Act into law.

The administration is keen on building a "leading edge" chip plant in the U.S., according to a senior official.

The senior administration official added that Commerce Secretary Gina Raimondo believes the U.S. is too dependent on Taiwan for semiconductor chips while noting that just 12% are made in the U.S. – a figure that includes none of the cutting-edge chips required to run more sophisticated technology. 

Coughlin said that it often takes "many months" to more than a year to build new semiconductor manufacturing facilities.

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Intel has announced plans to build two new chip facilities in Arizona — an investment that will be worth about $20 billion. But those factories won't be ready until 2024. 

As previously reported by FOX Business, Intel CEO Pat Gelsinger said during an interview with The Wall Street Journal that he did not see the chip shortage letting up in the near future.

Coughlin expects the shortage to last until 2022 and potentially 2023.