With nat’l security at stake, what are the governments doing to ease chip shortage pressures?

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Faced with an international supply shortage, several countries are pursuing semiconductor chips production because “it’s a matter of national security,” according to an analyst at Moody’s.

Memory chips are important for generating varied products. They are crucial in making smartphones, gaming consoles, cars, and even household appliances like washing machines and fridges. They are also needed in data centers that work through computer servers.

“I think the main problem really is that new supply is hard to come by and the surge in demand is not going to be abetting anytime soon,” Moody’s Analytics associate director Timothy Uy told CNBC on Monday.

“On both the supply and demand sides, I think companies are adjusting. Governments are also getting in on the action because they view this as, in some sense, kind of a matter of national security,” he said.

Without the universal semiconductor chip, several products will not function.

The shortage has already impacted the auto industry, forcing carmakers to lag behind their production.

In a note last week, Uy explained that manufacturing these chips is a complex process that demands exhaustive capital and a long period of production. Distributing them also takes even longer periods, he stressed.

The supply for these chips cannot be done immediately. In fact, it may take years for another supply to be available online as it is necessary for factories to be established with the right technology.

Only a few companies can afford to focus on semiconductor manufacturing because of its capital-intensive nature.

Governments act to boost chip supplies

Governments have promised capital spending and to push for policies to ramp up capacities in chip manufacturing. It also moves to establish local supply chains that can avoid obstructions.

For instance, South Korea has unveiled a $450-billion worth program until 2030 that counts in corporate investments. To lift its chipmakers’ competitiveness, it also gave its tax benefits a boost.

On the other hand, China has prepared a multibillion-dollar national budget to invest in local chipmakers. It targets to cope up with other countries including South Korea, Taiwan and the U.S.

The U.S. has also moved to address the shortage as it passed a tech and manufacturing legislation that contains a $52 billion budget to finance semiconductor research, design and manufacturing push.

According to Uy, the government getting involved in the solution can ease some of the shortage pressure. Among the aspects it can help with is memory chip pricing since only a few companies are ruling the supply chain.

He said that once governments are “essentially subsidizing and providing a lot of indirect support as well to local, smaller enterprises to get in on the manufacturing of lower-end chips, that basically increases the supply,” noting that it can address the supply shortage for the auto industry.