- The supply chain crisis is one of 2021's biggest stories, but it can be traced back to the last decade.
- The US-China "trade war" of the Trump years included semiconductor chips - the exact shortage crippling the world's economy.
- Biden isn't changing course from Trump, and it's leaving Americans short on personal electronics and cars.
The holidays are coming, and that supply-chain crisis you may have heard about is going to make shopping miserable.
Hundreds of thousands of ships full of imported goods from Asia are piled up outside of Los Angeles and other major ports. American automakers don't have enough semiconductor chips to make as many cars as people want to buy. Every other product - from toys to computers - that needs a chip will be in short supply, too.
What's often overlooked is that official US government policy is oriented around making these exact chips harder for China to manufacture. US President Joe Biden is continuing a "trade war" with his Chinese counterpart, Xi Jinping, that began under Donald Trump, and he's not blinking as the supply-chain crisis endangers Christmas.
The ships-and-chips crisis is another way America and China are on the verge of "decoupling,"as the Trump-era trade war hardens into a new status quo. People hoping for an easier holiday shopping season are overlooking how long and painful this transition could be.
The US-China trade war has left the US short on electronics and cars
The US accounts for just 12% of global chip production, and Asia accounts for a whopping 75%. according to a report from the Semiconductor Industry Association, which projects China becoming the largest chip producer by 2030.
But Donald Trump ran on a largely anti-globalization platform in 2016, with a particular focus on how America is getting "ripped off" by China. Chips were an area of leverage.
China isn't just an exporter of chips, it also needs a steady supply of particularly sophisticated integrated circuits from other countries, including the US, to fuel its consumer electronics manufacturing machine. In the past decade, China has been importing more and more chips from the US, because it needs to insert them into electronic products that get shipped back around the world.
China is generations behind in making the most cutting-edge chips. For instance, the world's largest semiconductor firm, Taiwan Semiconductor Manufacturing Corporation (TSMC), is developing ultra-small chips of 3-nanometers and smaller. China's largest chip firm, Semiconductor Manufacturing International Corporation (SMIC), just began making 14-nm chips in late 2019.
The US is determined to make China's manufacturing efforts difficult.
Last September, the Trump White House imposed export restrictions on SMIC, forcing it to source parts elsewhere and reconfiguring supply chains in the process.
Meanwhile, companies buying their chips from SMIC had to go elsewhere, only to find that alternative chipmakers were already at full capacity. America struggled to rely on its own production, as lead US semiconductor giant Intel struggled with its own production problems. And some firms have been hoarding chips, claims TSMC's CEO Mark Lui, making the chip crunch even worse.
The Biden administration has been enlisting its allies to freeze China out from the technological equipment it needs, making sourcing even harder for the country.
This all happened after the pandemic shut down semiconductor manufacturing operations for months in 2020, leading to spikes in the prices of new and used cars and shortages of all kinds of electronics.
Biden isn't changing course
Those hoping for the Biden administration to reject Trump's playbook have been sorely disappointed.
The president has done little to alter his predecessor's aggressive trade stance since taking office eight months ago. Katherine Tai, the US trade representative, confirmed the tough policy would continue in a Monday speech.
"For too long, China's lack of adherence to global trading norms has undercut the prosperity of Americans and others around the world," she said in a speech at the Center for Strategic and International Studies, adding it's "increasingly clear" that China hasn't addressed the US's concerns.
Biden said earlier this year the key to navigating the current chip shortage crisis is to invest in the country's chip production, allotting $50 billion in his infrastructure plan for domestic chip manufacturing incentives. "The plan I propose will protect our supply chain and revitalize American manufacturing," he said in April, during a virtual summit with auto executives and other business leaders. Of course, Biden was talking about "our supply chain" - meaning an American one - and not the globalized "Chimerica" supply chain of the early 2000s.
The Biden administration recently made countering China the centerpiece of its foreign policy agenda, even reorganizing the CIA to make China a principal focus. The CIA described the country as a "key rival."
The transition to homegrown chip production will be more easily said than done. American manufacturers aren't used to expensive American labor, so they'll need time to wean off foreign contract manufacturers, Recode noted. Meanwhile, it can take years to get new production facilities off the ground.
Americans, then, are set to endure a lengthy standoff. A JPMorgan note on Friday by a team led by Jahangir Aziz stated that US-China trade tensions are set to remain a "palpable risk," as China is in the midst of an "economic-policy regime shift" and "intensified US-China tension since 2018 has entered a relative freeze."
Speaking on Friday after a disappointing jobs report underscored the difficulties facing the economic recovery, Biden advocated again for his infrastructure plan, which is struggling to make its way through Congress.
He stressed the need for America to regain leadership and become more "competitive," and he highlighted one country outcompeting and outspending America on its infrastructure and economy: that country was China. That could mean a lot more lean Christmases.