Title: GM Extends Plant Shutdowns Due to Global Semiconductor Chip

Shortage
Run Time: 9:26
Clip: https://www.cnbc.com/2021/03/03/gm-extends-plant-shutdowns-due-
to-global-semiconductor-chip-shortage.html

Discussion Questions and Answers:

1. Discuss the geopolitics of semiconductors from the perspective of the United States.
Why has Joe Biden put semiconductors on his policy agenda? What does the current
semiconductor shortage mean for U.S. national security? How should the United States
respond?

Answer: The United States has been flexing its geopolitical muscle for the past few years
when it comes to semiconductor chips. Indeed, pressure from the United States prompted
Taiwan’s Taiwan Semiconductor Manufacturing Company (TSMC) to limit its sales to
China’s Huawei, a company that has been accused of spying by the United States. It is
likely under the Biden Administration that the United States will step up its campaign to
ensure that the United States maintains its influence in the semiconductor industry.
Already, there have been promises to work with other countries, especially allies within
the European Union, to address the geopolitical risk posed by the semiconductor industry.
President Biden wants to take a more proactive approach to developing access to
semiconductors for American companies and for the American military. Biden has
indicated that investment in domestic production is on the horizon and that he believes
that it is important for the United States to be competitive in the chip industry. Students
should recognize the national security threat posed by a shortage of semiconductor chips.
The chips are necessary for fighter jets, computers, and other parts of the armed forces,
but also for the power plants and telecommunications systems that are vital to the
functioning of the country. Indeed, students should realize that a shortage of advanced
chips goes well beyond commercial losses and could have a very real impact on the
functioning of the country. Ensuring that the United States has a dedicated supply is a top
priority for the country.

2. The global chip shortage is expected to result in a loss of some $61 billion for
automakers across the world. Reflect on the disruption to the global supply chain and on
the circumstances leading to this situation. Should automakers rely on outsourcing for
this critical component? How should automakers and other companies respond to the
current shortage?

Answer: The news that General Motors has been forced to temporarily close operations
in Canada, Mexico, and the United States because of a global shortage of advanced
semiconductor chips is a shock to employees, shareholders, and other stakeholders.
General Motors, like other global automakers, has been hit hard by the shortage of chips.
With current demand outpacing supply by a significant amount, automakers are not the
only industry to feel the effect of the shortage. Indeed, because semiconductor chips
provide the brains of so many products essential to our daily lives, the effect of the
shortage is being felt across many industries. Automakers have been especially hard hit
because at the beginning of the COVID-19 pandemic, fearing a significant slowdown in
sales, automakers cancelled their orders with chip makers. At the same time, demand for
different chips soared as purchases of laptops, cloud computing, and other essentials of
home office and lockdown lifestyle kicked in. Chip makers, fearing being stuck with
stockpiles of chips designed for the auto industry, quickly switched gears to focus on
producing chips for lockdown and work at home essentials. When the slowdown in auto
sales failed to materialize, and automakers put in new orders, they found that chip makers
no longer had the capacity to meet their demand. For companies that rely on chip makers
and for the producers of chips, the situation has been eye-opening. It is clear that
additional capacity is needed. For automakers and other companies waiting for chips, the
options are not good. General Motors for example, has been prioritizing production of its
best-selling pickups and halting production of other vehicles. Students will likely
recognize that this solution is not ideal, and certainly not a viable long-term strategy.
Most students though will probably agree that it is unlikely that automakers, even as they
demand more and better chips to run their increasingly complex vehicles, will get into
chip production. Instead, they will continue to rely on outside suppliers. Expanding chip
capacity to meet increased demand requires time and money, meaning that for now,
automakers will have no choice but to wait until supply catches up with demand.

3. Like the United States, China has committed to acting proactively to develop
domestic chip production capabilities. Discuss China’s goals. How are they different
from those of the United States? Taiwan Semiconductor Manufacturing Company
(TSMC), the company that produces more than 50 percent of the chips used globally, is
located in Taiwan. What advantage, if any, does this give China? Can China give the
United States a run for its money in chip design?

Answer: The United States is firmly in the driver’s seat when it comes to the
development of complex semiconductor chips. Even so, as part of its quest to become
globally independent, China has prioritized domestic semiconductor chip production. By
2025, the country wants to produce 70 percent of the chips it uses on its own shores.
Beijing’s goal of self-sufficiency is a pushback on what it views as a power play by the
United States. The United States has pressured Taiwanese chip maker, Taiwan
Semiconductor Manufacturing Company (TSMC), to limit sales to Huawei, the company
that Beijing feels could change the world with its 5G technology, but that the United
States believes acts as a spy for China. Many students will probably agree that while
TSMC is geographically near China, and so probably affords China some degree of
advantage, this benefit in no way replaces chip independence. In fact, some students may
wonder whether China can catch up to the United States in chip design, a necessary
requirement for true chip independence. On the manufacturing front however, students
will probably suggest that it is to China’s advantage to increase domestic production for
many of the same reasons prompting the United States to invest in domestic production.
Students sharing this perspective will probably point out that as an opposing superpower,
China, like the United States, will want to ensure that it has the parts required by its
military, and will also want to ensure that it protects other aspects of national security like
the power grid. Similarly, China will probably consider its position as a power player in
the global economy and work to ensure that Chinese companies have access to the
semiconductors they need to run their factories and produce their goods.