It’s impossible to get a PS5, your iPhone is on backorder, and no one’s seen a graphics card in the wild in months. It seems like no matter what kind of electronic gadget you’re looking for, it just can’t be found. What in the world is going on? The short answer is a global chip shortage caused by a confluence of factors ranging from the ongoing pandemic to geopolitical tension and, as always, some crypto nonsense.
The long answer is … complicated.
As Usual, Covid Is the Obvious Problem
It’s easy to put it out of your mind most days, but every device you own—including the one you’re using to read this article—is made up of dozens of specially designed microprocessors that require even more specialized factories to manufacture them. That was already a complicated process to maintain, but when the pandemic hit in early 2020, it threw a metaphorical wrench in the very literal gears.
The rise in working from home correlated with an increasing need for more devices. Tellingly, webcams were almost immediately out of stock as millions of people shifted their meetings to video chats and wanted something that looked better than their laptops’ built-in webcams. Similar pressures to buy new laptops, phones, tablets, headphones, and dozens of other devices put a strain on microprocessor supply. At the same time, demand for cars—which also require dozens of built-in electronics—dropped in early 2020.
Factories that manufacture microprocessors don’t turn on a dime. Since most chips require highly specific manufacturing processes, it can take weeks or even months to get a workflow in place to start filling the demand for certain parts. It takes time for a factory that was, until recently, mass producing touchscreen displays for new cars to pivot toward making screens for iPads.
Put simply, it’s hard to nimbly keep up with electronics demand even in a normal year, and 2020 was the furthest thing from normal. The pandemic also isn’t over. Taiwan had until recently been largely free of Covid cases, but a sudden, exponential uptick could, according to a Taiwanese representative, eventually cause “logistical problems” if the country doesn’t get access to more vaccines.
Taiwan’s manufacturing accounts for more than 60 percent of global semiconductor revenue. In other words, the majority of processors used in electronics worldwide come through Taiwan. With an increase in demand for certain devices, a sudden, intense shift in which kind of devices consumers need, and increasing pressure to stay operational during a pandemic, shortages were bound to happen.
Perhaps even more predictably, prices for semiconductors are starting to rise to match that demand. Not only is it hard to get enough of some devices, but soon it might be more expensive as well. Which only exacerbates the next problem.
International Trade Relations Cause Even More Headaches
Deconstructing the complex nature of international trade disputes is a bit beyond the scope of a single explainer article, but what we can say for sure is that it’s not simply a matter of higher demand that makes getting processors harder. Having the vast majority of the world’s semiconductor manufacturing based on a single continent has never been ideal for other countries. And the US in particular hasn’t always played nice.
In late 2020, shortly before leaving office, President Donald Trump put restrictions in place on Chinese manufacturer SMIC. This led, in at least one case, to an automaker moving microprocessor manufacturing to Taiwan, which only made Taiwan’s manufacturers even more overloaded. In a way, the move was an extension of the Trump administration’s feud with Huawei, which in turn was an extension of the United States’ much more complicated relationship with China’s position in the global economy.