Print the page
Increase font size

Five Points About the Man-Made Microchip Shortage

Posted June 10, 2021

Jeffrey Tucker

Thirty years ago, in Microcosm, George Gilder’s remarkable book for the ages, began with the following claim: “The central event of the 20th century is the overthrow of matter.”

The thesis focussed on the shift of the value of capital from muscle and steel to mind and particles with the invention of the microchip. Gilder argued that this would massively empower the human population and its key intellectual asset — the capacity to reason and create — to take charge of a world long wrecked by governments (which specialize in controlling the visible, but are mostly at a loss in managing the invisible).

The book was prophetic. It certainly had a profound influence on me, and 10 years later I deployed the same thesis in my book It’s a Jetsons World. The mistake I made – and Gilder did not make – was that same one that vexed late-19th century intellectuals: the presumption of inevitability.

While it’s true that governments are utterly incapable of competence at any level in the management of a chip-driven world, they can still do tremendous damage. Gilder drew attention to a trajectory, a possibility, a motion, but he never said it would not and could not be disrupted but the mass deployment of grotesque stupidity.

That is precisely what happened in the US in the last three years. The chip shortage is not going away anytime soon, but it will in time. When the market finally does clear, the results will highlight the utter and complete folly of US technology policy — both in terms of trade and corporate welfare. There will be no Americanization of chip manufacturing; either the US will acquiesce to permanent global economic cooperation or find itself in a technology backwater for the duration.

What follows are five salient points about the chip shortage that are mysteriously lost on the reporters covering the topic and can only be extracted from industry-specific sources.

Point One

The reasons for the chip shortage are many but the problems began in 2018. That was when the Trump administration began its protectionist trade war against China.

I don’t want to argue the politics of this, and I’m as anti-CCP as anyone. The China model — a one-party state exercising fascistic control over large business, and micro-control over its citizenry — should profoundly offend anyone of liberal spirit.

That said, the fantasies of many Trump administration appointees (are you listening Peter Navarro?) that they would use American power somehow to “decouple” the technology sectors of the US and China (and the states over which it exercises influence) was deeply dangerous to the point of delusion. It also cemented Big Tech’s hatred of Trump, which had lasting and disastrous political consequences.

Its worst moment was the attack on Huawei, an innovative company founded under the influence of the American view of enterprise. It had been seeking and achieving some independence from Beijing. All that faltered when the Trump administration ordered the arrest of the founder’s daughter and CFO Meng Wanzhou, holding her captive in Canada. She still languishes in this legal imbroglio.

People’s opinions on China are all over the map, and I too am deeply alarmed at the CCP’s rising power in the region, relations with neighbors, and even cultural influence in the US. That said, trade relations with the US should have remained free of protectionist pushes that history shows only lead to more tensions, more power for governments, and throttles on technological progress.

US and Chinese companies had developed extremely powerful supply-chain networks, and the US was already playing catchup in a wide variety of fields. Trump policies ended up being a big setback for technology in the US and for the reputation of American-style freedom in China itself.

Point Two

The largest US companies outsmarted the tariffs.

The largest consumers of microchips in the personal computing, smartphones, and gaming console industry in the US rushed to get in as many orders as they could before the tariffs went into effect. Along with the retaliatory tariffs that were inevitable, but which somehow the Trump administration thought it could avoid.

Meanwhile, other manufacturers with a long history of ordering parts “just in time” did not act. Hence the chip factories complied, later leaving automotive companies without parts.

That’s why you will pay above suggested retail for a new car today, and also why your car repairs are taking so long.

Point Three

No, they cannot just make more. These chip factories — and there are ten dominant players in the world — are now operating at full capacity, with orders backlogged by 18 months. And no, they cannot just scale. Nor can anyone just put up new factories.

They require hundreds of billions in investment with machines costing hundreds of millions that themselves must be manufactured. The spaces necessary for fabrication plants are the most technologically-advanced on the planet earth, with quality and cleanliness standards that are nothing short of mind blowing. We aren’t talking widgets here.

Point Four

This is yet another consequence of global lockdowns: Governments’ response to the virus shattered supply chains around the world.

They literally shut down business at all levels, even blocking shipping, causing manufacturers to delay putting in orders. Fabrication plants cannot work this way. They receive orders a year in advance and make everything according to plan.

If this is disrupted by cancellations, the slight is not soon forgotten. Hence did plants in China, Singapore, and Taiwan pivot as quickly as they could, essentially cutting off the US from further access in favor of a more reliable base of revenue. This has seriously strained relations.

It’s truly hard to believe that governments of the world imagined that they could do something like this without economic consequence. Now manufacturers will be faced with the grave temptation of overlooking counterfeits and frauds that will flood markets between now and year’s end.

Point Five

Biden’s push for more chip makers in the US achieves nothing.

The administration has infinite faith in the glorious things it can achieve by stealing your money and giving it to its friends. But sadly, it does not have the power to make engineers, computer programmers, disciplined and creative workers, engineers, and managers who are necessary for these plants actually to compete globally.

The industry as it exists in Japan, Taiwan, Hong Kong, China, and Singapore is extensive, competitive, and sophisticated.

The US is a glorious country with a patriotic workforce but the level of technical expertise in this country is, how shall I say, rather lacking.

Today’s Prophecy

Gilder’s prophecy from 30 years ago turned true shortly after it was made.

The world is more embroiled in the world of the Microcosm than ever before, as you will discover only by looking around your home: Just look at your phone, your TV, your light switch, your thermostat, your car, to name a few.

A massive disruption in the global supply chain has profound implications for the standard of living in the US. The rest of the world will move on.

The Trump administration made a huge mistake in picking a wicked trade fight with China, rather than using diplomacy to settle problems. Things didn't turn out as expected. China’s prosperity is rising at a phenomenal pace right now, due to its own US-eschewing trade deals and pushes for productivity over micro-regulation. The Biden administration cannot solve the problem with its wild and pathological policies of tax, spend, and print.

The disruption of the bad sort is here. I’m skeptical of claims that all will be well in six months to a year, that the shortage will fix itself. Protectionism and lockdownism have taken their toll.

It is possible for the US to take an about face and gradually repair the damage its policies have created. That will require dramatic political and intellectual change, and is thus doubtful.

Nonetheless, the technological trends driving the world economy will not wait.


Jeffrey Tucker

How The Great Barrington Declaration Changed The World

Posted June 23, 2021

By Jeffrey Tucker

A teachable moment for us all...

The Censors Finally Came for Me

Posted June 22, 2021

By Jeffrey Tucker

The silencing technique...

Brutal Covid Battles Have Just Begun

Posted June 21, 2021

By Jeffrey Tucker

George Gilder’s prediction is coming true...

Speaking of Privacy, What About Tax Returns?

Posted June 18, 2021

By Jeffrey Tucker

There is nothing liberal remaining in liberalism...

The Good News From the Lockdown Tragedy

Posted June 17, 2021

By Jeffrey Tucker

We can expect momentous changes...

The Pulitzer Prize Fraud

Posted June 16, 2021

By Jeffrey Tucker

What a way to top off a year-and-a-half-long collapse of public confidence in once-respected institutions! The Pulitzer Prize committee has given its award for “public service” to the New York Times...