As of March 28, both chambers of Congress have passed jobs and competitiveness bills that invest in supply chains to solidify American manufacturing and technological independence. Next, 26 senators and 81 house members, with a 58% Democrat majority, will convene a conference committee to reconcile differences between the house and senate versions, each with well over 2,000 pages.
One key similarity is that both versions appropriate $50.2 billion for the CHIPS for America Fund, to finance a semiconductor incentive program and an advanced microelectronic research and development program. This investment is good news for trucking – since there are 15 to 35 semiconductor chips in every Class 8 truck, but pandemic shutdowns and labor tightness have caused a severe shortage.
To make matters worse, Ukraine supplies more than 90% of the United States’ neon gas, a component used to manufacture chips. In fact, Ukraine, now devasted by war, has been responsible for roughly half of the world’s supply of neon, with China as the second largest producer. While some chip manufacturers claim to have stockpiled one to six months’ worth of supply, a new U.S. Commerce Department report found median reserves would last less than five days.
In theory, other companies could begin producing neon, but because it could take anywhere from nine months to two years to see full-scale results, many may not be willing to invest if they view the shortage as temporary.
Consumers, including truck purchasers, can expect to see rising prices continue to reverberate down the supply chain. In 2014, in the run-up to Russia annexing Crimea, the price of neon gas soared 600%. Now, already under the strain of the pandemic, prices have climbed 500%.
The situation emphasizes what Congress is seeking to remedy — that global supply chains have become so interconnected that shocks across the globe are often felt here at home. With its proposed U.S. competitiveness packages, Congress aims to solidify manufacturing independence and compete more directly with China.
However, there is a reason that tech companies go oversees for component manufacturing; they can cut labor costs and increase efficiency to deliver lower prices to consumers. A new report found that moving away from a global supply chain system would result in a 35% to 65% long-term increase in semiconductor prices. The long-fought and politically charged debate remains whether the United States needs to prioritize self-sufficiency to insulate itself from geopolitical shifts, or whether it is ultimately disadvantageous to bring home this type of manufacturing, which largely consists of cheap, unskilled, end-stage assembly.
While the proposed legislation strives to bolster the domestic semiconductor industry, it also advances regional strategies for countering China, by strengthening ties with Taiwan. Both versions reaffirm historic commitments to Taiwan but propose different new actions to enhance the relationship. And although the changes seem like small, unprovocative steps, China is extraordinarily sensitive to any escalation of U.S.-Taiwan relations that they may view as a departure from the One China principle – a linchpin of U.S.-China relations.
Provoking China may be more dangerous now than ever, as Russia’s war against Ukraine pushes Russia and its ally China closer together and further away from the rest of the world. However, it is that same geopolitical nightmare, coupled with supply chain chaos and China’s race toward preeminence, that is causing Congress to seek counter measures.
While recent events have demonstrated that transnational interdependence can create considerable domestic vulnerabilities, they’ve also shown that interconnectedness fuels important diplomatic ties and economic leverage among nations.
For the trucking industry, the immediate benefits of the proposed legislation are clearer; one of the quickest, most secure ways to end the semiconductor chip shortage is to increase domestic production. Trucking will need to be weary of upward pressure on prices in the long run but should welcome the measure, since it will make it easier to purchase the technologies and parts needed to keep America moving.
