The Commerce Department is sounding a grim warning that the shortage of semiconductor chips that power a range of products from smartphones to computers is approaching a breaking point.

On Tuesday, the Commerce Department released the results of a months-long industry-wide survey to determine the extent of the problem. What it found was that many U.S. companies were approaching their limits as they fell back on a reserve supply of only five days' worth of chips before they run out.

Secretary of Commerce Gina Raimondo called the entire situation “alarming,” but said the report demonstrated the urgency needed to address the problem.

The report attributed the chip shortage to what it called a “perfect storm” of factors that crippled chip manufacturing. With the start of the COVID-19 pandemic, factory shutdowns and a disruption in global trade have harmed chip supplies as it has many other essential products in high demand. A slew of natural disasters and industrial fires have also put additional strain on already scarce supplies of chips last year, according to the report. 

Among the other key findings by the Commerce Department was that demand was far ahead of supply and that it has increased 17% between 2019 and 2021. Worryingly, companies' reserve stock of semiconductor chips has diminished from 40 days' worth of supplies in 2019.

Raimondo made a case for increased domestic production of semiconductor chips. In particular, she called on Congress to work on passing the U.S. Innovation and Competition Act, which includes $52 billion to boost domestic chip production.

“The semiconductor supply chain is very fragile, and it is going to remain that way until we can increase chip production," said Raimondo after the Commerce Department report was released.

Commerce Secretary Gina Raimondo said the United States must onshore its supply chain, particularly when it comes to semiconductors and other industrial components Commerce Secretary Gina Raimondo said the United States must onshore its supply chain, particularly when it comes to semiconductors and other industrial components Photo: POOL / Chip Somodevilla

According to the Semiconductor Industry Association, the U.S. share of global chip production has lagged from 37% in 1990 to 12% today as production shifted overseas. Much of the U.S. supply for chips comes from Asia, but this has been disrupted by ongoing trade tensions between the U.S. and China. 

The Biden administration has worked on prioritizing the redevelopment of capacity to meet its own semiconductor demand. Last week, the White House released a fact sheet that detailed efforts to encourage chip manufacturers to build their plants in the U.S. and touted conversations with corporate leaders. 

Among the most recent announcements was a decision by Intel to invest in the opening of two factories for chip production in Ohio. The endeavor is estimated to cost $20 billion and the factories will become operational by the start of 2025.