China has identified seven “frontier” technologies in its 14th five-year plan. These are areas China will focus on, including semiconductors and brain-computer fusion.
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Economic growth could slow and inflation is likely to rise, at least temporarily, if the semiconductor shortage worsens, economists say.
A multitude of factors have come together to make the coveted computer chips scarce. Increased demand coupled with supply shortages has meant that orders for everything from cars to televisions to touchscreen computers and more are secured for six months or more.
With semis at the core of so much US economic activity, the ongoing supply problems are likely to create waves.
Goldman Sachs economists say the shortage will result in an inflation tax for much of 2021, which could cause prices of affected goods to rise by up to 3%. This would boost inflation by up to 0.4 percentage points later in the year, the company said.
“Overall, while we see a relatively modest impact of semiconductor shortages on GDP growth and the industrial sector, it is another reason we expect core inflation to remain stable this year,” Goldman economist Spencer Hill said in a Note.
Even if success won’t result in a dramatic slowdown in an economy that’s expected to roar in 2021, the effects could nonetheless be felt. Goldman said the impact could be as low as 1% subtraction from activity, but is likely to be closer to 0.5%.
Disorders of the “new oil”
“While semiconductors account for only 0.3% of US production, they are a major manufacturing input to 12% of GDP,” said Hill, nothing that the shortage could bring 2% to 6% lower auto production this year.
In fact, several automakers have cut production due to the lack of chips that are essential to their vehicles.
Stellantis NV said it will temporarily lay off workers at its Detroit Jeep plant, while Volvo also said the chip issues will cause some plants to close until the situation is resolved.
The effects of disruptions in the semiconductor industry are becoming increasingly evident.
“As the world becomes more connected, automated, and greener, every unit of GDP growth will contain higher levels of semiconductors. Integrated circuits will become the most important commodity for doing business,” wrote TS Lombard economist Rory Green.
Green calls Semis the “new oil” for global impacts that can cause disruption.
“The current severe shortage of semiconductors, which is halting automobile production worldwide, underscores the speed and magnitude of the ongoing changes,” he said. “Chips have always been an important part of manufacturing and consumer electronics, but their use will extend to transportation and digital services.”
Still, Goldman’s Hill said the inflationary impact is unlikely to last long if supply increases later this year and through 2022. But the shortage now is “another reason to expect core commodity inflation to remain stable this year,” he said.
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