What’s behind the semiconductor shortage and how long could it last?
A global shortage of semiconductors has created serious anxiety in some industries and even caused automakers to halt production in several factories across North America. What led to this shortage, and is there anything manufacturers or the Biden administration can do to meet demand? David Dollar is joined by Don Clark, a contributor to The New York Times, to discuss the factors that triggered the recent supply issues and the potential implications for the future of chip manufacturing in the United States.
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This transcript has been lightly edited.
DAVID DOLLAR: Hi, I’m David Dollar, host of the Brookings trade podcast Dollar and Sense. Today, we are talking about the semiconductor shortage which has caught the world off guard and is disrupting the auto industry and other sectors of the economy. My guest is Don Clark, a contributor to The New York Times on technology issues. Welcome to the show, Don.
DON CLARK: Hello there.
DOLLAR: So let’s start with the big picture. How serious is the semiconductor shortage for the economy now that we are recovering from the pandemic recession? What are the sectors that are particularly hurt by this?
CLARK: Well, I think the reason we are here talking today is because of the impact on the auto industry, which is a huge sector of the economy. They have been forced to temporarily close a bunch of plants in North America because of the chip shortage. So that has caused alarm bells in particular. Those are union jobs, the kind of people that voted for President Biden. This has definitely got the world’s attention, but there’s many other sectors of the economy that are affected. And not that the economy is doing that badly, but it’s kind of like we would be in a much better position had this not happened.
DOLLAR: I’ve read a number of your articles. You have some great stories about the types of firms that are affected far away from automobiles. You had one about a cement manufacturer. Does that ring a bell?
CLARK: This is a company that makes a little sensor that you place in places where you are going to pour concrete. So with these things that measure temperature in the ground, they beam signals to some people with laptops nearby and they can tell how quickly cement is hardening so that it’s secure. So these guys are worried about making future sensors. And they are worried not just about themselves, but on all the construction projects that they are involved with.
DOLLAR: So we’ve got chips just throughout the economy now. It’s really an interesting change. So how did we get to this shortage? What’s the failure here? We economists usually think about there being some kind of market failure to get you into a real mess. So, what was the failure here?
CLARK: Well, it’s really a combination of short-term and long-term factors both on the supply side and on the demand side. So the short-term factor, of course, is the pandemic. When the pandemic came around, people pulled in their sales or they just physically couldn’t keep production going. So the automakers in particular shut down temporarily. Meanwhile, everybody else, after sitting around at home, started buying everything you can imagine, particularly computers, appliances or game consoles, tablets, everything to educate and entertain themselves at home. So they started placing orders, and when the car guys came back around in the September time frame, they basically had lost their place in the manufacturing queue to get chip supplies. So they were disproportionately hurt. But there’s some other really interesting factors.
The chip industry has had many shortages before, but they usually are in a particular kind of chip like memory chips. This time it’s across the board, which is a sign that demand is really going through the roof. There’s two vectors. The chips are being used in many more kinds of products, and then each product that is using chips—like a car or a smartphone—they are using many more chips. So the cars that we are making today, they were designed three years ago. The cars next year are going to have even more chips. So it’s this kind of treadmill that wasn’t really factored in.
The other thing to keep in mind is that there’s both the new cutting-edge chips that are scarce supply—those mainly come from this one company, TSMC, in Taiwan, and that’s what’s in, say, the latest Apple smartphone—but also all these old factories, old chips, very simple things that were paid off years ago. In those cases, it’s very hard to upgrade those supply lines. The biggest factor is demand, but after that you get to these supply bottlenecks.
DOLLAR: Right. So to some extent, it sounds like the chip manufacturers didn’t anticipate this big surge in demand, which is kind of understandable because it’s been a really uncertain world.
CLARK: Yeah, and they have been expanding, but the great thing for a chip manufacturer is when their factory is full. They love that. When it’s empty, they lose lots of money. But if there’s a shortage and they can’t fill demand, they sort of leave money on the table. The history of the chip industry has been marked by these periods where they built too many factories so there’s a glut of chips or they built too few factories and there’s a shortage of chips. So they weren’t getting accurate demand signals from their customers. So a lot of the problem here is properly evaluating and forecasting demand, which is very difficult.
DOLLAR: Then I take it these firms cannot easily ramp up production. So the firms that suddenly have large increases in demand, can’t just—
CLARK: Yes, they cannot. There’s two dimensions of that. If they just wanted to build a new factory from scratch, the cutting-edge factories are $10 billion a pop, takes three years to build them. So that’s a long lag right there. Then you have these older factories I was talking about. Some of those are using a kind of smaller silicon wafer to make the chips, and the machines for making those kinds of chips aren’t being made anymore. So they can’t increase production even if they want to. So anyway, it’s not an easy situation.
Read the full transcript.
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Africa in the news: COVID-19 vaccine update, Kenya’s High Court ruling, and natural resource update

COVID-19 vaccine update
Early this week, the United Nations Security Council formally called for “accelerated availability” of COVID-19 vaccines for Africa given the region’s disproportionately low rate of vaccinations: So far, according to the Africa Centres for Disease Control and Prevention, only 1.42 percent of Africa’s population has received one dose of a vaccine, and only 0.42 percent of the population is considered to be fully vaccinated. According to Reuters, the region is on track to vaccinate about one-third of its population by the end of 2021 and only 60 percent within two to three years.
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Associate Director – Africa Growth Initiative
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Intern – Africa Growth Initiative
Vaccine access is not the only hindrance to an effective rollout in the region: As of this writing, only 64.16 percent of the region’s supply has been administered. In fact, on Wednesday, Malawi burned nearly 20,000 doses of the AstraZeneca vaccine because slow administration—and late delivery—had led the doses to expire. Officials defended the burning by emphasizing they intend to build trust in the community around the vaccine: As Health Minister Khumbize Kandodo-Chiponda explained this week, “It has been very difficult to convince Malawians about the vaccine initially because of misinformation, disinformation and negative propaganda. So, we just wanted to assure Malawians that indeed what we had said that we are going to destroy them, it is happening now.”
Meanwhile, on Monday, South Africa opened up vaccinations to citizens aged 60 or older as it begins to roll out the Johnson & Johnson vaccine (programs based on the Oxford-AstraZeneca vaccine were abandoned earlier this year after studies showed it had minimal protection against the B.1.351 variant widely circulating in the country). The surge in India has also hindered Africa’s access to vaccines: Africa still largely depends on the COVAX facility to secure vaccine doses—largely the Oxford-AstraZeneca version—but that vaccine is largely produced by Serum Institute of India (SII). Moreover, Reuters reports that, according to the World Health Organization, “Most countries using COVAX will now surpass the 12-week maximum interval recommended between the first and second dose of AstraZeneca unless 20 million doses are delivered by the end of June and another 5 million in July.” For more on the complex logistics surrounding vaccine access and distribution, see Uwagbale Edward-Ekpu’s Foresight Africa 2021 viewpoint, “Navigating the complexities around a COVID vaccine in Africa.”
The vaccine difficulties further exacerbate the region’s pandemic-induced economic fallout: In fact, this week, Vera Songwe, executive secretary of the United Nations Economic Commission for Africa and AGI nonresident senior fellow warned that the slow rollout might set the region back economically by two to five years. Growth in 2021 slowed to 3.4 percent in 2021—compared to the global rate of 6 percent—due to supply chain challenges and lockdowns, among other hindrances. Countries around the region fell into recession, shrinking by 1.9 percent. Remittances—a vital form of financing in the region—are expected to fall significantly as well. Moreover, according to Achim Steiner, administrator of the U.N. Development Program, 40 million Africans have fallen back into extreme poverty.
On Tuesday, leaders from the European Union and the International Monetary Fund (IMF) agreed to seek an additional $100 billion to aid Africa’s ailing economies. However, after the meeting, IMF Managing Director Kristalina Georgieva stressed, “Let’s be very clear: No, it is not enough. … We have to bring financing from developing organizations. … We have to make the private sector attractive.” The IMF also announced this week that it will issue this year $650 billion—of which $33 billion would go to Africa—in special drawing rights, “a foreign exchange tool used to help finance imports.”
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Kenya’s High Court overrules constitutional changes
On May 13, Kenya’s High Court ruled that recent constitutional changes presented by President Uhuru Kenyatta were illegal. Kenyan parliament had previously passed the reforms—referred to as the Building Bridge Initiative—which created new constituencies, returned cabinet roles to elected members of parliament, and created powerful new positions, including a prime minister, two deputies, and an official opposition leader. In the end, however, the High Court found the initiative to be “unconstitutional, null and void.” Critics on the High Court argued that the changes would undermine the judiciary’s independence and increase the size of government when the Treasury cannot afford it. According to Bloomberg, the court’s ruling may be challenged in the country’s Court of Appeal. In other judicial news, Kenya is set to appoint its first female chief justice, Martha Koome. She will be sworn in in the coming days, as the Kenyan parliament approved her nomination on Wednesday of last week.
In economic news, on Thursday, May 20, President Kenyatta presided over the start of operations of the nation’s new Port Lamu. The port, which was constructed by the China Communications Construction Company, will serve Ethiopia, South Sudan, and other surrounding landlocked countries. The Kenyan government hopes that Port Lamu will feature as a key step of Kenya’s race to become a major trade hub in East Africa. While it is now officially active, the port is still under construction, and, when completed, it will have 32 berths, 29 of which will be financed by the private sector, making the Lamu port the largest seaport in sub-Saharan Africa.
South Africa’s failure to meet constitutional mandate on emissions sparks lawsuit
On Monday, South African environmental activists rallied outside the High Court in Pretoria to demonstrate support for an active lawsuit against the South African government for failing to meet air pollution targets outlined by the country’s post-apartheid constitution. The violation of its emissions target stems from a heavy reliance on coal, which produces nearly 90 percent of the country’s electrical power. While the Environmental Ministry acknowledges the detrimental impact of air pollution, the ministry maintains that “the environmental concerns conflict with economic considerations”—namely, the country’s electrical needs and the preponderance of coal-related jobs in its high poverty “coal belt.” The lawsuit against the South African government seeks tougher action against the country’s heavy polluters, which the campaigners believe is necessary to enforce the “constitutional guarantee of the right to an environment not harmful to health.”
In other energy news, on Wednesday, Royal Dutch Shell announced that they are engaging in negotiations with the Nigerian government to sell the company’s stake in its Nigerian onshore oil fields. Shell’s divestiture follows a U.K. Supreme Court ruling that enabled oil-polluted Nigerian communities to pursue legal action against Shell in British courts. The multinational oil company’s operations in Nigeria are repeatedly hamstrung by sabotage, pipeline theft, and operational issues, causing costly and environmentally damaging oil spills in the Niger Delta. Shell plans to sell its Nigerian stake to another foreign oil company, a local African company, or its local subsidiary—The Shell Petroleum Development Company of Nigeria.
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Figure of the week: Climate change and African agriculture

Agriculture is central to sub-Saharan Africa’s economic development and growth, but environmental and climatic changes threaten the stability of Africa’s agricultural development. In order to better understand how climate change will impact African agriculture, a recent report by the McKinsey Global Institute models the impact of changing precipitation and temperature patterns on staple crop yields in Ethiopia and Mozambique.
The report highlights the heterogeneity of climatic changes, as temperature and precipitation, across the continent vary substantially by region (Figure 1). In terms of temperature, McKinsey predicts that northern and southern Africa will experience the greatest increases relative to preindustrial levels. By 2050, nearly the entire continent will be experiencing at least a 2.6-3.0 Celsius temperature increase, and large swaths of both northern and southern Africa are projected to exceed increases of 3.5 Celsius. Consequently, McKinsey projects that the severity of drought will evolve to be much more enduring and pervasive over time, particularly in northern and southern Africa.
Figure 1. Evolution of precipitation patterns (left) and temperature patterns (right) in Africa
Source: “How will African farmers adjust to changing patterns of precipitation?,” McKinsey Global Institute, 2020. Note: Climate projections based on RCP 8.5 CO2 concentration—a high emissions scenario that reflects no further decarbonization.
The authors write that they expect these facets of climate change to have a severe impact on African agriculture, particularly by increasing crop yield volatility. Using the context of coffee and wheat production in Ethiopia and corn (maize) and cotton in Mozambique, the authors evaluate crop yield volatility by contrasting the probability of a 10 percent or greater decrease in crop yields in the present and 2030.
Figure 2 reveals the probability of declining yields by crop and country and categorizes the positive and negative climatological drivers behind the shifting yields. Notably, unlike the other staple crops researched in the case study, McKinsey projects a significant increase in cotton yield stability in Mozambique. The authors attribute this increase to cotton’s preference for warm temperatures. However, benefits for cotton aside, the authors maintain that the higher volatility for corn in Mozambique is extremely problematic and counters the benefits of higher cotton yields—as most corn in the country is grown for domestic consumption and more economically important than cotton: In the case of a 25 percent single-year decline in corn yields, McKinsey estimates that Mozambique’s economic output would decline 2.5 percent even after accounting for an increase in cotton yields.
Figure 2. The effects of climate change on African crop yields–today vs 2030
Source: “How will African farmers adjust to changing patterns of precipitation?,” McKinsey Global Institute, 2020. Note: Climate projections based on RCP 8.5 CO2 concentration – a high emissions scenario that reflects no further decarbonization.
In Ethiopia, where agriculture accounts for one-third of its GDP and more than seven in 10 Ethiopians depend on income from agriculture, the authors speculate that disruptions from climate change could be devastating. As the right-hand side of Figure 2 reveals, the probability of a 10 percent or greater decline in wheat yields in a given year is projected to rise 0.3 percentage points by 2030. This rise in the probability of weaker wheat yields reflects an approximately 43 percent increase from the probability of this event in the base year. With more than one-third of farming households dependent on income from cultivating wheat, and wheat providing 13 percent of the caloric intake of Ethiopians, the authors warn that climate change could hamper food security in the country.
Leo Holtz
Intern – Africa Growth Initiative
Christina Golubski
Associate Director – Africa Growth Initiative
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Notably, Ethiopia is the top coffee producer in Africa and the 10th-largest in the world, and decreasing precipitation and rising temperatures may exacerbate the probability of a 25 percent or greater yield decline for Ethiopian coffee. Considering coffee is the country’s most valuable export crop, deriving more than one-third of the country’s export earnings, McKinsey analysts conclude that the economic impacts of climate change on both wheat and coffee in Ethiopia will detrimentally affect smallholder farmers, downstream sectors (trade and food processing), and the broader economy.
While the threat of climate change on the increasing volatility of crop yields looms in the near future for Africa, as well as throughout the world, McKinsey postulates that changes in technology and the adoption of modern agricultural practices, such as irrigation, new seed varieties, fertilizers, and machinery, have the potential to mitigate some of the heightened yield volatility. Although the continent has been slow to modernize agriculture, the authors underscore the importance of governments, investors, and international organizations to institute localized, commodity-specific agriculture planning, in addition to facilitating access to digital tools, in Africa.
For more on climate change and Africa, read “Climate adaptation and the great reset for Africa,” “Confronting the challenges of climate change on Africa’s coastal areas,” and “Africa can play a leading role in the fight against climate change.”
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