Chip Shortages — Time for Credit Unions to Worry?

Global microchip shortages have impacted credit unions by limiting auto production and, consequently, auto lending. If supply chain disruptions continue, or worse, a war erupts between China and Taiwan, credit unions may face chip-related challenges in another area – debit and credit cards. So says geopolitical analyst John Sitilides, a featured speaker at Catalyst Corporate’s 2022 Economic & Payments Forum.

Taiwan’s dominance in the semiconductor manufacturing market has raised the stakes and geopolitical interest in the island’s autonomy by the U.S., according to Sitilides. House speaker Nancy Pelosi’s recent trip to Taiwan was an effort to convince Taiwan Semiconductor Manufacturing Corporation (TSMC) – the world’s largest chip manufacturer and a huge supplier to the U.S. – to establish a manufacturing base in the U.S. and stop making advanced chips for Chinese companies. China has responded by flexing its muscles militarily. “TSMC manufactures about 90% of the most advanced chips. If destroyed during an invasion, many U.S. industries would be affected, including the payments industry,” warns Sitilides, “and it could lead to a recession or a depression.”

Approximately 400 million chips cards are issued to U.S. cardholders each year. With an approximate chip shortage of 30%, the payments industry may be unable to produce up to 126 million cards in the coming year. In response, the Electronic Transactions Association (ETA), representing thousands of merchants along with many card networks and issuers, said it’s watching the chip-shortage closely. “Chips play a crucial role in keeping payments secure, fast and reliable. As such, ETA strongly supports the U.S. taking steps to ensure a steady supply chain,” said Jodie Kelley, ETA chief executive.

The chip shortage is not only hurting pocketbooks; it could become a national security concern. Semiconductor manufacturing in the U.S. has declined immensely from roughly 40% in 1990 to 12% today, according to the Semiconductor Industry Association. For this reason, the U.S. is now trying to attract TSMC to help increase domestic chip production capacity.

Congress recently passed the Chips and Science Act, which provides roughly $50 billion in subsidies to support semiconductor manufacturing in the U.S., Sitilides explains. But companies will only receive Chips Act funding if they agree not to manufacture advanced semiconductors for Chinese companies.

Sitilides describes this all as part of a broader “tech war” between the U.S. and China, in which the U.S. aims to constrain China’s technological development and prevent it from exercising a global tech leadership role. Pelosi’s trip to Taiwan was centered on intensifying U.S. efforts to “reshore” its semiconductor supply chain. The dominance of TSMC has given the island a new, critical importance that is likely to heighten existing tensions between the U.S. and China over the status of Taiwan.

Sitilides rounds out a robust line-up of thought leaders who will share actionable insights credit unions can use for future success. Join us for Forum 2022 onsite or online! For more information, or to register, visit Learning Center/Conferences on Catalyst Corporate’s website.