America has a chance to bolster domestic chip manufacturing, research: Congress should seize it

Leaders in Congress are taking aim at an ambitious and urgent goal: reverse the decades-long trajectory of decline in the percentage of global chip manufacturing done in America, bolster flat federal investments in chip research, and keep our country on top in semiconductors, the brains of modern technology.

Congress should seize this opportunity. Doing so would strengthen America’s economy and national security, make U.S. supply chains more resilient, and improve our country’s response to future crises.

Two bipartisan bills, the CHIPS for America Act and the American Foundries Act, each call for bold federal investments in domestic semiconductor manufacturing incentives and research initiatives. Provisions from the bills were included as amendments in the Senate and House versions of the National Defense Authorization Act (NDAA), which cleared their respective chambers last week and now await action by a conference committee to merge them into final legislation. Similar provisions were included in the HEALS Act, COVID-19 stimulus legislation introduced this week in the Senate.

The chip industry, so instrumental to America’s future, is also a part of our country’s proud past. Semiconductor technology was invented in America more than a half-century ago, and U.S. companies still lead the global market, accounting for nearly half the world’s total chip sales.

But U.S.-located chip manufacturing facilities, or fabs, now produce only 12 percent of the world’s semiconductors, down from 37 percent in 1990. Three-quarters of the world’s chip manufacturing is now concentrated in East Asia. And China is projected to have the single-largest share of production by 2030.

The biggest reason for the decline in chip manufacturing in the U.S. is both simple and fixable. While America ranks high in several criteria companies use to determine where to build fabs – IP protection, access to talent, and more – the price tag of a new fab is far higher in the U.S. than competing countries. This is largely because other governments offer aggressive incentives in the form of grants and tax credits, while the U.S. government does not.

If the federal government takes action now to close the manufacturing incentives gap, it can right the ship. Due to the ever-increasing demand for semiconductor-enabled products, global chip manufacturing is projected to increase by more than 50 percent in the next 10 years. For about half of this new manufacturing capacity, the fab location is still up for grabs.

One study found with substantial government incentives, close to 20 new major manufacturing facilities would be built in the U.S. over the next decade, a 27 percent increase over the 70 major commercial fabs in the U.S. currently.

Along with a robust domestic manufacturing presence, much of the U.S. semiconductor industry’s continued success rests in its ability to out-innovate the competition through massive research investments.

Federal government investments in semiconductor research, however, have been flat as a share of GDP for decades. And federal research funding is just a small fraction of the R&D investments by U.S. semiconductor companies, which totaled nearly $40 billion in 2019. This is significant because federal research plays an essential role in complementing private investments to drive semiconductor innovation and develop the high-tech workforce needed to compete globally.

The benefits of the federal government investing substantially in U.S. semiconductor manufacturing and research would be three-fold.

First, it would grow the U.S. economy and strengthen our national security. Greater semiconductor innovation would spur advances in the technologies our economy and military rely on. It also would help ensure American leadership in the strategically important technologies of the future, including artificial intelligence, quantum computing, 5G/6G, and more. Federal manufacturing incentives would create tens of thousands of new American jobs. And a recent study found every dollar invested by the federal government in semiconductor research adds $16 to U.S. GDP.

Second, a stronger U.S. manufacturing presence would fortify America’s semiconductor supply chains. Uprooting the entire, highly complex global semiconductor supply chain would be impractical and counterproductive. But expanding U.S. chip manufacturing would make America less dependent on chips made overseas, especially for critical defense and infrastructure applications.

Third, these actions would facilitate our response to crises, such as the COVID-19 pandemic. Semiconductors are key components in medical devices treating COVID-19 patients and other ailments and play an important role in medical research to discover new vaccines and cures. Maintaining U.S. leadership in this crucial industry and strengthening supply chain resiliency is essential to America’s post-pandemic future.

Federal investments in chip manufacturing and research will pay big dividends for our country. Congress should seize this strategic opportunity, grab the tiller, and help reinforce America’s global tech leadership, economic strength, and national security for decades to come.

John Neuffer is president and CEO of the Semiconductor Industry Association, which represents 95 percent of the U.S. semiconductor industry.