How America can avert the next chip shortage

American semiconductor production has arrived at a watershed moment.

Congress is on the verge of taking an historic step to fuel U.S. leadership in the research, design, and manufacturing of microchips, a technology at the heart of America’s economy, national security, and critical infrastructure. The U.S. Innovation and Competition Act (USICA)—which the Senate has passed—would provide $52 billion in chip research investments and incentives for companies to establish manufacturing in the United States. New House legislation called the America COMPETES Act, expected to be considered this week, would do the same.   

In essence, the legislation would level the global playing field and ensure more of the semiconductors our country needs are made on U.S. shores, while also turbocharging domestic chip innovation through critical research investments.   

The trendlines of the past few decades show why Congress and the White House must act swiftly. Just 12 percent of all modern chip manufacturing capacity in the world is in the United States, down from 37 percent in 1990. During the same period, chip manufacturing capacity in China surged from 1 percent of the global footprint to 15 percent. China’s share is projected to reach 24 percent by 2030, while the U.S. share will continue to erode without swift government action. Meanwhile, federal investments in chip research have held flat as a share of GDP, while other countries have significantly ramped up research investments. 

U.S. policymakers can help reverse these trends and set in motion a resurgence of chip production and innovation in the U.S.

The current chip shortage—which makes it difficult to purchase everything from automobiles to medical devices—has highlighted the crucial role of semiconductors in driving our economy and future innovation. And it has thrown into bold relief the sobering reality that we need to manufacture more of this critical technology here in America.  

The subsidies other countries offer chip companies to establish their manufacturing facilities, known as fabs, are far higher than what the U.S. provides. The cost to operate a U.S.-based fab is 25 percent to 30 percent higher than the cost to run an equivalent fab in Taiwan or Singapore, and 50 percent more expensive than in China. Government incentives offered by other countries are the biggest contributor to the cost advantage other countries have over the U.S. 

Federal investments to narrow the cost gap, combined with America’s built-in advantages—homegrown American talent, strong protection for intellectual property, and reliable infrastructure, among others—are precisely what’s needed to make this country the preferred choice when it comes to building new fabs.  

One study concluded a $50 billion federal investment program would create an average of 185,000 temporary American jobs annually and add $24.6 billion annually to the U.S. economy as new fabs are constructed from 2021-2026. The study also finds such federal investments would add 280,000 permanent jobs to the U.S. economy beyond 2026, including 42,000 direct semiconductor industry jobs. 

Beyond creating jobs and boosting the economy, shoring up American semiconductor manufacturing will also serve a longer-term good by creating a more resilient supply chain. There are more than 50 points in the chip value chain where one region holds more than 65 percent of the global market share, leaving production vulnerable if a natural disaster, infrastructure crisis, or conflict occurs. Diversifying manufacturing locations will lead to more stable supply chains and help mitigate future chip shortages.

The legislation will also bolster national security. Last year, a bipartisan group of national security leaders, including former directors of the CIA and NSA, wrote a letter to President Biden requesting federal funding for semiconductor research and manufacturing incentives. In it, they cited the integral nature of this technology for global leadership: “Who leads in future technology developments, standards, and the means of secure production and supply will be the true decider of the type of world we build with our allies and partners. The strategic funding plan put forward today will create a great economic return and improved resilience for generations.” 

Semiconductor companies, recognizing the importance of building more resilient supply chains, have already begun making critical investments in U.S. facilities. In only the last 12 months, more than a half-dozen fab construction projects—totaling tens of billions of dollars in private investments—have been announced. These announcements show chip companies believe the U.S. government is serious about enacting legislation to make the U.S. a more competitive location for chip manufacturing. Enactment of federal manufacturing incentives would spur hundreds of billions of dollars in additional private investments.

Company investments, combined with robust federal investments, will dovetail to revitalize the American semiconductor industry and ensure our country’s technological leadership for a very long time to come. It’s time to enact federal semiconductor investments to keep America on top in this foundational technology.  

John Neuffer is president and CEO of the Semiconductor Industry Association.