The US semiconductor industry has long been the global semiconductor leader.  They have consistently accounted for 45% to 50% of global revenues. But now, more semiconductors are being manufactured in East Asia than anywhere else in the world.  The WSJ’s Asa Fitch and Luis Santiago recently wrote that East Asian countries now dominate semiconductor manufacturing and that China is on pace to become the world’s largest chip producer by 2030.

China As A Legitimate Challenger

China has emerged as a legitimate challenger as they have attempted to wrestle control of the US’s semiconductor technology.  In January of 2017, just before President Obama left office, the President’s Council of Advisers on Science and Technology issued a report “Ensuring Long-Term US Leadership in Semiconductors,”.  The report warned of China’s “zero-sum” activities to advance its own semiconductor industry.  This  included stealing intellectual property both “covertly and overtly.”

As a result, in recent years the U.S. has placed new restrictions on China’s industry citing national security concerns.  This included blacklisting Chinese telecom giant Huawei Technologies Co. They have also prevented some Chinese chipmakers from buying American manufacturing equipment without a license.

Semiconductors are Critical

The world runs on semiconductors and these products are at the heart of the defense and communications industries.  They power fighter jets, guided missiles and communication satellites.  They are in every appliance in homes, cars, even in wristwatches.  And now, computing power and semiconductors are the fundamental core that is shaping the future of human mobility.  The business of autotech chips is  becoming a huge business.  They are the backbone of modern society and the manufacturing of chips is expected to grow by 50% over the next 10 years.

In the U.S., the semiconductor industry is critical to economic competitiveness and national security.   The pandemic has demonstrated very clearly that this is one of the supply chains that when disrupted can have very dramatic effects on our country.

Many of our semiconductor companies have abdicated making their own chips and have contracted this work to companies in Asia.  Even Intel who has remained steadfast in their commitment to manufacture their own chips, is now saying that they will consider outsourcing. However there is an outlier, Apple’s contract manufacturer, Taiwan Semiconductor Manufacturing Company.  They have announced that they will be making Apple’s new M1 chip in a wholly owned US subsidiary in Phoenix, Arizona.

Should There Be Incentives?

There is a strong case to be made that this industry should be incentivized by the Federal Government to manufacture in the U.S.  Other countries are offering incentives to build-up their semiconductor industry.  Our future is dependent on semiconductors supporting digital transformation, artificial intelligence, and 5G communications.  The U.S. needs to devise solutions to restore and maintain domestic manufacturing capabilities.  This will ensure that the US semiconductor industry has a highly resilient, geographically diversified supply chain.

 

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