The U.S. has ceded a vast majority of semiconductor manufacturing to fabricators in Asia, a fact that’s grown more troubling as China emerges as a near-peer rival and the global chip shortage lingers on.
The chip industry was invented in the United States, by Silicon Valley companies such as Intel. In 1990 almost 40% of the world’s semiconductors were produced in the U.S. Today, 80% of chip production occurs in Asia; only 12% are made in the U.S., half of which comes from Intel. China’s influence over chip-producing countries in Asia could give it an advantage over the U.S. in the contest for global tech leadership. Worse yet, Congress fears that the Pentagon and U.S. defense contractors might lose easy access to chips needed for high-tech weapons systems.
That’s why Congress is trying hard to pass a bill that would allocate money to kickstart the domestic production of semiconductors. The Senate Committee on Commerce, Science, and Transportation Wednesday held a hearing on the subject Wednesday, in which it questioned the CEOs two of the remaining U.S. chip manufacturers, Intel’s Pat Gelsinger and Micron’s Sanjay Mehrotra.
Congress has grown increasingly nervous about access to vital chips as China has emerged as America’s main geopolitical rival. The issue was further inflamed by the global chip shortage that’s pushed wait times for consumer goods like cars, PCs, smartphones stretch from weeks to months. A Deloitte study says the chip shortage will likely last through 2022, making it a two-year ordeal that will cost the U.S. $500 billion.
The concentration of chip production in Asia is a problem that was years in the making. In the 1990s many chipmakers both designed and manufactured their semiconductors. But fabricating chips is an expensive, infrastructure-intensive, and arduous process, so many chipmakers began to outsource the manufacture of their designs to dedicated fabricators in Asia. Experts say it also makes sense that semiconducter production would cluster in the same places where other parts of major supply chains are located. Meanwhile, Asian countries began to heavily subsidize chip design and manufacturing, a trend that has continued.
Today the Taiwanese fabricator TSMC controls 56% of the global foundry market, according to TrendForce data, while Samsung controls 18%. Importantly, these two companies fabricate an even greater share of high-end chips used for things like AI.
Kickstarting U.S. production
The U.S. government’s move to reduce dependence on Asia for chips formally began in January 2o21, when Congress passed the Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act as part of the 2021 National Defense Authorization Act (NDAA). CHIPs authorized a series of programs for promoting domestic chip manufacture, but didn’t actually fund the programs.
Last summer the Senate passed the U.S. Innovation and Competition Act (USICA) that, among other things, formally allocates $52 billion to fund the semiconductor research, design, and manufacturing provisions in the CHIPS Act. In February 2022 the House passed a similar piece of legislation called the America COMPETES Act, which also allocates $52 billion for CHIPS Act programs. Now “USICA” and “COMPETES” bills must be reconciled, then passed by both chambers, then sent to the president’s desk.
Congress is also discussing an additional piece of legislation called the FABS Act that would establish a semiconductor investment tax credit.
President Biden has already signaled his intention to sign a chips bill. He did so at a January 21 event in New Albany, Ohio where Intel broke ground on the new $20 billion foundry its building. The company is building another $20 billion on two new fabs at its long-established facility in Chandler, Arizona. Intel’s New Mexico site will get a new $3.5 billion chip-packaging plant.
Throughout 2021 both House majority leader Nancy Pelosi and Senate majority leader Chuck Schumer considered a China competitiveness bill a “must pass.” Republicans balked at an early version of the House competitiveness bill (the EAGLE Act) because it contained environmental and conservation provisions. But the main sticking point has been an inter-party one: House and Senate leadership have different ideas about what should be included in a competitiveness bill. There is debate over the inclusion of foreign policy and diplomatic features, for example. Provisions that allocate financial incentives for domestic chip production, however, have broad bipartisan support.
‘This is our industry’
Gelsinger says his company is doing its part, and then some. “I’m putting as much pressure on our profitability and our balance sheet as I possibly can,” told committee members Wednesday. “I’m doing that to the great howls of Wall Street as we see our stock lowered.”
“But even though I’m making these substantial Investments It’s not enough to restore American leadership on this technology,” he said.
Even though passing incentives bills for U.S. chip foundries has bipartisan support, Congress may have a limited window of time to get it done. As the midterms approach, passing anything is increasingly challenging.
Gelsinger said his company’s plans to build new fabrication facilities in the U.S. will carry on regardless of whether Congress provides financial incentives. “We will go slower and smaller without the funding; we will go bigger and faster with the funding,” he said.
The CEO stressed several times during the hearing that Intel is one of the few legacy U.S. tech companies that has historically focused its own investments on the U.S. and Europe. He said it’s critical that the U.S. maintain some control over the semiconductor industry that produces the chips that will “underpin every industry in the digital future.”
“This industry was born in the United States,” he said. “This is our industry.”