Should the U.S. Produce Its Own Semiconductor Chips?


Now that it’s effectively too late to avoid a crisis, the United States has begun asking itself whether or not now is the time to put into motion a plan that will eventually lead to the nation manufacturing its own semiconductor chips. As you’re undoubtedly aware, the automotive sector has taken a beating as Asian-based supply chains are experiencing what can only be described as unprecedented demand. But they aren’t building enough to satisfy everyone and the local markets are taking precedent.

U.S. Commerce Secretary Gina Raimondo proposed a $52-billion solution on Monday that would cram fresh government funds into production and research that could result in seven to 10 new U.S. factories. But that’s just to get the ball rolling on an industry that will take several years to mature, leaving some to wonder whether the country should even bother. 

According to Reuters, Raimondo suggested at an event outside a Micron Technology Inc chip factory that the government funding would generate over $150 billion worth of investments in chip production and research. Though only a portion would be contributions from state and federal governments, with the rest coming from the private sector.

“We just need the federal money … to unlock private capital,” she said, noting that “it could be seven, could be eight, could be nine, could be 10 new factories in America by the time we’re done.”

Unfortunately, the timeline on those facilities becoming active is a few years, with the government funding being spread out over five. Senate Democratic Leader Chuck Schumer revealed the plan last week.

From Reuters:

Supporters of funding note the United States had a 37 [percent] share of semiconductors and microelectronics production in 1990; today just 12 [percent] of semiconductors are manufactured in the United States.

As first reported by Reuters, the bill includes $39 billion in production and R&D incentives and $10.5 billion to implement programs including the National Semiconductor Technology Center, National Advanced Packaging Manufacturing Program and other R&D programs.

Senator John Cornyn, a Texas Republican who also took part in the joint event, has filed an amendment to remove prevailing wage provisions from the bill and said he wanted a vote on his amendment, saying the wage issue was jeopardizing Republican support.

The wage issue is a tricky one because one side of the aisle wants to ensure good-paying jobs while the other is fearful that it will make the endeavor too costly and ultimately non-competitive against Asian suppliers that historically pay workers far less. While few are saying so, most of this pertains directly to China — which has been a highly appetizing locale for manufacturers since it pays workers a fraction of what would be considered reasonable here. While much of that is the result of U.S. regulations and worker protections driving up the prices here, China has been criticized for utilizing slave labor. The issue is apparently bad enough to have already roped in several global automakers and textile companies, earning them plenty of criticism.

Meanwhile, the Chinese Communist Party has repeatedly signaled that it wants to invade Taiwan. Besides the untold geopolitical strife that would bring, the island nation is responsible for a large portion of the semiconductor chips imported by the United States. The chip shortage is swiftly becoming a national security issue and America has been caught with its pants around its ankles.

The bill has bipartisan support but some are annoyed with the amount of federal spending that has already taken place. In service of adding perspective, the United States has spent trillions over the last twelve months on things like COVID relief and ultimately ended up with a crippled economy, increased joblessness, and shifted more wealth to society’s top earners. Considering the entire cost of World War 2 was about $4 trillion (adjusted for inflation) it’s difficult to understate the size of financial commitments the U.S. has been making of late.

Critics have suggested that the government has shown itself as poorly suited to spur industry in a responsible way and claim it would be better to just deregulate in the hopes of appetizing the private sector to do its own thing. But we sure could use those chips right about now and there are de-contented or partially built vehicles sitting around on factory lots as proof. Globally, the tally of impacted vehicles could be as high as 4 million units by year’s end.

What say you? Should the government get the lead out and try to jumpstart a localized semiconductor industry or have we already blown this one?

[Image: Gorodenkoff/Shutterstock]

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