One of the biggest supply-chain challenges we face today is getting more semiconductors, which are essential to products like automobiles, computers, solar panels and weapons systems.
Despite this challenge, it has been almost two years since Congress first passed the CHIPS Act—by wide bipartisan margins. Now, it is time to get this essential legislation over the finish line.
The United States, the country that invented the computer chip, represents just over a 10th of global production and is still falling. The CHIPS legislation aims to reverse these trends by providing $52 billion in incentives to advance domestic semiconductor R&D and manufacturing, which most Democrats and Republicans avidly support.
Congressional wrangling
The problem is that the funding and eventual implementation of the CHIPS Act are tangled up in partisan congressional wrangling about broader unrelated issues, however important. The longer the standoff, and the longer the delay in making these investments, the further and faster America’s semiconductor production capacity falls behind.
Also read: McConnell threatens to scuttle bill that includes $52 billion for U.S. chip makers
Consider the ubiquitous smartphone. It contains multiple radios, display drivers, five cameras, a graphic controller, and power management chips. The most advanced semiconductors used for these devices—also required for a range of other complex electronic and computing systems—come either from Taiwan (90%-plus of the high-end chips) or from South Korea (the remainder). None are made in America.
Further down the value chain are mature node semiconductors used in most other consumer, business and defense products. Here, too, the trend is not good for the U.S. As a result of chip shortages that began during the pandemic, domestic auto manufacturers have lost an estimated six assembly plants worth of vehicles and roughly $200 billion in revenue.
While the vast majority of chips used in new automobiles are mature nodes, up to half of all chips used in new electric vehicles (EVs) are advanced, leading-edge designs. An EV typically requires more than twice the number of semiconductors of all kinds as a traditional internal combustion engine vehicle.
Asian concentration
Whether contained in a smartphone, an automobile (conventional or electric), or a precision guided munition, the semiconductors in greatest demand will almost certainly have come from one region of Asia—either the People’s Republic of China or nations situated precariously on or near its borders (Japan, South Korea, Taiwan).
That Northeast Asian concentration will only grow with the bulk of new production coming from China, which is expected to house 40% of new global semiconductor manufacturing capacity by 2030 (the U.S., by comparison, is projected to have 6%).
Given these realities, some of the world’s leading companies are considering production site alternatives, including within the U.S. Texas, Arizona, and Ohio have announced plans for new semiconductor plants from American and international firms. Yet relative to the scale of the projected demand, the overall outlook for U.S. chip production remains bleak.
And not without reason. According to a 2020 Boston Consulting Group/Semiconductor Industry Association Study, total cost of ownership for constructing and operating a semiconductor fab in the U.S. over 10 years is 30% to 50% higher compared with other locations studied, predominantly in Asia.
We can’t wait
Consequently, any U.S. policy response must offset significant construction and startup costs gaps to incentivize more investment in American production. In addition to CHIPS Act funding, Congress could help right now by passing the Facilitating American-built Semiconductors (FABS) Act, which would establish a predictable, longer-term incentive in the form of a new investment tax credit. The FABS Act has garnered bipartisan support, and though it has yet to be voted on, there is consideration of including it in a final competitiveness bill.
Even under the best of circumstances—the right policy, ample funding, timely congressional action—it takes at least two years to build a new semiconductor foundry. We cannot afford to keep punting on CHIPS during this legislative session.
The fact is, if CHIPS is pulled out of the larger bills and receives a stand-alone vote—ideally along with the FABS Act—it should pass comfortably. Partisan strife and ideological purity on either side of the aisle should not scuttle what most know is achievable today: to revive the American semiconductor manufacturing enterprise and start reclaiming our position as a global high-tech industrial power.
Michael Splinter is former chairman and CEO of Applied Materials
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and is currently on the board of directors of TSMC
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. Admiral Jonathan Greenert was the Chief of Naval Operations. Splinter and Greenert are co-chairs of the American Semiconductor Center at Securing America’s Future Energy (SAFE), a nonpartisan organization advancing transportation technologies to enhance energy security.
