Proposed U.S. Federal Policy Response
Given the critical uses of semiconductors, some have called for a massive U.S. effort to build a ‘self-sufficient’ local supply chain. Such an effort would involve building all of the R&D, design, fabrication, and ATP/advanced packaging capacity domestically in the U.S., as well as capacity for the production of polysilicon, wafers, photomasks/photoresists, manufacturing equipment, and more. This would create an independent, U.S.-based semiconductor supply to meet all U.S. semiconductor demand without reliance on any foreign sources.
However, a report from the Semiconductor Industry Association (SIA) has advocated against this approach, predicting that doing so in the U.S. would require over $1 trillion in investments and over $400 billion in government incentives over 10 years. A self-sufficient supply chain would also result in the loss of cost savings from global comparative advantages, causing the prices of semiconductors to rise 35-65%. Yet it is unlikely that a self-sufficiency approach would even be effective. It would take years to build the necessary facilities, decades to train the necessary workers, and even then, the U.S. would still require raw material inputs like critical minerals and silicon from China.
Instead of the self-sufficiency approach, the SIA argues that “the solution to these challenges is not the pursuit of complete self-sufficiency through large-scale national industrial policies with a staggering cost and questionable execution feasibility. Instead, the semiconductor industry needs nuanced, targeted policies that strengthen supply chain resilience and expand open trade, while balancing the needs of national security.” This targeted approach involves four critical efforts:
Manufacturing Base: The U.S. must expand the domestic base for fabrication and other production phases through subsidies and incentives that encourage the construction of fabrication and other production facilities in the U.S. According to analysis from the SIA and Boston Consulting Group, a $50 billion federal incentive program would “establish the U.S. as an attractive location for semiconductor manufacturing” and would “enable the construction of 19 advanced fabs…over the next ten years, doubling the number expected if no action is taken.” Importantly, this program would focus on expanding domestic capacity for the most advanced logic chips necessary for critical uses, not the entire semiconductor supply chain for every type of chip. The goal is not to onshore the entire supply chain, but rather to enhance capacity, and therefore resiliency and security, in the most critical areas.
Workforce Training: The U.S. must invest in education and training programs to ensure an adequate skilled workforce (both skilled laborers for manufacturing facilities and highly-educated engineers and technical experts for R&D) to support domestic production and maintain advanced technological capabilities.
International Coordination: The U.S. must foster stronger partnerships with allies and partners like Taiwan, Japan, South Korea, and Europe to coordinate R&D and production, ensure secure trade lines, and share information. The U.S. should also look to develop alternative supply sources in ‘third-party’ countries not just for chip production, but also raw materials and low-skilled production in order to mitigate the risk of export controls from hostile countries or natural disasters shutting down singular supply routes.
Balanced Approach to China: While building domestic and allied semiconductor capacity and preventing China from dominating the global market, the U.S. should also refrain from an overly aggressive approach that completely isolates China. China is still a key source of raw materials and U.S. semiconductor firms rely on sales to China.