December 01, 2021
Semiconductor chips are the critical building blocks in almost every part of our modern lives, as we wrote in a recent blog. Automobiles, smartphones, Internet service, financial services, healthcare — practically every piece of technology utilizes chips to function and spur further innovation. When the COVID-19 pandemic forced Americans to move their lives, work, and businesses online, global semiconductor manufacturers struggled to meet an historic spike in demand.
While the United States long led the world in semiconductor production, our share of global semiconductor manufacturing capacity has dropped from 37% in 1990 to 12% today. Over this same period of time, other countries provided significant incentives to ramp up their own chipmaking production. A handful of production locations account for 75% of the global capacity while without improvements only 6% of new global capacity is expected to be located in the United States. The challenge for the United States is so significant that a recent White House study on supply chains concluded that “our reliance on imported chips introduces new vulnerabilities into the critical semiconductor supply chain.”
Enter the CHIPS for America Act. Broad support in Congress for this legislation signals bipartisan recognition that this industry represents the “commanding heights” of the 21st century economy.
If Congress fails to fund the CHIPS for America Act, long-running and generous incentive programs provided by governments around the globe will lock in these trends in semiconductor production. It isn’t just China: Ireland, Israel, Japan, Singapore, South Korea, and Taiwan all provide substantial support for semiconductor manufacturing.
As a result, building and operating a fab in the United States is estimated to be 30% - 40% more expensive than locations in East Asia, for instance. The ability of the United States to attract investment in semiconductor manufacturing in the future without funding the CHIPS for America Act is increasingly questionable.
Unfortunately, Senator Bernie Sanders has proposed an amendment (#4722) to the FY2022 National Defense Authorization Act (NDAA) that would impose onerous conditions on the CHIPS for America Act.
Make no mistake: This amendment is a poison pill that would render the CHIPS for America Act inoperative. It would ensure that the decline in the U.S. share of global semiconductor manufacturing continues — with significant negative implications for U.S. competitiveness and national security.
The Sanders amendment would require semiconductor manufacturers to issue warrants or equity interest to the government as the price of receiving support under the CHIPS for America Act. Such an attempt to turn innovative manufacturers into state-owned enterprises would be a disastrous move for U.S. competitiveness and innovation.
However, the principal effect would be that firms would decline the support. Other governments are not imposing such conditions, and the contrast would be stark. If this amendment is enacted into law, it would be as if the CHIPS for America Act were never passed or funded. The trend of decline in the U.S. manufacturing sector would continue.
The CHIPS for America Act was always intended to be a grant program with the goal of advancing U.S. innovation, national security, and economic resilience. The Sanders amendment would subordinate those objectives to a doomed-to-fail government effort to own and manage a cutting-edge industry.
Meanwhile, the CHIPS for America Act already includes extensive safeguards to ensure its funding advances the public interest. Recipients must demonstrate a sustainable business plan; comply with job, wage, and tax requirements attendant on state-level grants; and meet specific worker training, education, and community investment commitments.
The U.S. Chamber strongly urges the Senate to reject Senator Sanders’ poison pill amendment and move ahead with plans to fund the CHIPS for America Act.
About the authors
Vice President, Supply Chain Policy
John Drake is vice president for supply chain policy at the U.S. Chamber of Commerce. Drake oversees the development and implementation of the Chamber’s supply chain policy priorities and represents the Chamber before Congress, the administration, the business community, and other stakeholders.
Vice President, C_TEC
Crenshaw is Vice President of the Chamber Technology Engagement Center (C_TEC).