Semiconductors are the heart of the digital economy. The semiconductor industry has moved to the forefront of political discourse in the United States and other countries. Pressure from America’s economic competitors and the challenges facing its own domestic industry, as well as supply chain shortages, prompted calls for the US government to “do something” to support the industry. The most visible answer is the CHIPS Act, which allocates $39 billion in government funding for domestic semiconductor manufacturing facilities and billions more for semiconductor research and development (R&D) and workforce programs.1
Many cite America’s declining share of semiconductor manufacturing as a justification for these measures, with “unfair” subsidies from other countries as the root cause. Much of the debate focused on evaluating what other countries are doing and matching their programs.
Of course, benchmarking is not a strategy. Voluntary withdrawal from global markets is not a strategy. Fixing short-term product shortages (in ways the industry can’t) is not a strategy. In fact, the argument is that the industry needs funding to fix shortages at the time of this writing, as demand for semiconductors for personal computers and smartphones falls.2 Not only is this “down cycle” good for consumers of these products, but it also shifts the policy debate to a more appropriate objective: How does the United States build a sustainable, market-centric semiconductor policy that leverages America’s financial strengths, industry, and academic environments to accelerate the industry together — and not just for a few years, but in the next decade? How the United States is ensuring that global competition in semiconductors does not lead to “zero sum” negotiations on moving manufacturing capacity, but that competition brings out the best in America: its ability to take advantage of the best scientists and entrepreneurs best in the world at solving hard technical issues, building a business around those solutions, and scaling those solutions to the world?
In short, how does the United States build a government strategy that is open, global, long-term, committed, patient, and successful?
To do so, policy must recognize that competitive advantages do not come from imitating others’ approaches (for which US capabilities are ill-suited) but from deepening the existing advantages of the US position. Those US advantages are deep and wide, and should not be underestimated.
I recommend government policy not only to focus on increasing America’s manufacturing capacity, but to holistically strengthen the entire semiconductor industry, enabling it to withstand supply shocks, drive technology transitions, and win future industry control points . Basic research and commercialization of R&D breakthroughs are the things that will be successful in the future and will determine the global footprint of semiconductor manufacturing as much as the subsidies will.
I propose using the CHIPS Act funding as equity capital in a government fund that can be scaled through industry and Wall Street co-investment to more than $300 billion and can reduce the industry’s cost of capital by leveraging the Federal Reserve’s balance sheet . This fund would be self-replenishing, as it would take advantage of US innovation to finance projects with market-level rates of return and generate significant returns for the government. Those returns would then be reinvested in the next set of challenges facing the United States three, four, five, and 10 years from now.
Unlike copying policies that place all hope on unique national champions, often interfering with policy goals that may or may not be achieved, the would have a series of financial and industrial partners an equity fund — which would make it possible to provide funding for both large and small. companies — and would operate at all levels of the value chain and throughout the ecosystem. I would encourage this US government fund not to compete with incentives from other countries, but instead encourage it to partner with those willing to transparently co-invest in a growing, global, diverse semiconductor industry. de-risked and market-driven. The resulting strong global supply chain, with more clusters and secondary sources of supply across Europe and Asia, would only help the United States.
In addition to the creation of this fund, the United States may face other obstacles to success. The country does not have enough engineers to build and ramp up the manufacturing facilities in the plan – targeted and accelerated immigration must begin now. It takes up to a year longer to build and ramp manufacturing plants (fabs) in the United States than it does in Asia. This slow, suicidal pace, if not resolved, will cost billions in lost opportunities and technology leadership for those companies that build in the United States — negating any benefit from the billions in government funding. The fund would have a policy arm that would partner with federal and state governments to aggressively simplify licensing requirements and close time gaps. Not too many entrepreneurs, professors and venture capitalists are taking risks on future semiconductor technologies and applications — government funding can be a catalyst to reverse this trend, without giving the fund a mandate to pick winners.
Finally, to effectively execute a long-term, committed and patient investment program, the United States needs a new hybrid government team that can evaluate, structure and monitor investments at the intersection of semiconductors and finance. The government must rapidly recruit this staff from the semiconductor, financial and policy fields while protecting the staff (through legislative action) from short-term political considerations while maintaining the oversight capacity of elected leaders. Empowered as the primary point of contact to execute the US semiconductor strategy, this team would ensure speed, consistency and clarity in its role as decision-making authority. It would function through different administrations, through industry cycles, through new generations of technology, and through changes in geopolitical priorities; in doing so, it could continuously partner with the global industry to achieve a resilient, winning, global and market-driven US semiconductor industry.