Asia’s stranglehold of the global semiconductor market has caused a manufacturing crisis in the U.S. technology sector. While the United States and EU used to dominate semiconductor manufacturing, that all changed in the mid-90s and early 2000s when operations moved overseas to major Asian countries such as Taiwan, Japan, Korea and China. If the global technology market is to become fairer and more competitive, then the U.S. and Europe will need to drastically improve their semiconductor manufacturing capabilities.
What makes this technology so critical? We’re going to need more and more of them, and that demand is increasingly for more sophisticated semiconductors with complex manufacturing processes, says Spencer Shute, the principal consultant at the procurement services provider Proxima.
More complex electronic devices require more semiconductors. A car, which has many different electronic components, requires far more semiconductors than a cell phone. As the hardware we use on a daily basis develops, that will therefore mean increased overall demand. Worse, the more sophisticated semiconductors are, the more they are subject to incredibly intricate and time-consuming manufacturing processes. That, in turn, makes supply vulnerable to supply chain disruptions. That was demonstrated all too clearly when the COVID-19 Pandemic caused widespread factory shutdowns in China and elsewhere in Asia, including those producing semiconductors. It was a wake-up call.
“Now, the U.S. is trying to get back to being more self-sustaining,” Shute says. It’s not just incoming supplies the U.S. wants to control; there’s also an issue with intellectual property that the U.S. seeks to restrict, in order to prevent American chips from being used in military equipment belonging to unfriendly nations.
Another factor is the developing tension between Taiwan — where most chips come from today — and China, which claims Taiwan as its territory. If China were to invade Taiwan, that would do immense damage to the U.S. economy and supply chain.
All of these factors together increase the urgency to bolster U.S. chip manufacturing capabilities.
To do so, Congress passed the CHIPS and Science Act, with the aim of lessening U.S manufacturers’ reliance on China and other Asian nations, boosting competition, and stimulating innovation in the global semiconductor market. The act provides incentives in the form of tax breaks and federal grants, including $2 billion for legacy chip production and $13.2 billion for research and development, as well as job opportunities for American workers.
Shute says that, although not much has been done yet to stimulate the U.S. semiconductor manufacturing industry, some organizations and government agencies have begun taking steps to at least prepare. Major multi-national brands such as Samsung and Intel are among those that have announced at least 40 chip manufacturing locations over the last few years in places like Texas, Oregon, New York and Ohio. “What we’re really working on right now is getting that groundwork going,” Shute says. “But it takes time.” Companies and government agencies are still in the process of investing and establishing infrastructure for the sector, Shure says.
Meanwhile, not all hope of increased manufacturing capabilities rests on the U.S. Other countries, especially EU members, have been attempting to pass legislation similar to the CHIPS and Science Act. But the EU has also been slow to get the ball rolling in terms of improving its semiconductor manufacturing capabilities. Shute says that Europe has had a difficult time passing legislation similar to CHIPS because higher inflation rates across the continent have made it more expensive and time-consuming for Europe to accommodate new manufacturing plans.
“If I had to predict, I would say the U.S. would pull ahead of the EU,” Shute says, because the U.S. already has CHIPS in place.
The irreducible problem is that it would be both difficult and risky for the U.S., Europe and the rest of the world to completely sever trade ties with China. That’s because a lot of the raw materials used to make these semiconductors — not to mention many other 21st-century technologies such as batteries for electric vehicles — come from Asia. “The U.S. is going to have to maintain some relationship with Asian countries, which is going to be a bargaining chip within those regions,” Shute says.
Unfortunately, the struggles to ramp up manufacturing capacity mean we are still a good long way away from the U.S. having its own, strong semiconductor sector.
Still, if research and development within the U.S. can come up with new ways to build semiconductors, that could “change the game,” Shute believes. If the U.S. could become an exporter of semiconductors, that would create a more competitive global marketplace, which would drive down semiconductor costs and increase innovation.
“The next three to five years is really going to be the sweet spot in terms of where we’re going to see the biggest portion of the U.S. semiconductor sector come online,” Shute says.
Optimistically looking ahead ten years, a majority of the country’s semiconductors could be produced within the United States, Shute concludes. “That’s a fairly lofty goal. But also, with the right innovations and investments, it can probably be done.”
