Semiconductors are the lifeblood of the digital economy. The semiconductor industry has moved to the foreground of political discourse both in the United States and other countries. The pushes from America’s economic rivals and the challenges faced by its own domestic industry, coupled with supply chain shortages, prompted calls for the U.S. government to “do something” to support the industry. The most visible response 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 the justification for such measures, with “unfair” subsidies by other countries as the root cause. Much of the debate has centered on evaluating what other countries are doing and matching their programs.
Of course, benchmarking is not a strategy. Voluntarily exiting global markets is not a strategy. Fixing short-term product shortages (in ways the industry cannot) is not a strategy. In fact, the argument that the industry needs funding to fix shortages is ringing hollow at the time of this writing, as demand for semiconductors for personal computers and smartphones drops.2 This “downcycle” is not only 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 the strengths of the American financial, industry, and academic environments to collectively accelerate the industry — and not just for a few years, but in the decade to come? How does the United States ensure that global competition in semiconductors does not devolve to “zero-sum” negotiations around shifting manufacturing capacity, but rather that competition brings out the best in America: its ability to harness the world’s best scientists and entrepreneurs to solve hard technical issues, build business around those solutions, and scale 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, the policy must recognize that competitive advantages do not come from emulating the approaches of others (for which U.S. capabilities are not a fit) but rather from deepening the existing advantages of the U.S. position. Those U.S. advantages are deep and broad, and not to be underestimated.
I recommend that the government policy not solely focus on increasing America’s manufacturing capacity, but rather holistically strengthen the entire semiconductor industry, enabling it to withstand supply shocks, drive technology transitions, and win future industry control points. Fundamental research and the commercialization of R&D breakthroughs are the ingredients for future success and will determine the global semiconductor manufacturing footprint as much as will subsidies.
I recommend using the CHIPS Act funding as equity capital in a government fund that can scale via industry and Wall Street co-investment to more than $300 billion and can reduce industry cost of capital by leveraging the Federal Reserve balance sheet. This fund would be self-replenishing, as it would harness U.S. innovation to fund projects that have market-level rates of return and generate significant returns for the government. These returns would then be reinvested in the next set of challenges the United States faces three, four, five, and 10 years from now.
As opposed to copying policies that place all hope on singular national champions, often saddling them with policy goals that may or may not be achievable, the equity fund would have tiers of financial and industrial partners — enabling funding to be provided to both small and large companies — and would operate at all levels of the value chain and across the ecosystem. I would urge this U.S. government fund not to compete with incentives from other countries, but would instead encourage it to partner with those willing to co-invest transparently in a growing, global, diverse, de-risked, and market-driven semiconductor industry. The resulting robust global supply chain, populated with more clusters and second supply sources across Europe and Asia, would only help the United States.
In concert with creating this fund, the United States could address other barriers to success. The country simply does not have enough engineers to build and ramp the manufacturing facilities in the plan — targeted and accelerated immigration must start now. Constructing and ramping fabrication plants (fabs) in the United States takes up to one year longer than it does in Asia. This self-inflicted slow pace, if not solved, will cost billions in lost opportunities and technology leadership for those companies building in the United States — thus countering any benefit from the billions financed by the government. The fund would have a policy arm that partners with federal and state governments to aggressively simplify permitting requirements and close timing gaps. Too few 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 the 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 needs to rapidly recruit this team from the semiconductor, financial, and policy spheres and insulate the team (via legislative action) from short-term political considerations while maintaining the oversight capability of elected leaders. Empowered as the primary point of contact for the execution of the U.S. semiconductor strategy, this team would ensure speed, consistency, and clarity in its role as the decision-making authority. It would operate through different administrations, through industry cycles, through new generations of technology, and through changes in geopolitical priorities; and in doing so, it could continuously partner with the global industry to achieve a resilient, winning, global, and market-driven U.S. semiconductor industry.