The U.S. Is Determined to Revolutionize Its Microchip Industry

The US is pouring billions into domestic microchip production to lessen dependence on foreign sources and bolster domestic green tech initiatives.
Public funding and private investment aim to increase US microchip production from 12% to 20% by 2030, challenging Taiwan’s dominance.
This push for domestic production aligns with Europe’s similar efforts to decrease reliance on Asian microchip manufacturing.

The U.S. is fighting to become one of the biggest microchip producers in the world in pursuit of taking a leading role in the global green transition. While China continues to dominate the microchip space, several policies spurring green development, technological innovation, and manufacturing are pushing the U.S. ever closer to meeting its microchip production goals.

Semiconductors are a vital component in everyday life, used to power smartphones, radios, TVs, computers, video games, medical equipment, and many more devices. The U.S., understandably, wants to solidify its supply chain to ensure that the country has adequate access to microchips in the coming years to boost security. The Biden administration has announced $39 billion in public investment to support the development of semiconductor production facilities across the U.S. to develop the domestic manufacturing industry and reduce reliance on foreign powers, such as China.

Even with the construction of domestic production plants, the development of semiconductors relies on a wide array of processes that take place around the world. This is mainly because constructing semiconductors requires a mix of materials found around the globe, such as silicone, carbon, and graphite. Since the first computer chips were invented in the U.S. in the late 1960s, much of the production has been moved overseas, as companies sought to cut costs. Over the last few decades, the Asian region has become a leader in microchip production, having developed cheaper and more advanced chips than those built in the U.S. Taiwan now produces over 60 percent of the world’s chips and over 90 percent of its advanced microchips. This has resulted in U.S. microchip manufacturing falling from 37 percent of the world supply in 1990 to just 12 percent today.

The U.S. is striving to re-establish itself as a world leader in semiconductor production through greater public funding and financial incentives to support industrial growth. One Boston Consulting Group study from 2020 suggested that $50 billion in funding in the industry could help boost the U.S. microchip manufacturing share to around 13 to 14 percent by the end of the decade. Meanwhile, without additional funding, the study found that this figure could fall to around 10 percent. The U.S. expects to increase its contribution to the global microchip manufacturing market to around 20 percent by 2030, based on the current level of investment.

The need for a stronger domestic microchips supply chain became evident following the shortages experienced in 2021, after the Covid-19 pandemic. Lael Brainard, the director of the White House National Economic Council, explained, “Semiconductors are the key input in so many goods that are vital to our economy.” He also suggested that adding greater U.S. microchip production would have reduced the supply problems of 2021 and that investing in the sector is expected to help reduce inflation.

While the U.S. will increase its production capabilities significantly in the coming years, microchip output will remain an international effort. A 2020 Global Semiconductor Alliance report suggested that chips and their components can cross international borders 70 times or more before they reach the consumer, traveling over 25,000 miles. Meanwhile, another study from the Boston Consulting Group and the Semiconductor Industry Association suggested that achieving a self-sufficient U.S. microchip supply chain would require around $1 trillion in funding, raising both the price of chips and the products that use them.

There are several new semiconductor projects under development in the U.S. at present, which are expected to boost domestic production efforts. In April, the U.S. Commerce Department announced $90 million in funding to improve a semiconductor plant in Colorado Springs, Colorado and $72 million to expand a facility in Gresham, Oregon. This is expected to help the firm Microchip Technology Inc. increase its production by threefold. This investment is expected to boost job opportunities in construction and manufacturing by around 700 jobs within the next decade.

The Biden administration also announced in April that it would be providing $6.4 billion in grants to Samsung to boost domestic production efforts. This will support Samsung’s efforts to develop a chip manufacturing hub in Taylor, Texas, as well as expand its site in Austin. Samsung also has plans to build a research and development facility in Taylor to drive innovation in microchip technology. Funding comes from the 2022 bipartisan CHIPS Act. These efforts have been mimicked in Europe where the EU passed the European Chips Act in 2023, mobilizing $46.5 billion in investment to boost Europe’s global market share in semiconductors from 10 percent today to 20 percent by 2030.

Heavy public and private investment in the semiconductors industry in recent years is expected to help establish the U.S. as a world leader in microchip manufacturing. As funding continues, greater research and development will help spur innovation in advanced semiconductor production to reduce dependency on foreign powers, such as Taiwan, for America’s microchip supply. Further, the development of a European semiconductor industry will support aims to decrease the general reliance on Asia for the world’s microchips.

By Felicity Bradstock for Oilprice.com