Ensuring continued American leadership in the world’s most important industry — that’s the intent of two bipartisan bills recently introduced in Congress: the Creating Helpful Incentives to Produce Semiconductors (“CHIPS”) for America Act introduced by Sens. John CornynJohn CornynSenate panel advances bill blocking tech giants from favoring own products Senators introduce bill aimed at protecting Ukrainian civilians Lawmakers press Biden admin to send more military aid to Ukraine MORE (R-Texas) and Mark WarnerMark Robert WarnerCIA says 'Havana syndrome' unlikely a result of 'worldwide campaign' by foreign power Schumer opted for modest rules reform after pushback from moderates Biden moves to boost security of sensitive national security systems MORE (D-Va.) and the American Foundries Act of 2020 introduced by Sens. Tom CottonTom Bryant CottonSenate's antitrust bill would raise consumer prices and lower our competitiveness Sinema scuttles hopes for filibuster reform Republicans threaten floor takeover if Democrats weaken filibuster MORE (R-Ark.) and Chuck SchumerChuck SchumerDemocrats calls on Biden administration to ease entry to US for at-risk Afghans Predictions of disaster for Democrats aren't guarantees of midterm failure Voting rights and Senate wrongs MORE (D-N.Y.). Between them, the proposed legislation would expand federal investment in semiconductor research and technology development, introduce incentives to locate semiconductor manufacturing facilities in the United States, and provide expanded tax credits for investment in the sector.
As global leadership in semiconductors is increasingly contested — with China investing well over $100 billion to develop its industry, and other countries, from Germany and the Netherlands, to Israel and Singapore, offering attractive incentives to locate semiconductor R&D and manufacturing in their nations — the United States needs aggressive public-private collaboration to ensure it continues to lead in a foundational technology it originally developed.
Semiconductors represent the lifeblood of the modern economy, the brains that drive a vast panoply of digital technologies from smartphones and laptops to artificial intelligence, drones, and driverless cars. With the digital economy already accounting directly for nearly one-quarter of global GDP and analysts predicting that as much as half of the value generated in the global economy will be created digitally in the decade ahead, it’s semiconductors driving this revolution.
Put simply, a country’s leadership in the global digital economy starts with its leadership in semiconductors.
Moreover, in 2018, semiconductors were America’s fourth-most significant export, with $44 billion in exports. Beyond the economy, America’s national security and defense platforms — from satellites and stealth aircraft, to nuclear missiles and air defense systems — fundamentally depend on the chips operating these systems.
Semiconductors represent a genuine American success story, tracing their lineage back to the Nobel-prize winning breakthroughs of John Bardeen, Walter Brattain, and William Shockley at Bell Labs in 1947 and Jack Kilby’s invention of the integrated circuit at Texas Instruments in 1956. Intel, Micron, Qualcomm and others followed with breakthroughs that in the following three decades kept America at the forefront of the industry.
But U.S. leadership in the sector was seriously challenged by Japan, Korea, and others in the 1980s, as those nations made breakthroughs, especially in semiconductor memory chips, and claimed significant market share from U.S. firms.
The U.S. government aggressively responded in the mid-1980s with a suite of initiatives, including launching SEMATECH — a public-private partnership that co-invested in R&D to advance chip manufacturing — and expanding semiconductor research initiatives at the Defense Advanced Research Projects Agency (DARPA). These key interventions stabilized the industry and yielded technological breakthroughs in semiconductor design and manufacturing processes that sustained American industry over the ensuing three decades. They also played a key role in perpetuating “Moore’s Law” — the notion that the number of transistors on a microchip doubles about every two years, effectively meaning a semiconductor’s capability in terms of speed and processing is doubled, even though its cost is halved — ushering in the modern digital economy.
But American leadership in semiconductors is not pre-ordained, and others crave it — especially China, whose $150 billion National Integrated Circuit strategy seeks to dispossess the United States of its world-leading position, while ideally cutting all imports of U.S. semiconductors by 2035. Other nations like Israel and Singapore haven’t resorted to China’s innovation mercantilism, but they are offering attractive incentives to spur R&D, build talent bases, and attract manufacturing activity to their shores. At the same time, innovating in this industry has become ever-more difficult and expensive; for instance, Taiwan’s TSMC will have to invest $20 billion to bring its newest, 3-nanometer, fab online.
Against this backdrop, the CHIPS Act is poised to make vital contributions to ensure America’s semiconductor industry continues to flourish amidst intense global competition. It will commit $7 billion to semiconductor research, $3 billion for a new National Semiconductor Technology Center to research and prototype advanced semiconductors, and create a new Manufacturing USA Institute for Semiconductor Manufacturing. It will encourage both U.S. and foreign semiconductor manufacturers to locate new fabs here, with a $10 billion federal matching grant for state/local incentives to attract manufacturers. This will help level the playing field with other nations’ incentives, and — unlike China’s practices — would be entirely WTO-consistent. Finally, it would provide a 40 percent investment tax credit for semiconductor equipment and facility expenditures.
As important as any of this, the CHIPS Act represents Congressional and bipartisan recognition that the United States is engaged in a fierce contest for leadership in technologies of the future — from biotech and clean energy, to 5G, AI, quantum, and semiconductors — and that effective government policy — innovation policy, not industrial policy — can empower and enable America’s private-sector to continue to lead. But there’s a vital role for the government to play in co-investing in R&D, coalescing industry consortiums to co-developed advanced manufacturing production processes and investing in the talent base and physical and digital infrastructure that underlies all this.
The CHIPS Act is for semiconductors, but it’s the clarion call that America is ready to compete and win in the technologies and industries that will define the global economy in the decades ahead.
Stephen Ezell (@SJEzell) is vice president of global innovation policy at the nonprofit Information Technology and Innovation Foundation (ITIF), a leading think tank for science and technology policy.