The Road Ahead for the Domestic Semiconductor Chip Industry

Bradley Intelligence Report

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Across the U.S., public and private investment is pouring into America’s nascent semiconductor chip industry. Spurred by last year’s bipartisan CHIPS and Science Act, industry and government are working hand in glove to increase domestic manufacturing in a bid to stake out a place in an industry of the future, as well as safeguard domestic supply of these crucial components amid escalating tensions with China and increasing anxieties about Taiwan’s independence. While public and private investment has materialized in droves, there are still obstacles to the homegrown semiconductor industry, including regulatory delays, labor market gaps, and geopolitically driven supply chain disruption. The success or failure of the industry could have wide-ranging ramifications for American businesses and individuals, affecting everything from the tech labor market to electronics availability to the economic future of the new industrial belt. 

Domestic Semiconductor Ambitions

Semiconductor chips are small electric circuits, usually composed of silicon, that are vital components of virtually all modern electronics – from cell phones to washing machines to cars. In addition to commercial uses, chips are crucial to America’s self-defense: The Defense Department needs about 1.9 billion per year. Since about the 1990s, the semiconductor chip industry has been heavily concentrated in Asia, with the highest-tech chips produced in Taiwan. As geopolitical tensions between Washington and Beijing have escalated, anxieties about the security of the semiconductor supply chain have risen, prompting the Biden administration to kick off an ambitious plan to foster a domestic semiconductor chip manufacturing industry.

In addition to safeguarding the supply chain, a homegrown chip industry will be a boon to the economy, adding to the high-tech manufacturing resurgence the Biden administration has attempted to foster and adding an estimated 40,000 new jobs to the economy. The Biden administration has offered over $76 billion in grants, tax credits and other subsidies to encourage domestic production; on the business side, more than 35 companies have pledged $210 billion for manufacturing projects related to chips since 2020, according to the Semiconductor Industry Association. A Boston Consulting Group study in 2020 found that investment at the time could boost U.S. market share to as much as 14% by 2030.

Roadblocks at Home

Despite this effort, the road to a thriving domestic chip industry is not bump-free. Concern is rising among industry professionals that issues with red tape, the labor market, and global market disruption could endanger U.S. efforts to become a major player in the global chip market. Some critics question the U.S.’s ability to remain competitive within a more established global market given higher barriers to entry to establish new manufacturing outfits in the U.S. A Bloomberg analysis assessed that from 1990 to 2020, the time to construct a new chip plant in the U.S. rose 38% as new requirements, such as Clean Air Act certification, came into force (on the flip side, some argue that these new requirements make these plants longer-lived and more popular than less conscientiously constructed competitors).

Finding enough workers to fill new jobs in the growing semiconductor industry is a serious worry. The semiconductor industry has struggled to hire for years, in part due to too few students entering the relevant academic fields, and the new boom will also contend with the tightest labor market in years. Studies by consulting groups have projected a shortfall in the industry of 70,000 to 90,000 skilled workers – eclipsing all of the projected new roles from recent investment, as well as illustrating a deeper hole in semiconductor hiring. The shortfall of related but crucial workers, such as construction, could run to 300,000, per a McKinsey analysis. Several chipmakers and universities have proposed large budgets to spur educational investments and candidate training: Intel has allocated $100 million for universities, community colleges and other technical programs, while Purdue University has pledged to graduate 1,000 new engineers every year. Even if successful, the first few years of the U.S. semiconductor industry will feel the labor market pains.

Despite significant investment, it is also questionable whether the U.S. will obtain its goal of becoming a global leader in the chip market. Taiwan will likely remain the hub for the most technologically advanced – i.e., smallest – semiconductor chips. It is unclear whether Taiwan-based chipmakers plan to bring their highest-tech chips to U.S. factories. TSMC has pledged a factory producing three nanometer chips in 2026, although it plans to start supplying Apple with two nanometer chips in 2025, and Intel and Samsung have not commented specifically on their higher-tech production plans. The U.S. is also not the only place where semiconductor chip producers are looking to establish new plants. Intel and TSMC are each planning multiple new plants in Germany. Taiwanese companies have announced hundreds of billions of investment dollars to hold onto their top spot, and the European Commission, India and South Korea are also offering incentives to establish new plants on their shores.

Chips and the Trade War

The chip production effort comes amid an already-heated trade war between Washington and Beijing, one that could threaten growth in both countries. In October, the U.S. introduced sweeping regulations limiting the export of key technologies to China, an attempt to limit Beijing’s access to sensitive U.S. technology and to put a damper on China’s own high-tech ambitions. In the following months, Japan and several countries in Europe followed suit, with Japanese curbs on crucial chipmaking equipment reportedly prompting serious worry in Beijing. In response, China last month restricted exports of germanium and gallium, two minerals critical to the production of some chips.

International disruption in the chip market in the short term could have significant impacts on the U.S. economy, slowing progress on plants and trickling down to businesses and consumers who must pay higher prices for electronic equipment as demand for chips outpace supply. In recent years, the cost of new cars has spiked as chips became hard to source, and many automakers were forced to slash production schedules.

In the longer term, international observers remain concerned about Taiwan’s independence. The militarization of the South China Sea continues, and rhetoric from Beijing concerning Taiwanese independence has become fierier. Leaders in the U.S. and Europe worry about significant disruption were semiconductor trade from Taiwan to be abruptly cut off if China takes more aggressive steps to control Taiwan’s economy or government.

Implications for the U.S. Economy

A successful push into domestic semiconductor chip production has the possibility to supercharge the new U.S. manufacturing boom, fostering growth in high-paying jobs and in new manufacturing centers, spreading prosperity out from traditional high-tech hubs. Cementing the U.S. supply of semiconductor chips would shield U.S. consumers from shortages and price spikes for electronics and appliances of all kinds. However, the U.S.-Chinese trade war fed by protectionism and national security-based restrictions on both sides will continue to roil the international economy until (and likely even when) each country’s supply chains are insulated from the other. The race for technological components, critical minerals, and intellectual property is already reshaping the American economy – the semiconductor industry is simply among the most visible industries caught up in it.