A Semiconductor Strategy for the United States

Summary

Semiconductors are the engine of the digital economy. The semiconductor industry has moved to the forefront of political discourse in the United States and other countries. Surges from America’s economic rivals and challenges facing its own domestic industry, coupled with supply chain shortages, have prompted the US government to “do something” to support the industry. The most visible response is the CHIPS Act, which allocates $39 billion in public funding to national semiconductor manufacturing facilities and additional billions for research and development (R&D) and workforce programs. in the field of semiconductors.1

Many cite America’s declining share of semiconductor manufacturing as a justification for the moves, with “unfair” subsidies from other countries being the root cause. Much of the debate has focused on assessing what other countries are doing and adapting their programs.

Of course, benchmarking is not a strategy. Voluntary exit from global markets is not a strategy. Addressing short-term product shortages (in a way the industry cannot) is not a strategy. In fact, the argument that the industry needs funding to address shortages rings hollow at the time of this writing, as demand for semiconductors for personal computers and smartphones plummets.2 This “downcycle” is not only good for consumers of these products, but it also shifts the policy debate to a more appropriate focus: how does the United States develop a sustainable, market-centric semiconductor policy that pulls harnessed the strengths of the financial system, industry and academia to collectively accelerate the industry – and not just for a few years, but into the decade to come? How is the United States ensuring that global competition in semiconductors doesn’t turn into “zero-sum” negotiations around moving manufacturing capacity, but rather that competition brings out the best in the world? America: Its Ability to Harness the World’s Best Scientists and Entrepreneurs to Solve Difficult Technical Problems, Develop Business Around Those Solutions, and Scale Them Globally?

In short, how does the United States build an open, comprehensive, long-term, committed, patient, and successful government strategy?

To do this, policy must recognize that competitive advantages come not from emulating the approaches of others (for which US capabilities are not suited) but rather from deepening the existing advantages of the US position. These American advantages are deep and wide-ranging, and should not be underestimated.

I recommend that government policy focus not just on increasing America’s manufacturing capacity, but rather on comprehensively strengthening the entire semiconductor industry, enabling it to withstand the supply shocks, drive technology transitions and win future industry checkpoints. Basic research and the commercialization of R&D breakthroughs are the ingredients for future success and will determine the global footprint of semiconductor manufacturing as much as the subsidies.

I recommend using the CHIPS Act funding as share capital in a government fund that can scale via industry and Wall Street co-investment to over $300 billion and can lower the cost of capital of l industry by taking advantage of the Federal Reserve’s balance sheet. This fund would be self-replenishing, as it would harness American innovation to finance projects that have market-level rates of return and would generate significant returns for the government. These returns would then be reinvested in the next set of challenges facing the United States in three, four, five and 10 years.

Instead of copying policies that pin all hope on singular national champions, often dressing them up with policy goals that may or may not be achievable, the equity fund would have tiers of financial and industry partners – enabling it to provide financing to small and large companies — and would operate at all levels of the value chain and across the ecosystem. I urge this U.S. government fund not to compete with incentives from other countries, but would rather encourage it to partner with those who want to seamlessly co-invest in a growing, global semiconductor industry. , diversified, risk-free and market-oriented. The resulting robust global supply chain, populated with more clusters and second sources of supply across Europe and Asia, would only help the United States.

Along with the creation of this fund, the United States could tackle other obstacles to success. The country simply does not have enough engineers to build and accelerate the manufacturing facilities of the plan – targeted and accelerated immigration must begin now. Building and scaling up manufacturing plants (fabs) in the United States takes up to a year longer than in Asia. This self-inflicted slowness, if left unaddressed, will cost billions in lost opportunity and technology leadership for companies building in the United States – thwarting any benefit from the government-funded billions. The fund would have a policy arm that partners with federal and state governments to aggressively simplify permit 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 a mandate to pick the winners.

Finally, to effectively execute a long-term, committed, and patient investment program, the United States needs a new hybrid government team capable of evaluating, structuring, and monitoring investments at the intersection of semi- drivers and finance. The government must quickly recruit this team from the spheres of semiconductors, finance, and politics and insulate the team (via legislative action) from short-term political considerations while maintaining the oversight capacity of elected leaders. As the primary point of contact for the execution of US semiconductor strategy, this team would provide speed, consistency, and clarity in its decision-making authority role. It would work through different administrations, through industry cycles, through new generations of technology, and through shifts in geopolitical priorities; and in doing so, it could permanently partner with global industry to create a resilient, winning, global, and market-driven US semiconductor industry.

About Christopher Easley

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