Securing the US semiconductor sector

The semiconductor industry is crucial for the US economy and national security, but it faces significant challenges. The CHIPS and Science Act aims to address domestic manufacturing shortfalls and reduce reliance on foreign suppliers, having already spurred over US$450 billion in private investments. But concerns persist amid financial constraints, supply chain disruptions and geopolitical tensions with China. Strategic policy reforms, international cooperation and enhanced workforce development are vital for securing US leadership in this critical sector.

The semiconductor industry has become an increasingly critical pillar of the US economy and national security, underscored by the rapid construction of semiconductor manufacturing facilities across the country. Intel’s new Fab 42 facility and Taiwan Semiconductor Manufacturing Company (TSMC)’s factory in Arizona represent significant investments in domestic production capabilities.

The enactment of the CHIPS and Science Act in 2022, designed to bolster US semiconductor manufacturing capacity, further highlights the sector’s critical importance and Washington DC’s commitment to maintaining its technological edge in a competitive global market.

Despite holding only 12 per cent of global manufacturing capacity, the United States commands over 46 per cent of total semiconductor sales as of 2024, demonstrating its influential position in the global market. This disparity underscores the strategic necessity of expanding domestic manufacturing capabilities. Recognising this, the US government enacted the CHIPS Act to address this imbalance by aiming to triple US semiconductor manufacturing capacity by 2032.

According to the Semiconductor Industry Association, the CHIPS Act has spurred more than US$450 billion in private investments into the US semiconductor industry, which has resulted in the creation of more than 56,000 jobs and 83 new semiconductor ecosystem projects across 25 states. This legislative effort clearly reflects the critical importance of the semiconductor sector in securing the nation’s future.  

But even with these advancements, several concerns persist. Domestically, financial constraints present a significant challenge, especially for small- and medium-sized semiconductor firms struggling to secure adequate financing. While this issue is not unique to the United States, it is particularly notable in a sector that requires substantial capital investment for research, development and production. The construction of  a TSMC plant in Arizona and an Intel plant in Ohio have been delayed by a lack of local professional personnel, market challenges and a reliance on government subsidies.

The high demand for semiconductors has consistently outstripped supply, leading to persistent supply chain disruptions affecting various industries reliant on these critical components. While there are indications that the industry could see some relief due to a potential shift towards excess supply in 2024, other issues remain. Climate change poses a growing threat, especially to West Coast factories that are vulnerable to wildfires, droughts and extreme weather events, which exacerbate supply chain issues.

Internationally, the United States faces concerns regarding its dependence on foreign semiconductor suppliers, with only about 11 per cent of chips manufactured domestically. This reliance on foreign suppliers, particularly in East Asia, introduces risks to national security and supply chain stability. Geopolitical tensions, trade restrictions or regional instabilities in these supplier countries could disrupt the US semiconductor supply chain, impacting critical industries from automotive to defence. The interconnected nature of global supply chains means disruptions can lead to significant delays and shortages, limiting the United States’ ability to innovate and respond to emerging threats.

China presents a substantial challenge to the United States’ position in the semiconductor sector. While the United States leads in semiconductor sales, China operates a significantly larger number of factories to achieve its ambitious ‘Made in China 2025’ aim of 70 per cent self-sufficiency in semiconductors by 2025.

US export restrictions on semiconductors have hindered China’s progress, which Beijing has labelled a ‘technology blockade’. But the North American semiconductor manufacturing equipment market was valued at US$12.05 billion in 2023, while China’s market was still significantly larger at US$36.6 billion. China also had a self-sufficiency rate of 31 per cent in 2023, with projections suggesting an increase to 39 per cent by 2027.

Central to the US strategy for strengthening the semiconductor industry is prioritising rational policymaking. The Semiconductor Industry Association advocates for several critical measures to secure the industry’s future. Enhancing STEM education and reforming immigration policies are essential to cultivating a skilled workforce that drives innovation and sustains competitiveness.

The US government should also recognise the urgency of providing financial aid to support domestic factory construction. These initiatives not only safeguard technological advancements but also foster sustained industry expansion. Robust support for smaller firms, climate-related risk management and balancing supply and demand are essential for industry resilience and stability. 

At the international level, strengthening economic and security ties with South Korea, Taiwan and Japan is crucial, given their pivotal roles in the global semiconductor supply chain. Collaborative multilateral efforts will enhance collective resilience against supply chain disruptions and promote mutual technological advancement. Taiwan, for instance, produces 90 per cent of Nvidia’s top chips and leads the semiconductor industry. TSMC is a long-term global leader, a position that is unlikely to change for the foreseeable future, demonstrating Taiwan’s strategic importance.

The semiconductor industry is vital to the US economy and national security. The United States must leverage its strengths in innovation, international alliances and strategic policy reforms to maintain its leadership. Rational, evidence-based decision-making and robust international cooperation are key to navigating the complexities of the global semiconductor industry.  

Source: East Asia Forum