How Congress Can Save U.S. Semiconductor Production and Innovation

In the more than 60 years since the first semiconductor company opened in the Golden State, computer chips have become as quintessentially Californian as the movie industry. Silicon Valley’s nickname even comes from the material used to make the chips that are foundational to so many aspects of our lives.

Today, semiconductors are California’s top export. The state ships $11.2 billion in semiconductors annually and the chip industry supports more than 64,000 jobs in California, accounting for nearly $26 billion in wages each year. Beyond that, the Golden State’s top industries rely on semiconductors to make the movies, devices, and produce California is known for. Advancements in U.S.-based semiconductor research, design and manufacturing have benefited these industries and countless others, supported millions of American jobs, and fortified our national security.

Without action from Congress, though, the U.S. semiconductor sector will be diminished as chip companies open new manufacturing facilities, known as fabs, in countries that provide considerably more incentives to semiconductor businesses than the U.S. does.

Thirty years ago, the United States and Europe were the world’s largest chip producers, but today both lag behind East Asian countries, where 75% of the world’s chips are now produced. Between 1990 and 2020, America’s share of the world’s modern chip manufacturing capacity fell from 37% to 12%. During the same period, China’s market share grew from less than 1% to 15%.

What caused this shift? Other countries began to offer incentives to semiconductor companies to build their facilities there. As a result, it’s 25% to 50% more expensive to build and operate a fab in the U.S. than overseas.

The House and Senate both passed competitiveness bills that close this gap by providing $52 billion in incentives to build fabs domestically and research investments. Reconciling these bills and sending a version to President Biden would put the U.S. on the path to becoming a leader in semiconductor manufacturer again. The investments, combined with America’s well-educated workforce and robust intellectual property laws, will entice companies to build the fabs needed to meet expanding global demand in America.

One assessment by the Semiconductor Industry Association and Oxford Economics found that a $50 billion federal investment would add $24.6 billion annually to the economy and create an average of 185,000 temporary American jobs annually for five years. Such an investment would also spur hundreds of billions of dollars in private investments in the U.S.

Given that so many semiconductors are produced in East Asia, a natural disaster or international conflict in the region could precipitate another global chip shortage. U.S.-based fabs could help mitigate against these sorts of supply chain shocks. Stateside fabs would also increase the number of domestically produced semiconductors available for the Department of Defense to use for national security technology.

As it finalizes competitiveness legislation, Congress should also include an investment tax credit for semiconductor manufacturing and design. While the U.S. is the global leader in chip design, its lead has slipped in recent years. An investment tax credit would fortify America’s leadership position in this critical stage of semiconductor production.

Each day Congress fails to act endangers America’s semiconductor leadership. Commerce Secretary Gina Raimondo recently warned that the U.S. is mere “months” away from losing out on opportunities if Congress fails to pass legislation. Semiconductor companies, she said, “can’t wait any longer” and are actively considering locating their fabs elsewhere.

Members of the House and Senate can’t let new fabs—and the jobs they bring—go abroad. They can’t let the clock run out. It’s time to bring semiconductor manufacturing back home to the land of innovation.

John Neuffer is President & CEO of the Semiconductor Industry Association.