Overview
Today's Deep Dive is 1,194 words and an 8-minute read.
The United States has embarked on an ambitious journey to stabilize the future of its semiconductor supply chain, reflected by both domestic and international efforts. On September 27, the US National Science Foundation and Department of Commerce announced a new $30 million funding opportunity, as part of the 2022 CHIPS and Science Act, for a novel initiative to train the future semiconductor workforce. This coincided with a watershed agreement reached earlier in the month to establish a new semiconductor fabrication plant in India, as well as recent discussions with Japan and the European Union that reinforced bilateral cooperation on trade and technology, particularly regarding critical mineral supply chains.
At the heart of this initiative is the US government’s goal to safeguard its supply chains from foreign dependencies and geopolitical risks. Semiconductors are the backbone of nearly every modern technology, from smartphones to advanced military systems, and the demand for these tiny but powerful chips continues to grow. Currently, over 70 percent of global semiconductor production occurs in East Asia, primarily in Taiwan, and this concentration of supply has raised concerns within US government and industry circles, given the potential for disruption stemming from tensions in the Taiwan Strait.
While Washington’s efforts so far have been an important first step, much remains to be done to secure of the future of the US semiconductor supply chain. The complex nature of global supply chains and competition from foreign actors present significant challenges, requiring a balance of domestic and international restructuring to hedge against potential risks.
US Domestic Action and International Collaboration Efforts
The CHIPS and Science Act marked a significant shift in US policy toward semiconductor production, providing $39 billion in incentives for semiconductor manufacturers to build or expand semiconductor fabs in the US and an additional $13 billion in research and workforce development. Since its enactment, the US Department of Commerce has announced over $30 billion in proposed CHIPS private sector investments, expected to generate over 115,000 manufacturing and construction jobs across the country.
However, the CHIPS Act is just one piece of the puzzle. While it provides the necessary funding to jumpstart domestic semiconductor production, reshoring this industry is a long-term endeavor that will require sustained investment in infrastructure and technological innovation. Some experts argue that the $52 billion allocated under the act may not be enough to fully restore US leadership in semiconductor manufacturing, particularly given the capital-intensive nature of the industry.
Therefore, while domestic efforts are crucial, international collaboration will prove crucial in securing US semiconductor supply chains. The US has already made significant strides in aligning with allies to restrict the flow of advanced semiconductor technology to China. For example, Japan and the Netherlands – home to critical semiconductor equipment manufacturers – introduced similar export controls targeting China’s semiconductor industry in 2023 following Washington’s move in October of the previous year.
At the same time, US policymakers are pursuing deeper partnerships with other semiconductor-producing economies, such as South Korea, the European Union, and India to create a more diversified global supply chain. Most recently, on September 30, the US signed a Memorandum of Cooperation with Norway, a notable non-EU semiconductor producer, on the trade of critical mineral which fits into the diplomatic effort of the Minerals Security Partnership, a collaboration of 14 countries and the EU to at analyze public and private investment in responsible critical minerals supply chains globally.
The Biden administration has also engaged with Taiwanese semiconductor producers to increase investment in the US. Notably, in April 2024, the administration awarded $6.6 billion in grants to Taiwan Semiconductor Manufacturing Company (TMSC), the world’s largest producer of advanced chips, to help in the construction of the firm’s first US hub in Phoenix, Arizona.
By diversifying sources of critical materials and equipment while boosting domestic capacity, the US can reduce its reliance on any single country or region, making the overall supply chain more resilient.
Geopolitical Risks and Challenges
Geopolitical risks loom large behind Washington’s semiconductor plans, with the rivalry between the US and China at the forefront of current semiconductor policy. Beijing has aggressively pursued self-sufficiency in semiconductor manufacturing, investing heavily in domestic production through its “Made in China 2025” initiative. The US government views this as a direct threat to its technological leadership and has aimed to slow China’s technological advancement in critical sectors such as artificial intelligence and quantum computing, where advanced semiconductors as vital.
Meanwhile, the risk of conflict in the Taiwan Strait continues to loom large. Any disruption to TSMC’s operations could have far-reaching consequences for global semiconductor supply chains, particularly as the chip producer has increasingly been contributing to the development of US domestic semiconductor production capabilities. In effect, Washington has attempted to marry the seemingly opposing implications of this concern, supporting Taiwan’s semiconductor industry and economic sovereignty with investment and diplomatic support, while bolstering incentives for domestic manufacturing and research.
The reason underlying this is that the US faces several challenges in fully reshoring semiconductor production. First, cost competitiveness remains a significant hurdle. Semiconductor production is more expensive in the US compared to Asia due to higher labor and operational costs. Even with government subsidies, maintaining cost parity with economies such as Taiwan and South Korea will be difficult. As a result, policymakers will need to develop strategies to ensure that US-based production remains globally competitive.
Another challenge is the complexity of the semiconductor supply chain, which is deeply globalized and involves multiple stages of production across different countries. Achieving complete supply chain independence would be impractical, if not impossible. Instead, US policymakers are likely to focus on supply chain resilience – ensuring that critical inputs, such as raw materials and chip-making equipment, can be sourced from diverse and reliable suppliers.
Looking Ahead: Innovation and Long-term Strategy
Innovation will be the cornerstone of the US’s long-term semiconductor strategy. Maintaining leadership in semiconductor design and technological innovation is just as important as reshoring production. To stay competitive in the global semiconductor race, the US could seize the opportunity by investing more heavily in research and development (R&D) for emerging technologies such as quantum computing and artificial intelligence.
Public-private partnerships will be crucial for driving innovation. The US government can play a key role by continuing to fund research in critical areas and create incentives for private companies to invest in cutting-edge technologies. Policies that support intellectual property protection and foster collaboration between industry, academia, and government will help the US maintain its technological edge in semiconductors.
For businesses, the path toward building a resilient semiconductor supply chain presents both risks and opportunities. While companies can benefit from government incentives to create a more secure supply chain, challenges such as higher US production costs and skilled labor shortage remain. Investing in technological innovation, particularly R&D, could reward firms with a competitive edge. Political developments in Washington serve to inject uncertainty into the US semiconductor policy outlook, as a change in leadership could potentially reset the impact of the CHIPS and Science Act; a shift toward a more protectionist trade policy, including tariffs on US allies, could undo the risk alignment on critical mineral supply chain vulnerabilities that Washington has built with its global partners in the past few years.
