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Semiconductor shortage leaves U.S. lawmakers searching for elusive solution

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There is bipartisan support to increase domestic chip manufacturing capacity with some U.S. automakers forced to idle their factories as supply chains are disrupted by the global pandemic. This would make a political sell-off relatively easy to include in President Joe Bidens’ infrastructure package, currently being drafted with a focus on job creation. But desire and money are not enough to revive an industry. The United States continues to lead the world in chip design, but manufacturing has largely been handed over to foreign companies. The few companies that manufacture chips nationwide, including Intel Corp. and Texas Instruments Inc., currently do not have the capacity or the execution track record to compete with Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co., analysts said.

Even China, which has invested billions of dollars in expanding its capacity, has little to show so far, according to Anand Srinivasan, senior semiconductor analyst for Bloomberg Intelligence.

It’s not for lack of trying. They invest a lot of money in it and they are not competitive at all. That’s the risk here, ”he said.

The chip shortage is expected to wipe out $ 61 billion in sales for automakers as production has stalled for lack of complex pieces of silicon. And the fallout now threatens to hit the much bigger electronics industry.

Congress sees an opening to address the problem by creating tax incentives and providing billions of dollars in federal grants as incentives to build semiconductor factories, known as fabs, in the United States, supporters say the Approval of subsidies as part of a larger infrastructure package could prevent the next shortage, although it will do little to help the current one.

It could help US companies become less dependent on a handful of foreign suppliers and avoid supply disruptions due to trade disputes or outside forces, such as the pandemic. It would also reduce the risk to national security of chips used in defense technology or government systems. And that could create many well-paying advanced manufacturing jobs.

The Semiconductor Industry Association is pushing for Congress to give the green light to tens of billions of dollars in the next infrastructure bill, said David Isaacs, vice president of government affairs at the trade group. These subsidies could offset the higher cost of producing chips in the United States

Sustained investment

Building woodchip factories is expensive and will require sustained investment. Semiconductor factories making the most advanced chips can take up to three years to build, and cost around $ 10 billion each, Srinivasan says.

A substantial investment by taxpayers would pay off, according to the chip industry. Approving $ 50 billion in incentives would mean the United States could capture 25% of the world’s new manufacturing capacity, compared to 6% without federal government help, according to a Boston Consulting Group study funded by SIA. The United States is said to be the second most attractive place to build a factory, after China, according to the report, and that could mean up to 19 new facilities, creating 70,000 well-paying jobs.

Biparty groups in Congress have pushed for grant programs and tax credit incentives. They think they have a good chance this year in the infrastructure bill that will become Bidens’ top priority after another round of virus relief next month.

Texas Representative Michael McCaul, senior Republican on the House Foreign Affairs Committee, spoke in the White House about the need for semiconductor manufacturing subsidies and was well received, according to a committee aide.

The Chinese Communist Party has repeatedly shown that it has no problem militarizing its control of the supply chain to take advantage of it and to punish its perceived enemies, “McCaul said. We absolutely cannot let that happen. happen with semiconductors. “

Senators John Cornyn, a Republican from Texas, and Mark Warner, a Democrat from Virginia, are leading the effort in the Senate. Cornyn joined bipartisan senators in a February 2 letter to National Economic Council director Brian Deese urging the administration to act on the global shortage and secure funding to implement the approved semiconductor provisions. these last years. National Defense Authorization Act. Senate Majority Leader Chuck Schumer, a Democrat from New York, also signed the letter.

This shortage threatens our post-pandemic economic recovery, the consequences of which are particularly serious in the states dominant in the automotive industry, ”the senators wrote.

Warner, in an emailed statement, said that without efforts to boost manufacturing, the United States runs the risk of serious supply chain and security vulnerabilities, while giving our adversaries an advantage. the whole world, who do not let go in this area. “

Chinese competition

Officials in the Biden administration have identified semiconductors as a strategic area for domestic investment to compete with China. The president is expected to sign an executive order in the coming weeks calling for a review of the supply chain for critical products, including semiconductors.

The defense bill passed in December authorized the use of federal incentives to promote semiconductor manufacturing and research in the United States, but the bill did not include funding for grants and credits. tax that lawmakers deem necessary to attract investment.

Taiwan Semiconductor Manufacturing and Samsung both plan to build manufacturing plants in the United States TSMC has announced plans to build a $ 12 billion plant in Arizona – if it manages to organize enough nationwide subsidies and federal. Samsung plans to spend more than $ 10 billion to build its most advanced logic chip manufacturing plant in Austin, Texas, but plans are not final.

If you’re TSMC or one of the big foundries, the US government is going to have to be worth it, ”said Vivek Arya, technology analyst at BofA Securities Inc. It’s not because it’s important to regional security. a successful business. “

Europe, United States, China, and Japan are all pushing chipmakers to build state-of-the-art factories within their borders, and semiconductor makers won’t build more production capacity as demand, Arya said. Asia has a head start because the electronics manufacturing supply chain is located there, he added.

The United States has fallen further behind in chipmaking, even as semiconductors have become more integrated into the economy as a critical part of technologies ranging from cars to artificial intelligence, according to Stephen Ezell, head of global innovation policy at Information Technology and Innovation. Foundation. The United States’ share of global semiconductor manufacturing capacity fell to 12% in 2020, from 37% in 1990, according to data from the SIA.

An IITIF report shows that the United States offers relatively few research and development grants compared to other countries – ranking 24th out of 34 among the major economies. Chinese incentives are about 2.7 times more generous than those offered in the United States, according to the report.

And American incentives are about to be cut. A change built into the Republican tax law of 2017 due to come into force in 2022 changes the accounting rules for R&D credit, making the incentive around $ 40.1 billion less valuable next year, according to estimates of the Tax Foundation. The semiconductor industry says these advantages must be preserved and that new incentives must be created to level the playing field for the United States.

It requires long-term investment and structural commitment, “Arya said. It cannot be caught up in politics and the budget process. This is where it has fallen behind.”

For more articles like this, please visit us at bloomberg.com

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This story was posted from an agency feed with no text editing.

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