Business

Saving America’s Digital Future

A worker at a semiconductor fabrication facility owned by Dutch chipmaker NXP Semiconductors N.V. in Chandler, Ariz., in an undated photo provided on September 29, 2020. (Handout courtesy of NXP Semiconductors)
Semiconductors are essential to our modern way of life. How and where they’re made is a looming national-security crisis.

Whoever is elected president in November will have to confront one of the most important economic and national-security issues of our time. And it’s embedded in every one of our computers, our phones, and every devices that connects us to the Internet and to digital information.

Semiconductors, sometimes called microchips, are essential to our modern way of life. But who makes them, and where they are made, is looming as a national-security crisis.

Thirty years ago more than one third of all microchips made around the world came out of the American companies that gave Silicon Valley its name (silicon being the key ingredient in manufacturing microchips containing billions of microscopic transistors). Today that number has slipped to only 12 percent –while China is projected to dominate global semiconductor production by 2030. Americans still lead in terms of semiconductor design and innovation. But from the standpoint of making sure the chips we rely on every day, including our Defense Department, are made safely and securely, our national security and economic future hangs in the balance.

A bill in the Senate cosponsored by Senator John Cornyn (R., Texas) and Mark Warner (D., Va) addressed some of these concerns. Dubbed the CHIPS for America Act, the bill was supposed to provide billions in funding research and development, and an income-tax credit for semiconductor equipment or chip-manufacturing-facility (fab) investment through 2027. The bill also calls for creation of a “Manufacturing USA” institute for semiconductor manufacturing as well as a national semiconductor strategy. Unfortunately, much of the funding was stripped out of the bill, as was the income tax credit. So now much more needs to be done.

A recent study by the Boston Consulting Group and the Semiconductor Industry Association calls for funding up to 19 new fabs over the next decade (right now we have 70). The association would like to see a $50 billion federal investment which it forecasts will create more than 70,000 high-paying jobs and would position the U.S. to capture a quarter of the world’s growing chip production — compared to just 6 percent if Washington does nothing.

The price tag may be startling. But fabs are expensive to build, each costing billions of dollars, and they get more expensive every year. The equipment needed to create these delicate but essential tools of the digital age is very costly; every advance in design means retooling virtually from start to finish. It’s a bigger capital investment than a lagging semiconductor sector can afford to face alone. But the cost also reflects security concerns (i.e. making sure we can protect IP and design from intruders, especially from China, and that faulty or even malicious components don’t creep into the production process.)

There are other things Washington can do, including building up our research and development resources and semiconductor workforce, to sustain an important American industry. East Asia’s other major chipmakers besides China are allies such as Japan, South Korea, and Taiwan who can be encouraged to build their new fabs here in the U.S. (Taiwan already done so with a commitment to build a $12 billion state-of-the-art chip manufacturing facility in Arizona.)

The good news is, we’ve been here before. The last time the American semiconductor industry found itself in crisis was in competition with Japan in the 1980s, as the industry our scientists and engineers had pioneered looked as if it was disappearing into fabs belonging to Toshiba and Fujitsu. The solution was the creation in 1987 of SEMATECH, a public-private partnership to pool IP among 14 semiconductor companies to solve manufacturing issues and aggressively pursue market share versus the Japanese competition.

SEMATECH proved to be a stunning success. It was so successful, in fact, that the federal government was able to drop its funding in 1996, as the industry became self-healing — ironically with a growing number of Chinese customers.

This time, however, the issue goes beyond a simple public-private partnership solution. The Japanese were fierce business rivals, but Japan itself remained a trusted ally with no geopolitical ambitions. China is a very different story. Beijing’s push to become totally self-sufficient in semiconductors and to command the heights of the microchip industry is part and parcel of its larger push for global hegemony. If China succeeds, and our manufacturing capacity and market share continues to shrink, we could face a situation in which U.S. tech companies have to rely on a chip supply chain that is shaky at best, and an actual threat to national security at worst.

No matter who sits in the White House on January 21, Americans are realizing that our economic and national security future depends not only on how the technology we rely on is made, but where it’s made. Much of that secure and prosperous future will depend on the health and safety of our microchip industry. As the Latin phrase has it: sine qua non— without it nothing. Without a strong semiconductor sector, the future will look very bleak indeed.

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