What Will Domestic Chip Manufacturing do for the U.S.?

Semiconductor chips are perhaps the most widely mass-produced product outside of essential consumer staples. They’re in everything, from computers to vacuum robots, smartphones to electronic pets. There’s never-ending demand for semiconductor chips, which means the market is ever expanding.

While foreign producers in China, Japan, South Korea, and Taiwan make up the lion’s share of the market, U.S. producers believe they can compete. Now, they’re looking to the government for federally backed investments to help make the U.S. a formidable producer in a key global market.

Chip makers have a formal request

Just one month into a new presidency, the Biden Administration has made it clear that domestic manufacturing is a priority. Now, in the early stages of what is set to be a massive reshoring push, semiconductor producers and chipmakers have stepped forward with an early request. As reported by CNN Business and other outlets:

“Industry leaders including Intel (INTC), AMD (AMD) and Qualcomm (QCOM) sent a letter to President Joe Biden, urging him to include funding for semiconductor manufacturing and research in his administration’s plans for economic recovery from the pandemic.”

The value proposition of this appeal goes beyond COVID-19 recovery. In the joint letter, semiconductor manufacturers tout federal funding for chipmakers as a shot in the arm for a broad array of other manufacturers — transportation, telecom, green energy, defense, and more are all named as benefactors of increased domestic chip production.

A market up for grabs

The appeal letter comes at a time when there’s clear market share available. COVID-19 has crippled supply chains, making it difficult to import chips. Domestic production could fill that hold and more. As new technologies demand increasingly more complex chips and a larger supply of semiconductors, a boost to domestic production could carve out market share in the Western hemisphere and with trade partners around the globe.

There’s also the threat of inaction. As the letter points out, “the cost of inaction could be high” if the U.S. doesn’t take this time to pounce on expanded market opportunities. Reliance on China, in particular, for semiconductors becomes less agreeable as political tensions persist and national security becomes top of mind. Given that chips are used in everything from smartphones to aerospace applications, domestic production becomes an urgent call to action.

There’s strong opportunity present. According to the letter, the U.S. share of semiconductor manufacturing dropped from 37% in 1990 to 12% today. COVID-19 has knocked established producers off-balance, paving the way for a reclamation of lost market share over the past 30 years.

Semiconductors as a first step in reshoring

As outlined in its letter to the Biden Administration, emphatic funding for domestic chip production could be the fuse that ignites a bombastic manufacturing renaissance on U.S. soil. With semiconductors necessary for just about every electronic and global supply chain still recovering, domestic producers can fill a valuable void that sets the stage for other producers to follow suit.

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