The Global Nature of Semiconductor Manufacturing
The semiconductor industry is the bedrock of modern technological innovation, with applications spanning from basic consumer electronics to critical national defense systems. The United States, which was once at the forefront of semiconductor production, has seen a dramatic decline in its global manufacturing share over the past few decades. In the 1990s, the U.S. accounted for 37% of the world’s semiconductor production, but that number has precipitously dropped to a scant 12% today. This downward trend is primarily due to a variety of factors, including the considerable cost advantages of overseas production, lucrative subsidies provided by foreign governments to their domestic manufacturers, and the rapid technological advancement of chips produced abroad.
In response, the Biden administration has pledged a hefty $39 billion investment to rejuvenate the American semiconductor industry. This initiative aims at reducing the nation’s dependency on foreign semiconductor supply chains, particularly those dominated by East Asian manufacturers. The investment seeks to galvanize domestic production capacity, creating resilience within the supply chains to avert shortages similar to those experienced during the Covid-19 pandemic. However, bringing semiconductor production back to U.S. soil is fraught with challenges, not least the intricate and inherently global nature of its manufacturing processes.
Barriers to Domestic Market Share Growth
Achieving a largely self-reliant semiconductor industry in the U.S. is a formidable challenge, despite potential federal funding infusions. The current global integration of semiconductor manufacturing, from material sourcing to production, hinders the growth of U.S. market share, expected to increase only marginally. For example, Onsemi’s electric vehicle chips are produced using resources and equipment from various nations, underlining the sector’s global dependence. High costs further complicate domestic expansion, with cutting-edge chip facilities demanding tens of billions of dollars for development. Asian competitors amplify the difficulty by offering cheaper and technologically advanced products. U.S. companies aim not to overpower the global market but to establish a significant and secure niche. Attaining near-total domestic semiconductor production could cost up to $1 trillion, underscoring the infeasibility of complete independence and affirming the industry’s entrenched international ties.
