What is the level of chip manufacturing in the United States? Can it rise?

Semiconductors are critical to economic competitiveness and national security. Innovation in semiconductor technology is the foundation for driving the digitization of the global economy, artificial intelligence (AI) and 5G communications. For example, in augmented reality or virtual reality experiences, the Internet of Things, Industry 4.0 systems and autonomous vehicles, revolutionary technology applications are gradually becoming a commercial reality.

Beyond that, defense also relies on mature Electronic systems powered by advanced semiconductor components. The defense modernization priority areas listed in the 2018 U.S. National Defense Strategy include microelectronics, 5G, and quantum science, which are strategic areas that require U.S. investment. Other areas of focus, such as cybersecurity, artificial intelligence, autonomous systems, and advanced imaging devices, are also extremely dependent on the development of the semiconductor industry. As digitally connected electronic systems become increasingly important for managing advanced weapons systems and critical infrastructure, semiconductor suppliers that can provide the combination of economy, reliability and component security will play an even more critical role in national security. effect.

Due to the strategic importance of semiconductors to technology leadership and national security, many countries are now more concerned about their place in the semiconductor value chain. The U.S. has been the global leader in semiconductors, with a 45% to 50% share of global semiconductor industry revenue over the past 30 years. But the current U.S. share of semiconductor manufacturing is declining, accounting for only 12 percent of global installed capacity. 1

Ongoing geopolitical friction between the U.S. and China, as well as disruption from the COVID-19 pandemic, has also raised questions about potential vulnerabilities in global supply chains for U.S. semiconductor companies, largely because of the concentration of manufacturing activity in East Asia. In recent years, the United States has launched a number of DoD-related programs, such as the Trusted and Assured Microelectronics initiative, to secure domestic supply value chains at the manufacturing level. TSMC, the world’s largest semiconductor foundry, announced in May 2020 that it plans to build an advanced fab in Arizona. The program is the first step in enhancing the nation’s advanced semiconductor manufacturing capabilities.

To meet expected growth in semiconductor demand, global manufacturing capacity will increase significantly from 2020 to 2030, providing a market for the U.S. to attract more new fabs. In this report, we analyze the case for the expansion of the semiconductor manufacturing journey in the United States. We begin by exploring current conditions and trends in U.S. semiconductor manufacturing to determine how the U.S. share of global manufacturing capacity will change if the status quo persists, and the potential impact of such conditions and trends on the U.S. semiconductor industry.

To understand the underlying reasons why the U.S. share of global manufacturing has continued to decline over the years, we analyzed the difference in the total cost of building and operating three types of fabs in the U.S. versus other countries. We also looked at the level of government incentives offered by each country. The results of the analysis show that the cost of fabs in the US is 40% to 70% higher than that in China and Taiwan, Singapore and other countries and regions with significant influence in semiconductor manufacturing, which is relatively short of the US are directly related to incentives.

We built an analytical model to assess future trends in the U.S. share of global manufacturing capacity. While this report does not provide policy recommendations, we propose what additional additional U.S. government efforts should be introduced if the United States is to set targets for a significant share of future semiconductor manufacturing capacity and reverse the continued decline in U.S. manufacturing capacity over the past 30 years incentive plan. In the long run, we believe these incentive programs are particularly important as closer R&D collaboration between chip design and manufacturing is required to develop innovations in chip architecture and materials. In this way, the performance of next-generation semiconductor chips in the United States can achieve a qualitative leap, and its cost can be greatly reduced. This is of strategic importance, as both the technology industry and advanced defense systems depend on developments in the semiconductor industry.

Current U.S. position in semiconductor manufacturing

The United States invented the integrated circuit and has long been the world leader in semiconductors. In the semiconductor industry, U.S. companies consistently account for 45% to 50% of total global sales. The strong position of the United States in the entire value chain has contributed to this position. US companies have a combined market share of over 50% in electronic design automation tools (EDA), intellectual property core (core IP), integrated circuit design and manufacturing equipment. By comparison, the U.S. share of semiconductor manufacturing capacity (37% in 1990) is now just 12%.

The U.S. share of manufacturing capacity in discrete, analog, and optoelectronics remains high (30%). In fact, the US remains the global manufacturing leader in specific areas of semiconductors, such as compound semiconductors, radio frequency and bulk acoustic wave (BAW) filters (although this position is now also challenged by new investment in Asia). However, the U.S. has a much lower share of memory (4%) and logic systems (12%), with the fastest-growing segment expected to drive 90% capacity growth over the next decade.

The decline in the share of U.S. semiconductor manufacturing is in line with the general trend of manufacturing in other U.S. industries. The U.S. share of global manufacturing value added fell from 25 percent in the 1990s to 17 percent in 2018. 2 However, the U.S. currently accounts for only 12% of the semiconductor manufacturing share, well below the U.S. share in other strategic industries such as aerospace (49% of global manufacturing in the U.S.), medical devices and pharmaceuticals (about 25%) ) and petrochemicals (about 20%). Among industries that rely on advanced manufacturing, the U.S. has only a lower share of labor-intensive industries (3 percent for consumer electronics and 8 percent for computer and networking hardware) than its semiconductor manufacturing counterparts.

Unlike several other industries, the U.S. semiconductor industry has not experienced a massive wave of restructuring associated with the closure and relocation of U.S. manufacturing plants abroad. Conversely, over the past 30 years, U.S. manufacturing capacity has grown at a cumulative annual rate of 7% per year. However, global capacity has grown at an annual rate of 11% over the same period. The growth of installed capacity in the United States has been surpassed by Asian countries such as Taiwan, South Korea and China, as they have been investing heavily to become manufacturing leaders.

Government policies have been a major factor behind the strong growth of semiconductors in Asia. These countries and regions have placed a strategic focus on semiconductors and have made their economies more attractive with favorable government grants, tax breaks and other government incentives to support the development of their domestic manufacturing industries.

At the same time, the semiconductor industry has seen the rise of the “fabless” model. Many U.S. companies have adopted this business model, allowing them to focus on semiconductor design and commercialization while relying on foreign manufacturing partners (also known as dedicated or pure-play “foundries”). These partners have access to lower costs and more attractive government incentives in other countries. They are also able to de-risk large-scale capital investments for a wide range of global clients. Purpose-built fabs account for 38% of global manufacturing capacity, with only 7% of them located in the United States. In contrast, the United States has a much higher share (14%) of the capabilities held by global integrated device manufacturers (IDMs), which design and manufacture their products in their own factories and can therefore Both processes are co-located to achieve synergies.

The U.S. share of global manufacturing capacity is expected to decline further. The latest data on planned fab construction indicates that only 6% of the total planned new capacity has been developed in the U.S., and that new capacity to begin operating within the next five years will be located in the U.S. This is significantly lower than the U.S. share of global installed capacity today (12%) and the U.S. share of global capacity additions from 2010 to 2020 (10%).

We estimate that if no action is taken, the U.S. share of manufacturing will decrease to 10% by 2030. In contrast, mainland China plans to add 40% of the world’s new capacity and has the potential to become the global leader in installed semiconductors. By 2030, its manufacturing capacity will reach 24% of total global capacity, roughly equivalent to the global demand share of Chinese mainland equipment makers for semiconductors. While China may still be a generation or two behind in manufacturing process technology until 2030, its vast manufacturing base could speed up its learning curve to close the gap.

In addition, synergies are particularly important in developing new semiconductor manufacturing capabilities in existing industrial clusters. In fact, semiconductor companies see it as one of the most important factors to consider when choosing a new fab location. 3 This synergy creates a self-reinforcing drive. Over time, the U.S. manufacturing share will decline further, and the share of mainland China and other Asian countries with established fabs will expand further. Ultimately, without major changes in current conditions, it will be increasingly difficult for the United States to retain any significant manufacturing capabilities in semiconductor manufacturing.

Contrary to the United States, semiconductor manufacturing has long been a priority for China, which has also been accelerating its efforts in recent years. As the chart below shows, China’s rapidly growing share of global semiconductor manufacturing capacity.

Why semiconductor manufacturing is so important

Manufacturing accounts for 45% of global value added and approximately 20% to 25% of total R&D investment in the global semiconductor industry. Manufacturing is at the center of the growing semiconductor industry. (See Figure 3). Over the past five decades, semiconductor manufacturing through process node scaling (often referred to as Moore’s Law) has led to staggering advances in semiconductor performance and cost reduction: the number of transistors per wafer has increased by a factor of nearly 10 million, This results in a processor speed increase of 100,000 times and an annual cost reduction of over 45% with comparable performance. The rapid pace of this technological advancement, which prompted its transition from the mainframes of the 1980s to the smartphones of the 2010s, was a driver of productivity and economic growth.

Existing research shows that in industries where product design and manufacturing processes are closely related, the segregation of manufacturing and R&D can have a negative impact on industry development. 4 In the semiconductor space, the success of a fabless business model requires collaboration between design houses and their foundry partners, but proximity is not a requirement.

However, the semiconductor industry is seeking new breakthroughs in chip architecture and materials to maintain the pace of performance improvements and the cost of enabling new key technologies such as AI or quantum computing. Advances in these new areas depend on increased R&D collaboration between design and manufacturing. 5 Given the U.S. semiconductor industry’s leadership in basic science, integrated circuit design, and production equipment, enhancing its manufacturing capabilities may lead to the development of these innovative areas, creating new technological paradigms for the future.

The maintenance of U.S. leadership provides an important strategic advantage in defining the timing, standards and business models of semiconductor manufacturing, thereby driving the pace of innovation across the value chain, from manufacturing equipment and tools to design.

Maintaining strong domestic manufacturing capabilities is also critical to ensuring a highly resilient supply chain for the U.S. semiconductor industry. About 75% of the world’s semiconductor production capacity is concentrated in East Asia, and this number is expected to continue to grow, driven by strong clustering effects. By 2030, mainland China alone is expected to account for 25% of total global manufacturing capacity. Taiwan currently accounts for 47% of global capacity at leading and advanced nodes (10nm or below) for advanced logic system devices such as high-performance processors powering smartphones or data centers. In terms of memory, South Korea accounts for about 30% of total semiconductor demand, while South Korea accounts for more than 40% of global capacity. As the COVID-19 crisis has shown, a high concentration of one country or region makes global supply chains vulnerable to disruptions such as natural disasters, epidemics or geopolitical conflicts. Given the strategic importance of the semiconductor industry to the U.S. economy and national security, increasing supply chain resiliency through geographic diversification is imperative.

Having more semiconductor manufacturing space in the U.S. could also bring more benefits to the U.S. economy:

1. Develop local high-tech clusters to create high-quality employment opportunities and economic prosperity. A new standard-sized fab will require 3,000 to 6,000 employees, depending on the specific product and technology. This direct job creation often has a multiplier effect for the local economy, and over time it can also help attract other companies in the value chain that want to benefit from clustering effects, such as closer-knit semiconductor ecosystems. Collaboration, access to local talent pools, established support infrastructure, and more. The United States already has a number of vibrant semiconductor manufacturing clusters, such as cities around Dallas and Austin (both in Texas), Portland (Oregon) and Phoenix (Arizona).

2. Improve the U.S. merchandise trade balance. The U.S. has a very large trade surplus in semiconductors, exceeding $8 billion in 2019. Having more fabs in the U.S. could widen this surplus by increasing exports of semiconductor products designed and manufactured in the U.S., either to end customers or to overseas facilities exporting outsourced semiconductor assembly and test (OSAT) suppliers, thereby extending this surplus through Packaging and testing finalize the production process.

Achieving clustering effects along the value chain and increasing the resiliency of its global supply chain is critical to the continued competitiveness of the U.S. semiconductor industry. This is not to say that the United States should blindly restore semiconductor manufacturing capacity in order to achieve the goal of “self-sufficiency” in the broad sense. The semiconductor industry is global in nature, as countries and regions have distinct comparative advantages for different activities throughout the value chain. This characteristic allows U.S. and foreign companies to obtain the best capabilities at the lowest economic cost, which can drive the innovation “virtuous circle” behind technological breakthroughs in the industry. 6 Furthermore, just as the high concentration of manufacturing in East Asia has led to supply chain vulnerabilities for U.S. semiconductors, so too can the capacity within the U.S. to meet domestic market demand.

Understanding U.S. Competitiveness and Alternative Locations in Other Countries

The declining U.S. share of global semiconductor manufacturing capacity is not a matter of lack of technological capabilities. In fact, the U.S. has a 28% share of global capacity at leading and advanced nodes (10nm or below), significantly higher than its 12% share across all process nodes. The American company is a global leader in R&D of manufacturing process technology in all areas (logic systems, memory and simulation) as well as fab software, equipment and process control tools. Eight of the top 20 global companies involved in semiconductor manufacturing (including IDMs and foundries) already manufacture in the United States, which together account for more than 80% of current global capacity. Semiconductor manufacturers employ about 180,000 workers in the U.S. and operate fabs in 18 U.S. states.

So why did the company choose to build a fab outside the US? We use relevant experience in the semiconductor industry, discussions with industry leaders, and a survey of U.S. semiconductor companies involved in manufacturing to determine: key criteria for companies deciding where to build new fabs, and how to compare the U.S. with other alternative locations Compare the resulting relative positions.

The U.S. ranks highly favorably on the five most important factors: synergy with existing scale, access to talent, and protection of intellectual property and assets. However, the U.S. is seen as lagging far behind other regions in terms of two other key factors identified (labor costs and government incentives).

Ranking comparison of five criteria for fab site selection

Source: SIA member survey data, Question G1: Please rate the following countries (N=6) for each of your key fab decision factors. The attractiveness index is quantified on a 1-5 scale: 5 = highly attractive, 1 = not at all attractive.

Indeed, the US is not currently a cost-competitive region for semiconductor manufacturing. Because semiconductor fabs require a lot of investment. In fact, the industry-wide capital expenditure-to-revenue ratio was over 20% in 2019, with the semiconductor industry and power and utilities being the most capital-intensive sectors in the entire economy7.

To quantify cost differences between the U.S. and other regions, we benchmarked the total cost of ownership (TCO)8 over ten years for three representative types of fabs to shed light on what will be established between 2020 and 2030 New Capacity 9 (See Figure 5.)

As shown in Figure 6, including land, buildings, and equipment, a standard-capacity advanced semiconductor fab costs approximately $5 billion (for advanced analog fabs) and $20 billion (for advanced logic systems and memory fabs) capital expenditure. This is significantly higher than the estimated cost of a next-generation aircraft carrier ($13 billion) or a new nuclear power plant ($4 billion to $8 billion). In addition to up-front capital expenditures, we also calculate annual cash operating expenses (labor, utilities, etc.) to be approximately $600 million to $2 billion. So, excluding government incentives, the total TCO of a new fab will be $11 billion to $15 billion (advanced analog) and $30 billion to $40 billion (for advanced logic systems or memory) over a decade ).

Given these costs, government-provided incentives are critical for investors who need support and have become a regular part of the business case for new fab investments. Government incentives typically reduce up-front capital expenditures on land, buildings and equipment, but can also extend to recurring operating expenses such as labor costs. Overall, depending on the country, we estimate that government incentives can offset 15% to 40% of the total TCO of new plants (before incentives).

TCO includes capital expenditures (upfront land, buildings and equipment) plus operating expenditures (labor, utilities, materials, taxes) for ten years.

Averages are estimates for the countries or regions analyzed (United States, Japan, South Korea, Taiwan, China, Singapore, and Germany).

For each type of fab considered, we have analyzed up-front capital expenditures, annual operating costs and government incentives in different countries. According to our analysis, across all three types of fabs, the total cost of ownership of a fab in the U.S. is about 25% to 30% higher than an equivalent fab in Taiwan or Singapore. (See Exhibit 7.) In addition to structurally lower wages, China offers very high government incentives, which appear to be even more cost-competitive. In the U.S., the total cost of fab ownership is roughly 50% higher than in China, not even counting the added advantage of the cost of financing that China offers through access to credit and equity below the cost of capital, according to a recent OECD study. Operations and Development (OECD) shows this is very important. 10

1. TCO includes capital expenditures (upfront land, buildings and equipment) plus operating expenditures (labor, utilities, materials, taxes) for ten years.

2. Those multinational companies that choose to enter China for technology sharing can enjoy broader incentives, including equipment leasebacks with favorable conditions.

The following factors explain the significant gap in TCO:

Government incentives are the main factor. The U.S. ranks at the bottom of the list with incentives, far lower than Asian countries and regions with large semiconductor manufacturing bases. (See Table 8.) These incentives account for 40% to 70% of the cost advantage of other countries relative to the United States, depending on the fab type and the country concerned. In some cases, incentives have helped support the domestic semiconductor industry by prioritizing national semiconductor manufacturing leaders. But in many cases, multinational companies can also enjoy these preferential policies. In some cases, the U.S. is tax-competitive because the effective U.S. tax rate is well below the nominal corporate tax rate, and in some places, state and local taxes are significantly reduced. However, these state and local government incentives are far lower than the grants and direct cash incentives offered by other national governments.

1Best scenario based on current incentives and recent agreements.

2 Does not include China.

3 Mainland China.

4 Effective tax rates are considered separately from general incentives and are based on current regulations.

The natural disadvantage of factor cost. The difference in TCO between the U.S. and other regions is about 15% to 40%, mainly due to structural disadvantages in labor and utility costs. Median manufacturing wages in the U.S. are higher than in other countries, and labor costs in the U.S. for fab construction and operations are 40 percent higher than those in Singapore and Taiwan, and twice as high as those in mainland China. The difference in utility costs between the U.S. and other countries is less dramatic, but still nearly 25 percent higher than in mainland China.

Capital expenditures. Capital expenditures account for 15% to 20% of the U.S. TCO disadvantage. About half of the capital expenditure for a new plant goes to manufacturing equipment supplied by a small group of highly specialized global suppliers, so the situation is expected to be similar across regions. Construction costs account for 20% to 40% of capital expenditures, with large differences.

In addition, some countries are further promoting the development of their own semiconductor industry ecosystems by building supporting infrastructure around fabs, without semiconductor manufacturers paying anything for it. China’s benefits are particularly comprehensive in this regard, often including housing, telecommunications, utilities and logistics infrastructure. 11 Similarly, other Asian countries and regions, such as Taiwan, Singapore and South Korea, also provide infrastructure support, usually in the form of special economic zones and technology parks. In Taiwan, for example, in addition to providing land, electricity and water, the science park also provides space for other supply chain companies to integrate into the larger manufacturing ecosystem. Likewise, the South Korean government’s cooperation is not limited to utilities and infrastructure, but also includes identifying and facilitating locations, simplifying or expediting procedures, and deregulating.

An opportunity to change the trajectory of the next decade

Given the strategic nature of semiconductors as an enabler of technological progress, expanding domestic manufacturing is extremely important to the U.S. semiconductor industry, which is critical to improving overall U.S. economic competitiveness and national security.

Global demand for semiconductors is expected to grow at a cumulative average annual rate of 5% over the next decade, driven by the large-scale application of new technologies, including artificial intelligence, IoT, edge computing, 5G, as well as electric vehicles and Vietnam. More and more self-driving cars. Manufacturing capacity is projected to increase by 56%, or about 10 million wpm, by 2030. As of June 2020, approximately 50% of these new global capacity additions from 2020 to 2030 have not yet been developed or planned. (See Table 9.) This “white space,” the solvable portion of the need for additional capacity, presents an opportunity for the United States to gain a higher share of future capacity additions than those already under development or 6% achieved in the planning phase.

Estimated increase in global production capacity (M wpm) from 2020 to 2030 by development status.

1 “Under development” includes any status between “breaking ground” and “production”, as well as “planned or announced” (oral or public confirmation of construction intent).

2 Additional capacity is expected to be required to meet projected demand in 2030, but no company- or country-specific announcements have been made.

3 Discrete, analog and optoelectronic devices.

Recognizing this market opportunity requires bringing the TCO of U.S. fabs closer to other countries, thereby making the U.S. a more attractive country for semiconductor manufacturing. Because the U.S. has clear advantages in other criteria important to fab site selection—such as synergies with existing footprints and the rest of the ecosystem, access to skilled talent pools, and intellectual property protection—it attracts Semiconductor companies may not need the same total cost to build a larger percentage of new capacity in the United States. In addition, the changing geopolitical context has also made manufacturing more geographically diverse, making it more attractive to both U.S. and foreign semiconductor companies.

According to our analysis, to make the economics of new U.S. fabs more attractive, it is necessary to close the gap in government incentives, which directly contribute to 40% to 70% of the higher TCO in the U.S. New government incentives may also help offset the structural disadvantage we see in the U.S. in construction and operating costs.

To assess potential changes in the current U.S. share of global manufacturing capacity, we developed an analytical model that breaks down total global capacity additions by product type and country. We then created a “performance ranking” based on TCO using our estimates of the economics of different fabs in each country. Given the U.S. advantage in other key selection criteria for fab location, we assume that the TCO of U.S. fabs needs to drop from the current level of 25%~30% higher than that of Taiwan, Singapore or South Korea to only 5%~ The 10% level, rather than the same total cost, would make the U.S. an attractive new fab location.

To achieve this goal, the U.S. government must develop new incentive programs. We define this new incentive program as a fund with a fixed total amount (eg, grants, tax credit programs, or both) that can be used to add capacity in the United States between 2021 and 2030. We assume existing U.S. state and local incentives remain the same and apply to any additional capacity built in the U.S. (i.e. they are set on a “per-plant” basis, not capped at a given total) .

How much new global capacity the U.S. can attract depends on the size of the new U.S. incentive program. We run simulations of the status quo and two possible additional US incentive scenarios. Table 10 shows the expected results for each scenario.

·status quo. We assume that, with existing incentives unchanged, we can see the US share of 6% of projects already developed, which is a good indicator of how much additional capacity the US can attract. That would be less than the 10 percent U.S. share of global capacity additions over the past decade. As a result, the U.S. share of global manufacturing will decline further from 12% in 2020 to 10% in 2030.

· Scenario 1 – $20 billion in additional government incentives. Based on our modelling, we expect the US will attract 14 new fabs, 5 more than currently, and 14% of the new capacity added. The U.S. will be the third-largest location for building new capacity, after China and Taiwan. As a result, the United States will be able to maintain its current share of 12% of global production capacity by 2030, a loss of 2% less than the current forecast.

· Scenario 2 – Add $50 billion in government incentives. According to our model, such a plan could make the U.S. the preferred destination for new semiconductor capacity outside of China. We estimate that the US will be able to attract a total of 19 fabs, 10 more than currently. This represents 24% of the new capacity entering the market over the next 10 years. Compared with 10% from 2010 to 2020 and the current 6%, there is a significant increase. This will lead to an increase in the U.S. share of global capacity from 12% in 2020 to 13%-14% in 2030, a significant improvement from the 10% share projected under the status quo.

1Assumed to apply to new U.S. capacity over the next 10 years.

2 For ease of comparison, a fab size of 75,000 wpm is assumed, consistent with the average fab size used in the 2020-2030 forecast. According to SEMI data, the actual number of fabs built in the U.S. from 2010 to 2020 was 19 (excluding experimental and very small fabs, with an average size of about 40,000 wpm.

In our model, we assume that new additional incentives apply only to additional capacity built under the status quo (i.e., those “that would not otherwise be built in the U.S.”). In practice, this means that only certain fabs with advanced technology are eligible for the new incentives.

New government incentives will turn the U.S. into an economically competitive and attractive place for new fabs. These potential incentives would mark a true inflection point and would reverse the historical trend of declining U.S. share over the past 30 years. The United States will reemerge as a competitive semiconductor manufacturing base, and in the decades beyond 2030, the United States will be well-positioned to continue to increase its participation in global capacity expansion.

In addition, new government incentive programs will drive the expansion of U.S. manufacturing capacity, which will bring significant benefits to the competitiveness of U.S. technology, supply chain resilience, and national security. The number of fabs built in the U.S. over the next decade could jump from just nine to 19 under a $50 billion incentive plan. These new U.S.-based fabs will bring state-of-the-art manufacturing technology and sufficient capacity to meet the semiconductor needs of the U.S. defense and aerospace industries. In addition, we estimate that these 19 new fabs could create approximately 70,000 direct jobs, significantly increase the talent pool of skilled semiconductor manufacturing technicians in the United States, and strengthen U.S. capabilities in advanced manufacturing process technologies.

In the end, these government incentives, along with the construction of new U.S. capacity, will not distort the global semiconductor market. Such incentives are non-discriminatory and available for new incremental projects proposed by the company. Programs of this nature are not designed to pick winners or steer market outcomes through government ownership of capacity or manufacturing firms. Additionally, the commercial viability of a potential new fab is supported by the fact that the U.S. also already has all the key enablers: semiconductor manufacturing technology, talent, supporting infrastructure, thriving semiconductors throughout the value chain ecosystem, and global market access. This minimizes the risk of creating a global overcapacity that is clearly not in the interests of the U.S. semiconductor industry.

Reversing the decline of U.S. semiconductor manufacturing

The strategic nature of the semiconductor industry in terms of technological leadership and national security has raised questions about the continued decline in the U.S. share of global semiconductor manufacturing capacity over the past 30 years. Ongoing geopolitical friction between the United States and China has exacerbated such concerns. At present, 75% of the world’s semiconductor production capacity is concentrated in East Asia, and China is actively investing, striving to become the world’s largest manufacturing power by 2030.

Given that global capacity is expected to grow strongly from 2020 to 2030 to meet rising semiconductor demand, the next decade presents a market opportunity for the U.S. to stop falling and possibly even expand its manufacturing share. The United States already has comparative advantages in some key criteria for choosing a factory location, such as synergies with the existing territory and ecosystem, technical talent, intellectual property protection, etc., but it is not cost-competitive. While the purpose of this report is not to provide policy recommendations, our analysis shows that expanding the currently limited state-level government incentives and creating a new federal program targeted at $20 billion to $50 billion over a decade could increase U.S. The incentives align with those in Taiwan, South Korea or Singapore and re-establish the U.S. as the most attractive country for advanced semiconductor manufacturing.

Still, the window to reverse historical trends and expand the U.S. semiconductor manufacturing footprint is closing fast. First, 50% of the new capacity needed to meet global demand over the next 10 years is already under development, so it’s likely out of reach. In addition, current manufacturing powerhouses – notably Taiwan and South Korea, but also China and increasingly smaller places such as Singapore and Israel – benefit from important clustering effects that Naturally, it favors building new capacity at existing manufacturing bases, creating a virtuous circle that makes it increasingly difficult for a shrinking country like the United States to maintain its global share.

It is worth noting that while it is necessary for the government to level the playing field for U.S. fabs in order to expand the U.S. share of manufacturing, there are other important structural enablers for a thriving semiconductor manufacturing industry. Support can be helpful. Fundamental research in materials and manufacturing science is the foundation of innovation, and government support has historically proven effective in this area. Likewise, another important way the government is encouraging domestic manufacturing is by supporting training to ensure the United States has a strong talent pool of production engineers, operators capable of using highly sophisticated computer-controlled equipment, and skilled technicians.

Finally, while the U.S. position in manufacturing has attracted strong interest from policymakers, the strength of the U.S. semiconductor industry also requires continued commitment to maintaining U.S. R&D leadership and securing access to global markets. A strong U.S. semiconductor industry fully integrated into the global technology supply chain is essential for digital transformation and ushering in a new era of artificial intelligence. As with the mobile revolution of the past 10 years, the enormous benefits of this breakthrough will reach consumers and businesses in all countries, not just the United States.

 

 

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