A wide cross-section of companies that buy and sell chips, including Apple and Intel, are calling on Congress to pass legislation that would offer billions of dollars in subsidies for U.S. fabs during a global chip shortage.
Executives from more than 50 companies sent a letter to Democratic and Republican leaders urging Congress to pass the CHIPS Act, which would roll out $52 billion in subsidies for chip production, design, and research in the U.S. They said the incentives are vital to reduce the country’s dependence on importing chips from Asia and could help the U.S. prevent future interruptions in its chip supply chains.
They are also urging leaders in the Senate and the House of Representatives to pass a separate law called the FABS Act, which has provisions for an investment tax credit to invest in U.S. chip factories.
The letter, drafted by the Semiconductor Industry Association, was signed by over 50 executives, including GM’s Mary Barra, Ford’s Jim Farley, Intel’s Pat Gelsinger, Nvidia’s Jensen Huang, and AMD’s Lisa Su.
The executives pointed to the ongoing global chip shortage that has caused shutdowns of U.S. auto plants and snagged production of goods such as Apple’s iPhone as proof that the country needs to onshore more of its supply chain for chips. They warned that the dearth of chip plants in the U.S. poses a threat to supply chain stability that could last longer than current manufacturing and logistics bottlenecks around the world.
“Semiconductors are essential to virtually all sectors of the economy,” the letter says.
“Unfortunately, demand for these critical components has outstripped supply, creating a global chip shortage and resulting in lost growth and jobs in the economy," the executives add. "The shortage has exposed vulnerabilities in the semiconductor supply chain and highlighted the need for increased domestic manufacturing capacity.”
The Chip Drought
Production delays have led to a severe global deficiency of chips causing chaos in a range of industries. Chip inventories have been depleted as the demand rises for devices from smartphones to cars, causing lead times to hit record highs. Prices for many chips are also up due to the scarcity of raw materials and silicon wafers. Shipping delays and high freight costs are among the other challenges facing companies.
Industry executives say constraints will likely linger in the first half of 2022 and taper off in the second half.
The parts shortage has prompted calls, including from President Biden and Commerce Secretary Gina Raimondo, for more chip production within the US as part of shoring up supply chains for technologies in sectors such as cars. The chip shortage has hit the auto sector harder than any other industry this year
Today, many U.S. semiconductor firms are fabless and leave the production of their most advanced chips to contract chip foundries such as TSMC and Samsung. Consequently, a large portion of the chips sold by U.S. vendors is imported from foundries on the other side of the world, primarily in China and South Korea. Other key parts of the supply chain, such as packaging and testing, are also clustered outside the US.
The letter was also signed by executives from chip industry giants such as Synopsys and Applied Materials as well as other companies that have been dented by the global chip shortages, such as Cisco, HP, and Dell.
“The chip shortage poses risks to our entire economy and time is of the essence,” the letter says.
Mostly Not-Made-in-the-USA
Chip makers have long warned the U.S. is falling behind in building out its semiconductor industry, in part because of the soaring cost of building and operating a chip plant in the U.S. compared to other countries.
Industry executives have said companies have been lured out of the U.S. by a combination of factors such as cheaper labor and larger subsidies for chip fabs. They argue that it is necessary to make it more affordable for companies to build fabs and keep the US share of production from falling more than it already has.
Today, only slightly more than 10% of all chips are manufactured in the U.S. compared to almost 40% in 1990.
The letter warned that time is running out to bring more of the supply chain for chips to the U.S. Expanding production capacity for chips takes tens of billions of dollars, thousands of skilled workers, and months or years to build plants. Failure to get financial assistance could prompt firms to locate fabs outside the U.S.
Near the Finish Line
The White House has said that chips are a top priority and President Biden has called for billions of dollars in federal subsidies to boost U.S. self-sufficiency in chips. But it has struggled to get through to Congress.
The CHIPS Act would roll out $52 billion in subsidies and other inducements to invest in chip plants in the U.S. It would also establish a National Semiconductor Technology Center for research and development. The proposed law passed the Senate in June with bipartisan support as part of another bill called the “U.S Innovation and Competition Act.” But it has been stalled in the House of Representatives for months.
In mid-November, Senate Majority Leader Chuck Schumer and House Speaker Nancy Pelosi announced an agreement to negotiate a new version of the bill that could pass in both the Senate and the House.
The industry leaders are also lobbying for the Facilitating American Built Semiconductors (FABS) Act, which was introduced in the Senate and would enact an investment tax credit for U.S. fabs and chip-making gear. The letter also urged Congress to expand the FABS Act with provisions to fund semiconductor design, too.
“We ask you to prioritize actions to help strengthen the U.S. semiconductor ecosystem,” the letter says.