A semiconductor strategy for the United States

Executive summary

Semiconductors are the lifeblood of the digital economy. The semiconductor industry has moved to the forefront of political discourse in both the United States and other countries. Pressures from America’s economic rivals and challenges faced by its own domestic industry, along with supply chain constraints, prompted the US government to “do something” to support the industry. The most visible response is the CHIPS Act, which allocates $39 billion in government funding for domestic semiconductor manufacturing facilities and billions more for semiconductor research and development (R&D) and workforce programs.1

Many justify such measures to America’s declining share of semiconductor manufacturing, with “unfair” subsidies by other countries as the root cause. Much of the discussion has focused on assessing what other countries are doing and matching their programs.

Of course, benchmarking is not a strategy. Voluntary exit from global markets is not a strategy. Fixing short-term production shortages (as industry cannot) is not a strategy. In fact, the argument that the industry needs funding to overcome shortages rings hollow at the time of this writing, as demand for semiconductors for personal computers and smartphones is declining.2 This “downcycle” is not only good for consumers of these products, but it also redirects the policy debate to a more appropriate objective: how can the United States create a sustainable, market-focused semiconductor policy that the American financial, industry, and academic environment collectively supports the industry. To accelerate — and not just for a few years, but for decades to come? How the United States ensures that global competition in semiconductors does not devolve into “zero-sum” negotiations around the transfer of manufacturing capacity, but that competition brings out the best in America: its ability to bring the world’s best scientists and entrepreneurs to rigorous solutions to technical problems, the business around those solutions. Create and measure those solutions in the world?

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In short, how does the United States create a government strategy that is open, global, long-term, committed, patient, and successful?

To do so, policy must recognize that competitive advantages come not from imitating the approaches of others (for which US capabilities are ill-suited) but from deepening the existing advantages of the US position. Those US advantages are deep and broad, and should not be underestimated.

I recommend that government policy focus not only on increasing America’s manufacturing capacity, but holistically strengthening the entire semiconductor industry, enabling it to withstand supply shocks, drive technology transitions, and conquer future industry control points. Basic research and commercialization of R&D progress are ingredients for future success and will determine the global semiconductor manufacturing footprint as much as subsidies.

I recommend using CHIPS Act funding as equity capital in a government fund that can scale to more than $300 billion through industry and Wall Street co-investment and leverage the Federal Reserve balance sheet to reduce industry’s cost of capital. The fund will be self-reimbursing, as it will use US innovation to fund projects that have market-level rates of return and generate significant returns for the government. These returns will now be reinvested in the next set of challenges facing the United States three, four, five and 10 years from now.

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As opposed to replicating policies that place all hopes on a singular national champion, often framing them with policy goals that may or may not be achieved, an equity fund will have layers of financial and industrial partners – capable of providing funding both small and large. Makes. Companies — and will operate at all levels of the value chain and across ecosystems. I would urge these US government funds not to compete with other countries’ incentives, but instead to encourage partnerships with those willing to transparently co-invest in the growing, global, diversified, risk-free and market-driven semiconductor industry. The resulting stronger global supply chain, with more clusters and second supply sources across Europe and Asia, will only help the United States.

With the creation of this fund, the United States can remove other barriers to success. There are simply not enough engineers in the country to build and ramp up production facilities in the plan – targeted and rapid immigration must begin now. Building and ramping up fabrication plants (fabs) in the United States takes about a year longer than in Asia. This self-induced slowdown, if not resolved, will cost billions in lost opportunities and technological leadership for companies building in the United States—thus counteracting any gains from the billions in government financing. The fund will have a policy arm that partners with federal and state governments to aggressively simplify permitting requirements and close time gaps. Too few entrepreneurs, professors and venture capitalists are taking risks on future semiconductor technologies and applications – without mandating the fund to pick winners, government funding could be a catalyst to reverse this trend.

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Finally, to effectively execute a long-term, committed and patient investment program, the United States needs a new hybrid government team that can evaluate, structure and monitor investments at the intersection of semiconductors and finance. The government needs to quickly recruit this team from the semiconductor, financial and policy sectors and distance the team (through legislative action) from short-term political considerations while maintaining the oversight capacity of elected leaders. Empowered as the primary point of contact for the execution of US semiconductor strategy, this team will ensure speed, consistency and clarity in its role as decision-making authority. It will work through different administrations, through industry cycles, through new generations of technology, and through changes in geopolitical priorities; And in doing so, it can continue to partner with the global industry to achieve a resilient, winning, global and market-driven US semiconductor industry.


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