The U.S. is starting to lag behind in the production of a key commodity: semiconductors

The most notable side-effects of Covid-19 are not physical but economic and psychological — it’s scaring the United States straight on the subject of supply-chain vulnerabilities and American domestic manufacturing capacity.

It wasn’t just that the pandemic caught the country off guard and insufficiently stocked in personal protective equipment and medical devices, including ventilators. Such was the coronavirus’ spread in breadth, depth and speed that just about any preparation plan, however robust, would have been overwhelmed.

But it also woke Americans to the disquieting notion that we’d lost the ability to produce a lot of essential items and materials, and that we were in many cases relying on one country that, depending on the day of the week, might be friend or foe.

That has prompted a review of everything else we think we ought to be producing but aren’t. So attention (and, potentially, billions of dollars in public spending) has settled on one commodity that is important, but which the U.S. actually does produce a lot of: semiconductors.

The Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act (as a cynical observer of the political scene, one wishes the legislative types would spend at least as much time working on the meat and potatoes of bills as they do coming up with supposedly clever acronyms for them) is legislation with bipartisanship sponsorship seeking to boost this country’s capacity to make semiconductors.

Among its provisions: a 40% refundable investment tax credit for semiconductor equipment or manufacturing facilities, and a $10 billion federal fund to match state and local incentives offered to companies building semiconductor fabrication plants.

The bill has several Christmas trees’ worth of additional programs and incentives, indicating the seriousness of the American semiconductor crisis.

Bu is there really one? Back in 2015, the Semiconductor Industry Association reported that “a common misconception, even among knowledgeable policymakers and industry stakeholders, is that semiconductor manufacturing has gone the way of other electronics that are manufactured mostly overseas. This is false. In fact, U.S. semiconductor companies do the majority of their manufacturing in the United States, and semiconductors are one of America’s top manufactured exports, behind only aircrafts and automobiles.”

U.S. semiconductor companies held 51 percent of total global semiconductor sales in 2014, the association noted, and those companies did the bulk of their production in this country.

Even a few weeks ago, when the CHIPS Act was announced, the association credited the U.S. with the lead in semiconductor technology and noted “the U.S. currently maintains a stable chip manufacturing footprint,” with semiconductors ranking as the nation’s fifth most-valuable export.

Manufacturing growth hurt by a lack of federal incentives

So what’s the issue? “The trend lines are concerning,” the trade group argues. “Significant semiconductor manufacturing incentives have been put in place by other countries, and U.S. semiconductor manufacturing growth lags behind these countries due largely to a lack of federal incentives.” The U.S now accounts for only 12 percent of global semiconductor manufacturing capacity.

Other factors are in play here, starting with the ubiquitousness of memory chips and microprocessors in virtually every object. What doesn’t have one now probably soon will, as we move further into the Internet of things and the conversion to digital everything. Maybe you can’t eat semiconductors, but they’re nearly as crucial to life, at least the modern version we enjoy, as food.

Then there’s the source of those chips. A lot of semiconductor production is in China, which is a source of unease, and in Taiwan, which is also a cause for concern given the former’s animosity toward the latter.

Add to that the sentiment that if we’ve got the opportunity to hold on to a strong position in a specific and important technology product, why not do so now instead of when it’s too late. Manufacturers proved they could pivot quickly to make relatively simple items like facemasks and shields. Designing, building and equipping a semiconductor plant, however, is a lengthy and expensive proposition.

Plus, there’s the lure of all those lovely federal dollars sloshing around and spilling into local governments, research, educational and training institutions, not to mention everyone who stands to benefit from having a jobs-generating semiconductor plant (or several) in the backyard.

For the Northwest, this could well be a backyard story, because the region has been and continues to be a player in chip production. A concentration of chip plants in the Portland area gave rise to the “Silicon Forest” moniker. Boise’s Micron Technology produces memory chips in multiple locations, including Idaho. WaferTech, owned by a Taiwanese company, is based in and does manufacturing in Camas.

It wasn’t that long ago that Puyallup was part of the American semiconductor manufacturing constellation. Operating under ownership that over the years included, Fairchild, National, Matsushita and Microchip Technology, the semiconductor plant (which at times employed hundreds) was eventually sold and the campus sold for redevelopment.

As attractive a proposition as a reinvigorated chip-production sector is, there will be some pitfalls. The plants will require tons of capital, and the government is being called on to rescue a lot of industries, like airplane production, the way it did housing and auto production in the Great Recession. Plus, chip prices can be volatile and the design and production techniques can change quickly. No one wants to be caught with an expensive plant capable of producing large volumes of cheap chips made with and for yesterday’s technology — even if they are stamped “Made in America.”

This story was originally published June 20, 2020 at 12:00 AM.