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Analysis for CHIPS Act and BIA Briefing


Today, Secretary Raimondo and other administration officials briefed bipartisan members of Congress on the economic and national security vulnerability presented by a lack of domestic semiconductor production. Raimondo’s briefing was based on the analysis below.

Semiconductors power nearly every new computer, smartphone, car, and the cloud servers that underpin the world economy and even the internet itself, as well as the advanced technologies and weapons systems critical for the national defense. Analysis by the Global Semiconductor Alliance shows that semiconductors contribute $2.7 trillion directly and indirectly to global GDP. However, the vast majority of semiconductor production, including all production of advanced, or “leading-edge” semiconductors, occurs overseas by a limited number of foreign producers. Semiconductors are a strategic resource, and the United States must ensure that it can produce the chips that are so critical to our economic prosperity and national defense here at home.

Vulnerabilities and consolidation in U.S. semiconductor supply chains introduce significant economic and national security risks to the United States, as well as to our allies and partners. The COVID-19 pandemic triggered a semiconductor shortage, the effects of which have rippled out through the economy. Consulting firm AlixPartners projected that the chips shortage knocked a full one percent off of GDP growth in 2021, slowing the economy’s historic recovery.

A lack of semiconductors forced auto manufacturers to idle production, shut down factories, and lay off workers. According to the Semiconductor Industry Association, more than 26 million workers—nearly one in every five workers in the U.S.—are employed in sectors that consume and use semiconductors. The increase in vehicle prices due to the shortage contributed to a full third of the elevated core inflation families faced last year. They have led to backlogs and shortages of everything from every day household appliances like vacuums to next-generation video game consoles.

From his first day in office, President Biden has focused on resolving near-term semiconductor bottlenecks, while putting the U.S. on the path to rebuilding domestic semiconductor production. The U.S. pioneered the semiconductor industry, and for decades held a leading market share and technological edge in semiconductor production. However, foreign manufacturers now produce semiconductors more sophisticated than those made by U.S. counterparts. Today, over 70 percent of semiconductor production occurs in Asia, including all production of the most advanced chips, and only 12 percent of global semiconductor production of any kind occurs in the United States, compared to 37 percent in 1990.

Since 2021, the semiconductor industry has announced nearly $80 billion in U.S. investment. However, China alone has committed to provide $150 billion in funding over the decade to increase its domestic production of semiconductors. Korea and Taiwan have invested heavily to cultivate their leading domestic semiconductor production ecosystems, and the EU, Japan, and India are preparing to do so as well.

The bipartisan, bicameral CHIPS for America Act included in the Bipartisan Infrastructure Act will provide more than $50 billion in incentives to accelerate and catalyze domestic leading-edge semiconductor production. While the investments made by the private sector over the past year are necessary, these investments will not be sufficient to mitigate the risks associated with the current U.S. supply chain vulnerabilities. Passing the Bipartisan Innovation Act and fully funding CHIPS will build the necessary semiconductor supply chains here at home to ensure that families do not get hit with price hikes or shortages because of disruptions in factories thousands of miles away.

Chip Shortage an Economic Risk
The COVID-related semiconductor shortage has underscored the economy’s vulnerability to bottlenecks in the sector. The supply-demand mismatch driving today’s challenges is significant. Demand for semiconductors was as much as 17 percent higher in 2021 than it was in 2019, without a commensurate increase in supply, according to Department of Commerce analysis of the Risks in the Semiconductor Supply Chain request for information. The shortage shaved an estimated $240 billion off U.S. GDP in 2021. The auto industry alone produced 7.7 million fewer cars in 2021 due to lack of chips. According to Deloitte, the chip shortage contributed to lost revenue of more than $500 billion worldwide, $210 billion in the auto industry in 2021 alone.

However, impacts of the current shortage pale in comparison to the potential impact of losing access to the global semiconductor supply chain. In the Department of Commerce’s E.O. 14017 industrial base review, DOC identified geographic concentration of semiconductor production as a key supply chain risk, stating, “Since semiconductors are such key components, the fragile supply chain for semiconductors puts virtually every sector of the economy at risk of disruption.”

Chip Shortage a National Security Risk
Not only is U.S. economic growth and prosperity reliant on chips largely produced overseas, but a secure and reliable supply of semiconductors are critical to national security. Advanced semiconductors are integral to an array of critical national security capabilities, including sophisticated weapons systems such as the Javelin antitank missiles the U.S. is supply to Ukraine to defend itself against Putin’s invasion.

In the Department of Defense’s E.O. 14017 industrial base review, DOD noted “State-of-the-Art microelectronics are DOD’s primary differentiator for asymmetric technology advantage over potential adversaries.” DOD’s unique microelectronics requirements are small in overall financial terms, representing only 1-2 percent of the total U.S. market. However, these needs drive many of the capabilities that are most critical to DOD’s ability to defend the homeland. The United States must never be in a position where its national security interests are compromised or key capabilities are rendered inoperable due its inability to produce critical semiconductors.

Staying on the Leading Edge
Given how crucial semiconductors are to the U.S. economy and national security, particularly advanced semiconductors, the U.S., as well as our allies and partners, must take significant and immediate steps to resolve these supply chain vulnerabilities. First and foremost, Congress must fund the CHIPS Act in full to increase domestic production of semiconductors.

However, CHIPS is just one piece of the puzzle, as it is necessary but not sufficient condition for long-term U.S. technological leadership. To ensure the United States remains the global leader in the technologies that will shape our world – and our nation’s economic and national security - over the coming decades, Congress must pass the Bipartisan Innovation Act. This will provide the United States with the resources, manufacturing base, and talent needed to compete globally, protect our national and economic security, and preserve our advantages in science and technology.

Semiconductor fabs take years to construct. There is no quick fix in the face of emergency. The best day to plant a tree is 20 years ago. The second best day is today. Semiconductor companies are planning large investments in response to surging demand for chips—and other countries are already stepping up with incentives to attract them. We must pass the Bipartisan Innovation Act including full funding for the CHIPS Act quickly to shore-up our domestic capabilities over the next several years.