Foreign Policy

US semiconductor rescue plan misses the mark, protection corporations say

In the 2006 film The Departed, the Massachusetts State Police defeat a mob boss who smuggles US-made microprocessors into China. Those microprocessors, says one of the policemen, "are the kind of processors they put in computers to put a cruise missile up a camel's ass from a few hundred miles away." These "little pieces of plastic," he adds emphatically, "are about a hundred each."

Fourteen years later, the competition between US-China microelectronics manufacturing is hotter than ever as competitors pursue 5G technology, hypersonic weapons, and quantum computers. For US lawmakers, rebuilding a domestic supply chain for critical materials – whether semiconductors or rare earth elements – has become a central part of the economic and technological rivalry with China.

To lure back some of the semiconductor and microelectronics manufacturing that has fled to Asia, particularly China, over the past three decades, lawmakers are turning to incentive grants. What began as several separate Congressional Acts ended as part of the 2021 National Defense Authorization Act (NDAA) This would offer companies up to $ 3 billion to build new semiconductor manufacturing facilities in the United States. Congress hopes to agree a final version of the Defense Financing Act ahead of the November 3rd presidential election and vote on it soon after.

There is one big problem, however, say companies that build the specialty semiconductors used by the Department of Defense in, for example, radiation-cured chips on space satellites, anti-jam GPS receivers, and the F-35 fighter. The current language of the bill focuses too much on state-of-the-art commercial chips and not enough on the small-order application-specific chips that the Pentagon needs to build directional energy weapons.

More than a dozen companies –worried less about what might power your laptop and more about what those cruise missiles might control –call on Congress to change the language of the Defense Act so that "Mission Critical Semiconductors at the Integration Level ”before the compromise language is finalized. This addition would put the manufacturing and integration of Pentagon-qualified semiconductors in the spotlight and help secure an increasingly fragile global supply chain. Without them, the livelihoods of their collective employees – some 50,000 jobs across the country – would be at stake, these companies said.

The incentive program, while included in a defense bill, is intended to provide a more comprehensive solution to the decades-long disappearance of U.S. chip manufacturing. The current NDAA language is set to improve the entire U.S. semiconductor manufacturing supply chain, said a Hill employee of a senator involved in the process.

"Our goal as legislators is to develop a comprehensive program that can help solve this problem, and we want to make sure that it is not too specific so that we do not limit our ability to innovate," said the employee. The section has been included in the NDAA in multiple sources, not just because of its national security implications, but because it is pretty much the only piece of legislation that Congress can pass with a greater majority.

While members of Congress consider defense industry concerns as the NDAA finalizes, the Hill official said the inclusion of "mission-critical and integration-level semiconductors" could limit the flexibility of the proposed grant incentives.

"There is nothing in the current language that would make it illegal for the program or participation in the program. You just have to compete," the agent continued.

The grants, which are distributed through the commercial department, are financed with a limited amount. Several senators had previously spoken out in favor of approving $ 15 billion per document viewed by Foreign policy, However, the total amount is expected to be included in the Compromise NDAA.

The language of the NDAA section is intended to rejuvenate the full breadth of high-end semiconductor design and manufacture in the US, noted James Lewis, director of the Strategic Technologies Program at the Center for Strategic and International Studies, and gave the US the opportunity to do so play for the height of the new world economy. Adding more industry-specific language to the semiconductor space to reassure defense companies could dilute that intent, he said, as more companies will take a piece out of a single pie.

"We want to spend money to keep America as a technology leader in semiconductors," said Lewis. “The Chinese cannot duplicate what they get from Qualcomm and Intel. Without America, they can't do 5G. "In the meantime, the US could easily replicate what it gets from China," but we got out of this business … because that's where you don't make the most money. "

For decades, lawmakers, industry, and experts have watched with concern as the United States' share of global semiconductor manufacturing has declined while China's share has increased. In 1990 the United States manufactured 37 percent of the world's semiconductors, according to data one September report from the Semiconductor Industry Association and the Boston Consulting Group. It is now 12 percent and is expected to drop to 10 percent by 2030.

By 2030, 77 percent of computer chips are expected to be manufactured in Asia, mainly China and Taiwan, with 24 percent and 21 percent of the proportion, respectively, the report said. Industry experts noted that US semiconductor manufacturers, which rely on parts of Taiwan Semiconductor Manufacturing Co. (TSMC) and other foundries in the country, would suffer badly if tensions between China and Taiwan intensified.

"With 75% of global capacity already concentrated in East Asia, maintaining domestic manufacturing capabilities is essential to ensure the US semiconductor industry has a highly resilient, geographically diversified supply chain," the report wrote. This problem is particularly critical for computer chips used in US defense systems.

Ellen Lord, the Pentagon's Chief Tsarina for Acquisitions, told a think tank in July that the country is embroiled in a "potentially vulnerable position where we have US intellectual property related to designs used for manufacturing and packaging at sea goes ". This leaves the United States with vulnerabilities that are "unacceptable for the future," she added.

The commercial semiconductor industry has started to respond. TSMC, which owns the largest foundry in the world, announced this earlier this year it would invest $ 12 billion build a new factory or factory in Arizona. Currently, most of the facilities are in Taiwan, two in mainland China and one in Washington State. Intel has also expressed an interest in working with the Department of Defense to build a new foundry in the United States.

Ironically, the US defense needs are driving the chipmaker exodus. Fewer companies are able to meet the Department of Defense's stringent requirements for design and manufacture, said John Costello, vice president of government affairs at Microchip Technology, which develops circuits for defense and aerospace systems. For some, it makes more financial sense to get out of the market and then take on a fabulous model and outsource a lot of things so they can pursue this large-scale commercial application, "he said.

Costello, whose company is part of the group's lobbying convention to change languages, highlighted the threat posed by offshore supply chains, even if they are in a friendly place like Taiwan. In the event of a malfunction in Taiwan, Microchip Technology would have to find another supplier of silicon wafers for its microchips and re-qualify the entire product range.

Other chip manufacturers recognize that reshoring will mean higher costs – but also greater reliability. China has the advantage of "very, very cheap labor," and manufacturing and integration should move to the US, said Terry Spitzer, CEO of Global Technical Systems. His company offers cybersecurity and security products to the U.S. military and is also committed to language switching.

“Will it cost a little more? It will cost a little more, ”he said. "But in the long run, we'll have these jobs in this country, we'll have the technology … and we'll have the safe utilities."

Lewis is familiar with the whole battle over which companies and which technologies should benefit from billions of dollars in government grants.

"This is the usual incongruous fight over feeding at the federal trough," he said.

Those involved in the joint industry effort insist that this is not the case. "W.We take this issue very seriously as our country's competitive advantage over global rivals, our national security and more than 50,000 American jobs in at least 16 US cities in nine different states are at stake, "the group said.

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