Chipmakers Urge Biden Administration To Invest In US Manufacturing

The effort could help resolve the critical microchip shortage currently hobbling industries from automobiles to video games. It could also address longstanding concerns about shrinking US capacity to produce these crucial electronics components.

Industry leaders including Intel (INTC), AMD (AMD) and Qualcomm (QCOM) sent a letter to President Joe Biden Thursday urging him to include funding for semiconductor manufacturing and research in his administration’s plans for economic recovery from the pandemic.

“(Semiconductors) enable the technologies needed to realize your Build Back Better goals, including smarter and safer transportation, greater broadband access, cleaner energy, and a more efficient energy grid, while also providing high-paying jobs for Americans and strengthening our advanced manufacturing base,” the group said in the letter, adding that robust US chip manufacturing is important for “enhancing our national security.”

White House press secretary Jen Psaki told reporters on Thursday that the administration is working to address the chip shortage by “identifying potential choke points in (the) supply chain and actively working alongside key stakeholders in industry and with our trading partners to do more now.”

She added that Biden is also looking at longer-term support for the industry.

Biden is expected to sign an executive order in the coming weeks to “undertake a comprehensive review of supply chains for critical goods,” including semiconductors, Psaki said.

A critical industry both for technology and defense

Psaki’s comments, and the industry leaders’ letter to Biden, come during a critical global shortage of semiconductors. Automakers have been hit especially hard, and Ford (F)and GM (GM) have temporarily shuttered some of their plants because of it. Analysts estimate that Volkswagen (VLKAF)— the world’s largest car company — could lose 4% of its total global output for the first three months of the year because of the deficiency.

The shortage adds urgency to a longer-term conversation involving lawmakers and chipmakers about the need to increase US semiconductor manufacturing capacity.

US officials and industry players have been sounding the alarm that failing to expand domestic semiconductor manufacturing could harm national security because cutting-edge microchips have crucial military and defense applications.

Currently, the industry relies heavily on foreign production, largely from Taiwan, South Korea and China. Officials worry about the ramifications of centering production for this critical industry in a region where US rival China, which has been wrestling the United States for technological dominance, has so much influence.

Intel last summer said it was in talks with the US government about how to “strengthen domestic sources” of microelectronics technology. TSMC (TSM), another major chip manufacturer, announced plans in May to build a $12 billion factory in Arizona.

Industry leaders say much more needs to be done.

“Our share of global semiconductor manufacturing has steadily declined from 37 percent in 1990 to 12 percent today,” the CEOs said in their Thursday letter to Biden. While the US share of global chipmaking has shrunk, China’s has grown and is now also around 12%, experts say.

“This is largely because the governments of our global competitors offer significant incentives and subsidies to attract new semiconductor manufacturing facilities, while the U.S. does not,” the group wrote. As a result, they said, US “technology leadership is at risk in the race for preeminence in the technologies of the future, including artificial intelligence, 5G/6G, and quantum computing.”

As part of the most recent annual defense bill passed last fall, known as the National Defense Authorization Act, Congress enacted a provision called the CHIPS for America Act, which authorizes the government to offer incentives for semiconductor manufacturing and make investments in related research.

The industry group called the CHIPS Act an “important initial step” and urged Biden to allocate funding for such incentives, including tax credits or grants, as part of his administration’s recovery and infrastructure plans.

“Working with Congress, your administration now has an historic opportunity to fund these initiatives to make them a reality,” the group said. “We believe bold action is needed to address the challenges we face. The costs of inaction are high.”

The Information Technology Industry Council, an IT trade group, sent a similar letter to Biden this week, calling on him to include “substantial funding” for the CHIPS Act as part of his budget proposal for the upcoming fiscal year.

Such advice could be instructive when the Biden administration carries out its review of semiconductor supply chains — part of the planned executive order Psaki said will be signed in the coming weeks.

“The review will be focused on identifying the immediate actions we can take, from improving the physical production of those items in the US to working with allies to develop a coordinated response to the weaknesses and bottlenecks that are hurting American workers,” Psaki said.