Congress has the opportunity to increase chip manufacturing in the United States through the United States Innovation and Competition Act from the Senate, or the America Creating Opportunities for Manufacturing, Pre-Eminence in Technology and Economic Strength (COMPETES) Act from the House. Unfortunately, a stalemate over semi-unrelated trade provisions in the bill are preventing its passage, delaying $52 billion in funding provisioned to increase production in the United States. Continued stalemate is bad news for the future of the American economy.
Computer chips, or semiconductors, live in almost every electronic device we use on a daily basis. They’re needed for cars, cellphones, medical equipment, and national security. The growing thirst for chips came to a head in 2021 and 2022, when a national shortage drove up the prices of cars and other essential electronics.
The United States is the main designer of semiconductor chips with almost 50% of global sales, according to the Department of Commerce. But designing the chip is not the same as actually building it. Despite the dominance of U.S. design, only one U.S.-owned semiconductor foundry, or factory, exists in the United States, run by Infineon in Minnesota. Surprisingly, the U.S. lost its once supreme position in semiconductors by not investing in semiconductor “fabs,” leading it to only produce 11% of global semiconductors in 2019. Instead, Taiwan is the global leader in semiconductor manufacturing with two of the largest semiconductor foundries in the world, UMC and TSMC.
Moreover, the U.S. has fallen behind in two distinct ways. U.S. companies have fallen behind in the cutting-edge technologies that are used to make the “advanced” chips that power smartphones and game consoles. TSMC and Samsung are the only general-use chip manufacturers that can produce the most advanced chips.
Meanwhile, the U.S. has also not invested in the facilities that make the “mainstream” chips that power, among other systems, speedometers or car brakes. Chips for cars, while easier to manufacture, are cheaper and have a lower profit compared to smartphone and computer chips, which are the state-of-the-art versions that drive innovation in computing capabilities.
Chipmaking requires a lot of investment, resources, and research and development to keep up with the needs of computing. The global chip shortage demonstrated the challenges for digital societies in keeping up with demand; the European Union passed The European Chips Act in February 2022 in response to the shortage.
Congressional leaders have been negotiating to discuss differences in the Senate and House bills, which are extensive. Provisions around issues, such as the denial of “de minimis” tariff waivers on small packages from China, eased filing of anti-dumping lawsuits such as those recently targeting solar panel imports, digital trade negotiating goals, energy and research, space, green energy, and more are the subjects of disagreement. In contrast, only one major provision separates the two chambers on chips: PAYGO, with the House in support and the Senate against the budget provision.
In light of the importance of chips for everyday life and for future innovations, resolving the single disagreement over chips is both more pragmatic and necessary to increase American competitiveness and security in this sector.
