Fabless Isn’t Fab: Why the U.S. Must Prioritize Domestic Microchip Manufacturing

What you’ll learn:

The supply-chain design for semiconductor production, which completely cuts out the U.S.
How losing control of the supply chain also is a national security issue for the country.
What events led to this—and how it was a culmination of production and labor outsourcing over years—and ways to turn it around.

As anyone attempting to buy a new car knows all too well, the United States is urgently deficient in microchips at the moment—and the outlook for this shortage is bleak. Can you imagine if “not enough” turns into “none at all?”

Though the semiconductor industry was an American innovation led by stalwarts like Bell Labs, Fairchild Semiconductor, and Texas Instruments in the 1950s, we’re now entirely dependent on manufacturers in Asia for the semiconductors that run everything from our mobile devices to our vehicles. It’s become an all too familiar story for American manufacturing—just ask Bethlehem Steel. We missed essential economic cues that should have directed both private and government funding toward large capital investments in domestic semiconductor production.

With Taiwan’s expansive TSMC representing the lion’s share, the United States now relies on a collection of Asian manufacturers for all of our leading-edge digital microchips, and this lack of leverage in a field so technologically critical brings frightening tidings for American economic and defense security.

How We Got Here

In short, the relentless outsourcing and lack of investment in our own semiconductor sourcing moved the U.S. into last place at the most advanced nodes of this ever-growing industry. At present, American companies are at zero production capacity on a technology that’s coming more and more swiftly to define the world, both inside and outside of tech development.

The governments of Taiwan, Korea, and China, on the other hand, enacted swift, articulated industrial policies and incentives to semiconductor foundries. They traded short-term profit for the potential of long-term dominance. They did this at a time when capital investment subsidies were manageable and translated into ongoing competitive advantage.

The U.S. did not do the same. To the contrary, American companies took advantage of outsourcing deals that maximized near-term profit at the expense of long-term strategy.

Now, it has become more difficult to reverse this trend. The capital investment and technical manufacturing requirements for digital microchips are vast and growing every day, as are the consequences of any supply-chain disruption of outsourced microchips coming into the U.S.

Of the three types of semiconductors—digital, analog, and power—the U.S. holds only a slim lead on analog and faces a tense race with Germany for dominance in power microchips.

Bad for Progress and Bad for National Security

The U.S. shift to a "fabless" production landscape has seen even the few U.S.-based integrated device manufacturers (IDMs), which own their own fabs, cast off those departments to save money. The amount of overseas control in the American semiconductor market, either outright purchased or outsourced to Taiwan, China, and Korea, is already astronomical. To allow it to continue is to place the U.S. in a position of submission to foreign interests on matters far-reaching beyond technological advances.

Many of the most advanced defense-related chips supporting America’s high-end tactical and surveillance systems are manufactured in Asian wafer fabs. Any corruption or disruption of the supply chain spells trouble for our national security.

How We Get Back on the Semiconductor Map

Strategic governmental initiatives supporting sectors of the semiconductor industry relating to technological supremacy and national security must take precedence for the U.S. to safeguard its own interests within those Asian-led industries. To do this, attracting talent from Asia will be necessary, as will hefty financial incentives.

A tax break isn’t the answer, nor nearly a big enough fiscal dent to make a ripple in a problem this big. As part of the Biden administration’s 100-day supply chain review, it recommended Congress spend at least $50B to bring research, development, and manufacturing back to the states. But that investment must come with policy enacted at the federal level. The incentives offered in Asia are the starting point for the discussion if America is to complete with, and eventually surpass, the region for chip dominance.

The U.S. could spearhead an Americas initiative to broaden the established supply chains of Asia, creating new regions for electronics manufacturing in North, Central, and South America. This can provide real economic development for the Americas as we have previously done in Asia, as well as improve logistics and security of supply for the long term.

Training and education-centered federal programs, such as State University of New York’s Albany NanoTech Complex need to become the rule, not the exception. A concerted effort must work to build interest, training regimen, and skills in the kind of nanotechnologies that make strides in the production of semiconductors, as well as their inherent design.

Though overseas talent and U.S.-aligned partner participation is requisite for national advancement in the all-important world of digital microchips, emphasis on an America-led workforce is every bit as essential. All support and financial incentives will need to take aim at powerful R&D for American-owned businesses.

Foundries Are the Way to Prevent Floundering

The U.S. must develop some dominance in the design and production of its own semiconductors. The good news is that we still have buying power within the foundry market via our monster share of fabless companies.

The U.S. needs to start by using that buying power to influence the business decisions of the foundry options that do currently exist. Even more significantly, a serious demand for domestic microchip manufacturing needs to set the foundation for how we move forward in building our own globally competitive share of the semiconductor production market.

If federal policy and investment fails to bring semiconductor manufacturing to domestic soil, it will continue to flounder—and run into potentially dire economic, technological, and security consequences.