Source: Blog – Alliance for American Manufacturing
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A Hudson Institute panel took a look at what’s going to be needed to bring more production of semiconductors and microchips back to the United States.
Building a robust, domestic supply chain for anything is challenging. In the space of microelectronics, this is no different. This supply chain is inherently complicated. It requires multiple steps, which create a lack of flexibility. Additionally, America’s microelectronics supply chain is extremely fragile, thanks to decades of neglecting our production capabilities.
The U.S. domestic production industry for microelectronics controlled a global market share of 26% in 2000. That same global market share is now down to just 4%.
How do we get things on the right track?
The Hudson Institute held a virtual event on Wednesday to examine the current state of the microelectronics supply chain and the steps needed to ensure its security. Moderated by Bryan Clark, a senior fellow and director for the Center for Defense Concepts and Technology at the Hudson Institute, the panel featured industry leaders from U.S.-based companies, including Neal Anderson of Chemours, Rich Ashooh of LAM Research, and Travis Kelly of the Isola Group.
The microelectronics supply chain is built on two parts: microchips and semiconductors. But there’s more to it than that.
Before they can be placed in a printed circuit board (PCB), for example, microchips must be embedded in a “package,” that way they can then be transported and embedded in a printed circuit board further down the supply chain. And microchips are designed so they cannot be moved without complicated packaging.
But lack of domestic manufacturing means the U.S. supply chain includes multiple single points of production. Kelly — who as president and CEO of the Isola group oversees the last American-owned provider of copper laminate used in PCBs — noted “multiple single point failures” in the U.S. supply chain of raw materials.
For example, fiberglass yarn, an essential element for multiple electronic supply chains, is only manufactured in one U.S. location.
Given this lack of domestic production, many viewers of the industry believe that the U.S. has “lost its lead” in the microelectronics supply chain. But Ashooh pointed out that the U.S. only lost its lead in the sense of production volume; the U.S. is still the global innovation head of this industry. This lead in innovation is crucial to protect, and it requires increasing production.
Panelists agreed that the best way to do so is with large amounts of capital. Currently, this is mainly done with private corporations. Government involvement is miniscule when compared to private capital.
This raises a question: What steps can the government take to increase their capital involvement in microelectronics supply chain and support American manufacturers of these critical products?
The first step is through legislation like the CHIPS and Science Act. Industry leaders agree that the investments generated from the CHIPS Act is a good first step. But that investment doesn’t address an equally important need, which is domestic demand.
The U.S. government currently holds 5% of the market share in microelectronics. That makes it hard for companies to determine if there will be a long-term demand for U.S. production, which is necessary for companies to decide whether it’s financially viable to make their products in the United States.
“It’s hard for domestic industry to write an investment thesis on the hopes that there’ll be an aggregate demand signal,” Kelly said.
Clark and Anderson said the government needs to view itself as a retail consumer of American-made microelectronics. This can be done with the government finding new uses for microelectronics, whether that is in defense, satellite or 5G advancements. And we’ll jump in here to point out that by applying Buy America preferences to government spending, we can ensure taxpayer dollars will be reinvested back into the manufacturers working to increase domestic production of these critical goods.
Industries such as microelectronics are crucial in the U.S.’s role as an innovator on the global stage and for our economic and national security. But this role is in jeopardy.
As Kelly put it: “If you’re a country today, and you’re not asking, ‘What do I have to do to secure my supply chain?’ you’re being foolish.”
Travis Kelly appeared on The Manufacturing Report podcast in July 2022 to talk about the role of printed circuit boards in the semiconductor supply chain and why action to strengthen U.S. production of them is needed. Listen below or wherever you get your podcasts.
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