ITI Policy Recommendations Aim to Boost the U.S. Supply Chain of Semiconductors

By now it is likely almost everyone has at least seen a headline about demand skyrocketing across nearly all semiconductor-consuming industries, and how that skyrocketing demand continues to outstrip supply. As the COVID-19 pandemic caused the vast majority of workers and students to turn to a work-from-home and learn-from-home environment, we witnessed a stark jump in demand for tablets, phones, netbooks, laptops, and technology products supporting the back-end of this remote computing. At the same time, with so many people living their lives without leaving their homes, we witnessed a spike in demand for home improvement and entertainment products, from refrigerators and freezers, to washer and dryers, to smart speakers, televisions, and game consoles. Layered over all of this was the incredible spike in demand for electronics to support the healthcare sector – ventilators, for instance. If you tried to order a refrigerator recently, you likely waited many weeks to a number of months for its arrival. While some of this wait is due to backlogs at the ports, you can also thank the unprecedented spike in electronic components demand and the supply-demand imbalance in semiconductors. But semiconductors are more than just critical components to our home appliances and electronics; they are vital to U.S. economic competitiveness and national security, as are many of the technologies that rely on a secure supply of chips, such as 5G, Internet of Things (IoT), Artificial Intelligence (AI), quantum computing, and supercomputer development.

President Biden and lawmakers in the U.S. Congress have noticed the supply-demand imbalance in this critical, foundational technology, too. Not surprisingly, policies relating to the domestic semiconductor supply chain and the semiconductor market are now top of mind for policymakers on Capitol Hill and the administration. On February 24, President Biden issued the Executive Order on America’s Supply Chains (EO) to review the domestic supply chain of critical components in four categories: semiconductors and advanced packaging, high-capacity batteries, critical minerals and strategic materials, and pharmaceutical ingredients. The EO directed the U.S. Department of Commerce to conduct a 100-Day Supply Chain Review and prepare a report to President Biden identifying both risks in the semiconductor supply chain and policy recommendations to address those risks, and on March 15, the U.S. Department of Commerce published a request for public comment to inform this review and report. On April 5, ITI filed detailed comments with recommendations policymakers should consider to boost the supply of semiconductors made in the U.S.

ITI and its members strongly believe that for the U.S. to maintain its technology leadership, it must make investments to promote a strong, skilled advanced manufacturing workforce and strengthen and diversify the semiconductor supply chain, in particular by building U.S. manufacturing capacity. In addition to identifying specific risk factors and providing specific recommendations requested by the U.S. Department of Commerce, ITI’s comments prioritized eight high level themes, echoing much of what ITI shared with policymakers in the White House and on Capitol Hill over the last several weeks. These themes call for substantial U.S. investment in the semiconductor ecosystem, economic policies that support R&D, preparing American students and workers for high-skilled engineering and manufacturing jobs, fostering trade relationships with like-minded economies, and utilizing public-private partnerships to obtain and maintain a holistic view of the semiconductor industry and supply chain:

  1. 1. Foster and strengthen U.S. leadership in the semiconductor industry to enhance economic competitiveness, bolster national security, and drive innovation across all sectors by supporting increased production of semiconductors and their raw materials within the U.S.
  2. 2. Prioritize U.S. investment in the semiconductor industry through grants and other incentives to promote semiconductor research, design, packaging, prototyping, and manufacturing, such as through funding the Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act enacted as part of the FY2021 National Defense Authorization Act. Ensure these programs are implemented without picking winners and losers through market-distorting set-asides or quotas, even when addressing the short-term supply-demand imbalance. Further, these incentives should be available to all multi-national chip manufacturers.
  3. 3. Utilize tax policy to encourage and enable greater investment in the U.S. semiconductor ecosystem, such as through maintaining a competitive corporate tax environment, offering investment tax credits (ITCs), and ensuring companies may continue to deduct research and development (R&D) expenses in the year incurred.
  4. 4. Maintain innovation-forward trade and economic policies that promote overseas market access and enable global sales, enabling robust reinvestment of revenues in R&D.
  5. 5. Strengthen America’s technology workforce by investing in advanced manufacturing skills and STEM education at the K-12 level and in training and upskilling programs while at the same time supporting immigration policies that enable companies to address the labor shortages they face today.
  6. 6. Enhance cooperation with global partners and allies to ensure stability of the global semiconductor supply chain by convening formal supply chain reviews and other efforts to minimize damaging interruptions. Deepen trade and investment relationships and address unintended trade barriers that restrict supply chain resilience by organizing tech-sector specific dialogues, increasing digital trade partnerships, enhancing regulatory compatibility, and reducing barriers to trade through increased bilateral, regional, and multilateral engagement with partner economies.
  7. 7. Address unfair Chinese trade practices that are not adequately disciplined by existing international rules through plurilateral and multilateral engagement, and advocate for updated rules capable of disciplining China for unfair subsidization practices that are explicitly aimed at broadening Chinese firms’ global share of the semiconductor market. Further, review and address U.S. policies that inhibit domestic manufacturing capacity, such as through prioritizing the removal of Section 301 tariffs on semiconductor components.
  8. 8. Strengthen public-private partnerships by convening industry and government experts to enable a holistic view of the semiconductor supply chain and risks, and utilize such partnership to develop a coherent, streamlined, holistic, coordinated long-term approach to address ICT supply chain security.

We appreciate the administration’s and Congress’ attention to this critical technology and the need to both expand and diversify the semiconductor supply chain. We look forward to continuing working with U.S. policymakers to achieve these goals.

Public Policy Tags: Supply Chain