U.S. Semiconductor Manufacturing: Industry Trends, Global Competition, Federal Policy

Invented and pioneered in the United States shortly after World War II, semiconductors are the enabling technology of the information age. Because of semiconductors new industries have emerged and existing ones, such as aerospace and automotive, have been transformed. Semiconductors have contributed in powerful and unique ways to nearly all fields of science and engineering, and semiconductors’ economic and military importance has made the industry’s health a focus of congressional interest for nearly 70 years. In July 2015, Congress formed the Semiconductor Caucus, a group that seeks to advance policies that support the U.S. semiconductor industry. The federal government played a central role in the creation of the U.S. semiconductor industry. World War II funding for electronics and materials research and development (R&D) provided essential support for the invention and refinement of semiconductors. Federal investments in computing advances also created an important application for semiconductors and federal acquisitions for defense, space, and civilian applications made up the lion’s share of the early semiconductor market. In the face of formidable competition from Japanese companies in the 1980s, Congress co-funded SEMATECH, an industry research consortium devoted to developing the technologies needed by U.S. firms to remain competitive. Today, Congress continues to provide funding for R&D and development of scientific and engineering talent in support of the industry. In 2015, Congress acted to make the R&D tax credit permanent, a policy priority of the industry. An ongoing issue of congressional interest is the retention of high-value semiconductor manufacturing in the United States. In 2015, semiconductor manufacturers directly employed 181,000 workers, who earned an average wage of $138,100, more than twice the average wage for all U.S. manufacturing workers. Increasingly, however, U.S. firms are building semiconductor fabrication plans (fabs) abroad, primarily in Asia. In addition, some semiconductor firms are going “fab-less,” focusing corporate resources on chip design and relying on contract fabs abroad to manufacture their products. At year-end 2015, there were 94 advanced fabs in operation worldwide, of which 17 were in the United States, 71 in Asia (including 9 in China), and 6 in Europe. The Chinese government regards the development of a domestic, globally competitive semiconductor industry as a strategic priority with a stated goal of becoming self-sufficient in all areas of the semiconductor supply chain by 2030. China faces significant barriers to entry in this mature, capital-intensive, R&D-intensive industry. Because the primary market for U.S.-based semiconductor firms is located outside the United States (83% in 2015), passage of the Trans-Pacific Partnership (TPP) agreement and successful conclusion of the ongoing Transatlantic Trade and Investment Partnership (TTIP) negotiations with Europe are top industry priorities. In 2015, exports of U.S. semiconductors and related devices totaled $41.8 billion, making it the nation’s fourth-largest overall exporting industry. The 2015 expansion of the World Trade Organization (WTO) Information Technology Agreement (ITA), a plurilateral tariff-cutting agreement focused on trade in information technology goods, is considered a major success for the U.S. semiconductor industry. Semiconductor manufacturing also raises national security concerns, including secure access to trusted suppliers of advanced semiconductors and other critical technology components that are important for certain defense and national security applications. The House Armed Services Subcommittee on Oversight and Investigations held a hearing on this issue in October 2015.