The largest semiconductor fiscal measure in U.S. history may be in place

On June 8, local time, the U.S. Senate voted 68 in favor and 32 against to pass the American Innovation and Competitiveness Act, authorizing about $190 billion to strengthen U.S. technology and research, and will separately approve spending of $54 billion to increase U.S. production and research of semiconductors, microchips, and telecommunications equipment. U.S. Commerce Secretary Gina Raimondo has said that the funds may be used to build 7 to 10 new semiconductor factories in the United States. This bipartisan-supported bill will increase funding for scientific research and high-tech manufacturing, enhance U.S. competitiveness and promote economic growth.

Since the Huawei and ZTE incident in 2018 and the Sino-US trade war, the United States has been increasingly harsh in its crackdown on China's semiconductor sector. The impact of the epidemic on global industrial chains and the impact of chip shortages on the automotive industry have also caused the United States to feel a sense of crisis about its own semiconductor supply chain. These two factors have led to a growing call for the United States to revive its semiconductor industry advantages. One of the important measures is to urge the government to increase policy and financial support for the industry.

In an exclusive interview with Jiwei.com, Jimmy Goodrich, vice president of global policy at the Semiconductor Industry Association (SIA) and member of the board of directors of the U.S. Information Industry Organization (USITO), was very optimistic that fiscal measures for the U.S. semiconductor industry will be in place by the end of this year.

New Act and New Alliance (SIAC) to Promote Government Funding

The basis of the American Innovation and Competitiveness Act comes from the Endless Frontier Act (also translated as the Endless Frontier Act).

The Endless Frontier Act sets clear boundaries for the strategic competition in U.S. science and technology, such as the allocation and use of funds. The original idea was that, out of the nearly $120 billion investment, the National Science Foundation's new Technology and Innovation Steering Committee (DTI) would include $100 billion in investment for development and research in the above key areas. In addition, another $10 billion would be used to build at least 10 regional technology centers and establish a supply chain crisis response plan to address issues such as semiconductor chip shortages that affect production.

After the Endless Frontier Act was amended to the American Innovation and Competitiveness Act and signed into law by Biden, the $54 billion allocation for the semiconductor industry can basically be implemented. So which companies will receive these subsidies?

On the 11th of last month, 64 upstream and downstream companies in the semiconductor industry chain, including the United States, Europe, Japan, South Korea, and Taiwan, China, announced the establishment of the Semiconductors in America Coalition (SIAC). Their short-term goal is to lobby the U.S. Congress to allocate $50 billion for domestic chip manufacturing and research in the United States, and to obtain funds for the CHIPS for America Act passed earlier this year.

Jimmy said SIAC is a powerful symbol of U.S. and global industry support for the United States to enhance its competitiveness in semiconductor manufacturing.

Jimmy pointed out that today, American companies account for about 70% of the semiconductor chip design market share. About 36% of the world's electronic products are designed by companies headquartered in the United States, including laptops, PCs, data centers, servers, and so on. Therefore, today the United States is still a world leader in electronic design, both in systems and chips. However, the United States is relatively weak in electronic manufacturing, especially semiconductor manufacturing. In the 1990s, the United States led the world in chip manufacturing with a global share of about 37%, but now it has slipped to only about 12%.

SIAC is not intended to contain China?

In Jimmy's view, the establishment of SIAC shows that building a more resilient and risk-resistant supply chain in the United States has received widespread support from upstream and downstream of the industry chain, including equipment, materials, software, design companies and users. "This does not mean that American companies or members of the alliance are calling for the transfer of semiconductor manufacturing or decoupling from the global supply chain. On the contrary, I think they agree that increasing manufacturing capacity in the United States will help reduce the current over-reliance on semiconductor manufacturing in the Asia-Pacific region." Jimmy emphasized, "In fact, there are more upstream and downstream companies interested in joining SIAC. These companies come from different links in the semiconductor supply chain, whether it is software, materials, equipment, or semiconductor design, manufacturing, or downstream users, they have a variety of needs. But I think they all agree that it is not a bad thing for the United States to have more semiconductor manufacturing capacity. The United States just wants to expand its semiconductor manufacturing capabilities and make the ecosystem more balanced. Asia-Pacific will still be an important link in the global semiconductor industry chain, and even its core position will not change."

The pandemic over the past year has had a severe impact on the balance of semiconductor supply and demand, causing major disruptions in the supply chain. For example, in the automotive industry, a sharp drop in semiconductor orders has disrupted the global supply chain. The subsequent chip supply shortage has spread from the automotive industry to consumer electronics around the world, and multiple industries are unable to obtain the semiconductors they need.

Under the influence of the epidemic and geopolitics, and even the constant occurrence of natural disasters, people are increasingly concerned about the security of the semiconductor supply chain. "Even if the Asia-Pacific region will always be an important part of the global electronics and semiconductor supply chain, we still need to do some rebalancing to compensate for potential risks in the supply chain. Although the global semiconductor shortage is not directly related to this, people do realize the importance of increasing domestic manufacturing capacity in the United States." Jimmy emphasized.

He said that U.S. policymakers have once again recognized the importance of the semiconductor industry, and there are two factors that have prompted them to "wake up" and realize the need for government action. First, many U.S. decision makers believe that they will be in a long-term competition with other countries, and other countries are regarded as strategic competitors, which requires the United States to make more strategic long-term plans in the field of science and technology. Second, the epidemic has prevented many hospitals and emergency personnel from obtaining personal protective equipment, which is a huge blow to many Americans because they have discovered that they are so dependent on global supply chains, which are indeed key components of local daily life and economy. Semiconductors are at the top of the list of necessities that the U.S. government really wants to ensure a more resilient domestic supply.

More importantly, it is not just the United States that is now aware of the importance of semiconductor strategy. The European Union is discussing a package of more than 10 billion euros or even more to revitalize the region's semiconductor industry; South Korea has just released a national semiconductor strategy that includes substantial tax breaks and other incentives for its semiconductor industry; China, which has a National Integrated Circuit Industry Development Fund (Big Fund), has long had very aggressive promotion measures in the semiconductor industry. "So this is just the United States waking up and realizing that if it wants to have more semiconductor manufacturing capacity and have the competitiveness to attract investment to match other regions, there must be a fair competitive environment, which can only be achieved with government incentives and support at the moment," Jimmy pointed out.

The global semiconductor supply chain based on regional division of labor brings continuous innovation and value

As the semiconductor industry gradually forms a global division of labor, a large number of US electronic manufacturing industries in the fields of computers, laptops, hard drives, monitors, etc. have been transferred overseas to other countries. These countries either have labor advantages or local governments have provided strategic financial support for the transfer of these industries to the Asia-Pacific region.

"Over the past few decades, the semiconductor industry has become highly globalized, which is why it has been able to provide more innovation and technology to customers and consumers around the world," said Jimmy. "We need to strike a balance between urging governments to increase support for the industry and keeping the global supply chain running."

He emphasized that over the past three decades, the globalization of the semiconductor supply chain has enabled related companies to significantly reduce product costs, improve product performance, and promote technological innovation. It is precisely because of the highly specialized division of labor in the global semiconductor supply chain that the industry can continue to innovate in technology, create huge economic value, and benefit consumers. Semiconductors are extremely complex products in both design and manufacturing processes. No industry can achieve such high investment in both R&D (accounting for 22% of terminal semiconductor sales) and capital expenditures (26%).

Jimmy said that due to the semiconductor industry's demand for technical knowledge and scale, the industry has derived a highly specialized global supply chain, and each region carries different functions in the supply chain according to its comparative advantages. For example, the United States has world-class universities and a large talent pool, and is a leader in R&D-intensive activities, including electronic design automation (EDA), core intellectual property (IP), chip design, and advanced manufacturing equipment; the Asia-Pacific region is a leader in wafer manufacturing. The leadership of the manufacturing industry is inseparable from the government's large-scale capital investment, as well as strong infrastructure and high-quality labor; mainland China is a leader in assembly, packaging and testing, which have relatively low technology and capital density. In recent years, China has also been actively investing and expanding its layout in the entire value chain.