By Bob Davis, Asa Fitch and Kate O'Keeffe
The American semiconductor industry is gearing up for a lobbying
push to obtain billions of dollars in federal funding for factory
building and research to keep the U.S. ahead of China and other
countries that heavily subsidize their chip industries.
The $37 billion in proposals from the Semiconductor Industry
Association, a trade group, includes subsidies for the construction
of a new chip factory, aid for states seeking to attract
semiconductor investment and an increase in research funding,
according to a draft of the proposals viewed by The Wall Street
Journal.
The push comes as the administration and Congress try to grapple
with twin challenges: reducing U.S. dependence on Asia for
technology products and competing effectively with China. The
global coronavirus pandemic has deepened those concerns and
re-energized a debate about the role the government should play in
encouraging innovation.
The growing tension with China "has moved the dynamic toward
accepting a national industrial strategy," said Robert Atkinson,
president of the Information Technology & Innovation
Foundation, an industry think tank. "In the old days, it was about
protecting steel. The consensus now is much more about helping
sunrise industries," referring to those pursuing advanced
technology.
Industry officials consider expected legislation with additional
coronavirus relief funding, the annual National Defense
Authorization Act and some emerging technology bills as potential
vehicles for the proposals.
While it is unlikely that the SIA's recommendations will be
accepted without modifications, some influential lawmakers and
administration officials, including Secretary of Commerce Wilbur
Ross and Secretary of State Mike Pompeo, are examining ways to help
the industry.
"The Trump administration is committed to ensuring the United
States has a secure, vibrant, and internationally competitive
high-tech ecosystem, supported by domestic chip production," said
Mr. Ross.
A State Department spokeswoman echoed that support, saying State
is "working closely with Congress and industry to ensure that the
future of the semiconductor industry remains in the United
States."
In Congress, a bipartisan group of lawmakers including Senate
Minority Leader Chuck Schumer (D., N.Y.) and Sen. Todd Young (R.,
Ind.) have proposed a $110 billion boost in technology spending
that would include semiconductor research. Sen. Tom Cotton (R.,
Ark.) is putting together a bill that mirrors some of the SIA's
proposals.
"Advanced microelectronics are essential to future U.S.
technological leadership, and we can't allow the CCP to control
these critical supply chains," said Sen. Cotton, referring to
China's ruling Communist Party.
The scale of the technology proposals is well beyond what has
been contemplated in recent years. Federal funding for research and
development, as a percentage of gross domestic product, has fallen
by about half since the mid-1980s.
The SIA's proposal is related to the concern that the U.S. is
losing its edge to countries that have been more generous with
incentives, especially China. Computer chips underpin some of the
most important commercial and defense technologies of the future,
including 5G networking and artificial intelligence, both areas
where the Trump administration wants to stay a step ahead of global
rivals.
China is expected nearly to double its share of global chip
production capacity to around 28% by 2030, according to SIA
estimates, although that includes production by foreign companies
based in China. U.S.-based companies such as Intel Corp. and
GlobalFoundries are some of the largest chip makers in the world,
but only 12% of chips are produced within the U.S.'s borders,
following a subsidy-spurred shift toward Asia, Israel and
Ireland.
The SIA's recommendations include $5 billion in federal funding
for a new semiconductor factory that would be financed and operated
in cooperation with the private sector. In a letter to Defense
Department officials, Intel Chief Executive Bob Swan proposed in
April that the company work with the Pentagon to build and operate
such a facility. Intel declined to comment.
Another $15 billion would go to states as block grants that they
could use to provide incentives for new semiconductor manufacturing
facilities. The remaining $17 billion would add to federal research
coffers, including $5 billion for fundamental research, $7 billion
for applied research and $5 billion for a new technology center,
according to the draft of the SIA's proposals.
"Our plan has a big number, but the cost of inaction would be
far bigger to our economy, our national security and our leadership
in critical technologies of the future," said SIA President and
Chief Executive John Neuffer.
Some experts warned that the U.S. shouldn't try to engage in a
subsidy race with China. Despite spending tens of billions of
dollars subsidizing its chip industry, Beijing isn't competitive
with the U.S. in advanced semiconductor technology, said Nicholas
Lardy, a China specialist at the Peterson Institute for
International Economics. "If China wants to pour money into doing
that, I don't see why we would want to follow," he said.
Different segments of the semiconductor industry, which ranges
from manufacturers to chip-design firms and makers of manufacturing
equipment, disagree on how the aid should be structured.
Block grants, for instance, were criticized by one industry
insider briefed on the proposal because states often compete with
one another for investment, rather than China. "Are the states
expected to come up with better ways to compete with China Inc.?"
the industry insider asked.
There is also division within the industry about whether the
plan would mainly benefit larger players, further cementing their
share of U.S. manufacturing. The SIA was seeking to win industry
approval by making the proposal broad enough for many segments of
the industry to benefit, said people familiar with the plan.
Separately, SEMI, a group representing chip manufacturing
equipment companies and others, has for months been pushing an
investment tax credit for purchases of machinery. Such a credit
"would provide a strong foundation for all other proposals by
taking effect immediately and closing the cost gap for all
investments, effectively 'raising the floor' and reducing amounts
needed via other targeted programs," said Ajit Manocha, SEMI's
president and chief executive.
Two Texas Republicans, Sen. John Cornyn and Rep. Michael McCaul,
are putting together a bill that envisions an investment tax credit
among its provisions, according to congressional aides. Such a
provision is included in the SIA's recommendations.
The most modern chip factories typically cost more than $10
billion to build, and rising cost has been a major factor in
reducing private investment in U.S. manufacturing in recent years.
GlobalFoundries, which is based in Santa Clara, Calif., but owned
by Abu Dhabi, two years ago decided to stop development of what
were then the most advanced chips, largely because of the cost.
The industry's recommendations follow the Trump administration's
courting of Taiwan Semiconductor Manufacturing Co., the world's
largest contract chip manufacturer, which said it would spend $12
billion on a chip factory in Arizona between next year and
2029.
Some U.S. chip makers and lawmakers complained that the money
ought to go to American companies willing to build factories before
being pledged to foreign ones. Mr. Schumer, whose state is home to
several large chip-making plants including ones run by
GlobalFoundries, and two other lawmakers criticized the investment
as "inadequate to rebuilding U.S. manufacturing capacity in
microelectronics."
Under the SIA's plan, funding would be dedicated to building
facilities in the U.S., but would be available to both foreign and
domestic companies.
Although the SIA said its plan doesn't pick favorites, the $5
billion for foundry development was seen by some in industry and
government as an incentive for Intel to build a plant, rather than
a foreign manufacturer.
Write to Bob Davis at bob.davis@wsj.com, Asa Fitch at
asa.fitch@wsj.com and Kate O'Keeffe at kathryn.okeeffe@wsj.com
(END) Dow Jones Newswires
May 31, 2020 17:25 ET (21:25 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.