The semiconductor industry forms the bedrock of a technology-driven global economy. Given the deteriorating U.S. – China relations and the attendant vulnerability of a dispersed semiconductor supply chain, the Trump administration has been pushing for American chipmakers – or even those that employ American technology – to move much of their fabrication to the U.S. soil. Now, it appears that these efforts are bearing fruit.
The semiconductor behemoth Intel (NASDAQ:INTC) recently informed CNN Business that:
“[It is in talks with the U.S. government to] explore how to ensure continued US technological leadership and strengthen domestic sources for state-of-the-art microelectronics and related technology.”
Through a letter to the Pentagon dated 28th of April and seen by the Wall Street Journal, Intel CEO Bob Swan confided that the preeminent semiconductor manufacturer was “uniquely positioned” to collaborate with the U.S. government in this effort.
Swan stated in the letter:
“Thank you for … the opportunity to discuss the future of ensuring continued U.S. technological leadership and strengthening domestic sources for state-of-the-art microelectronics. This is more important than ever, given the uncertainty created by the current geopolitical environment.”
He went on to note that Intel could “operate a commercial U.S. foundry to supply a broad range of microelectronics.” Although the semiconductor giant does manufacture chips in the United States at four separate fabrication facilities, a commercial fabrication operation accessible to third parties on the home ground would bolster the Trump administration’s efforts in localizing this sensitive industry.
Bear in mind that several American semiconductor companies design bespoke chipsets but then outsource their production to commercial fabricators such as TSMC (NYSE:TSM). In fact, TSMC produces silicon chips for a plethora of companies, including AMD (NASDAQ:AMD), Apple (NASDAQ:AAPL), Qualcomm (NASDAQ:QCOM), NVIDIA (NASDAQ:NVDA), etc.
Given the wide-ranging technological and military applications for silicon chips, the Trump administration has been doggedly pursuing a strategy to bolster the domestic semiconductor sector. These efforts are now beginning to produce results. As an illustration, a recent Wall Street Journal report said that TSMC is mulling an advanced fabrication facility in Arizona, with production commencing as early as 2023. As a refresher, TSMC was under increasing American pressure to relocate its facilities either to the U.S. or another neutral avenue that can serve as an effective shield amid a ratcheting up of tensions with China. TSMC now appears to have capitulated, noting that the subsidies guaranteed by the Trump administration would aid its localization efforts. As a refresher, the company already maintains one fabrication facility in the United States – located in Camas, Washington.
The U.S Department of Commerce was quoted by CNN Business:
“The Trump Administration is actively encouraging semiconductor companies — both here at home and around the world — to increase design, manufacturing, and research and development investments in the United States. Semiconductors represent a foundational technology that underpins US national security and economic competitiveness.”
The department further said:
“This industry was invented in America, and strategic investment will ensure it remains rooted here.”
Although the semiconductor industry has been accorded much strategic value, the U.S. silicon manufacturing capacity has not experienced any sizable growth in recent times. Currently, the United States constitutes only 13 percent of the global semiconductor manufacturing capacity. This level is at par with an industry-wide tabulation back in 2015, according to Martin Chorzempa – a research fellow at the Peterson Institute for International Economics. On the other hand, China’s semiconductor production capacity stood at 8 percent in 2015 but has grown to around 12 percent in recent times.
Of course, the Trump administration’s laser focus on the semiconductor sector echoes the efforts in the 1980s, when fears of a Japanese ascendancy prompted the U.S. to invest heavily in its domestic silicon sector, thereby, successfully staving off a degradation in the country’s primacy. Judging from the initial results, the current campaign appears to be heading in the same direction.