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U.S. Government Signals Intent to Incentivize Semiconductor Manufacturing as a Matter of National Security

  • February 16, 2021
semiconductor industry

On January 1, Congress enacted the National Defense Authorization Act (NDAA) of 2021. The NDAA is an annual piece of legislation that sets policies to guide the U.S. Department of Defense and authorizes appropriations for the upcoming fiscal year. For the first time, this year’s act contains provisions to stimulate and incentivize semiconductor manufacturing on U.S. soil, in a move that has been championed by lawmakers, tech giants, and the semiconductor industry alike.

Why is semiconductor manufacturing a matter of national security?

“If the COVID-19 virus has taught us anything, it’s given us a clear picture of how vulnerable our unsecured supply chains are,” explained Senator John Cornyn (R-TX), one of the forces behind the NDAA amendment accommodating the semiconductor incentives, in comments from the Senate floor. “One of the biggest of these vulnerabilities we’re facing today is a lack of domestic semiconductor manufacturing… We need to bring those manufacturing jobs back to the United States and provide end-to-end security in our semiconductor supply chain.”

While the United States has been a global leader in the semiconductor industry for decades, its share of manufacturing capacity has dropped from 37% in 1990 to 12% in 2020. Currently, the U.S. stakes claim to only 6% of the new global capacity in development, while China is projected to add 40% of the new global capacity and become the world’s largest manufacturer of semiconductors, according to the Boston Consulting Group (BCG).  

This shrinking share heightens supply chain vulnerabilities and could potentially cripple American digital transformation and technological advances across industries, including artificial intelligence and quantum computing. Many industry leaders, defense experts, and economists share the belief that diversification of semiconductor supply is a crucial investment for U.S. defense systems and economic strength.

How does the NDAA support U.S. semiconductor manufacturing?

The NDAA’s semiconductor-focused provisions authorize billions of dollars of federal spending to incentivize the construction or modernization of facilities “relating to the fabrication, assembly, testing, advanced packaging, or advanced research and development of semiconductors.” The NDAA currently specifies a cap of $3 billion per project, but the total cap on the incentive program is still to be determined.

To clarify the state of funding, note that the federal government process has two stages: authorizations and appropriations. Authorization bills, which are the first step, direct how federal funds should or should not be used. After an authorization bill is signed into law, an appropriations bill must be passed to set the actual budget and define spending limits. The NDAA is an authorization bill. Lawmakers seek and have authorized federal funds for semiconductor manufacturing incentives, but the total amount of incentives available has not been written into policy yet. 

IEEE-USA and the Semiconductor Industry Association (SIA), which represents 98 percent of the U.S. semiconductor industry by revenue and nearly two-thirds of non-U.S. chip firms, are among the major stakeholders urging leaders to fully fund the domestic chip manufacturing incentives. 

What is the current status of financial incentives?

Appropriations bills reflecting NDAA authorizations are not expected to emerge from Congress for months. Still, it’s likely that these semiconductor incentives will receive funding, even if the amount of money actually spent is still being determined.  

Drawing on sixty years of consecutive NDAA annual legislation, the Congressional Research Service observes that “Unlike an appropriations bill, the NDAA does not provide budget authority for government activities. Nevertheless, historically it has provided a fairly reliable indicator of congressional sentiment on subsequent appropriations for particular programs.”

Bipartisan support for semiconductor manufacturing is strong, citing its potential to preserve national security, create thousands of jobs, and stimulate the economy and technological advances. Based on the success of the coordinated efforts to insert semiconductor provisions into the NDAA, it’s reasonable to expect significant federal spending. New and existing fabs are actively positioning themselves to benefit from domestic chip manufacturing incentives. 

How can U.S. semiconductor fabs use these financial incentives?

Without appropriations bills in place, it is still unclear how much federal money will be spent in the form of semiconductor incentives, and how it will be distributed. Nevertheless, it seems clear that a significant portion will go to the automation technology that makes semiconductor manufacturing possible.  

Contact Murata Machinery USA, Inc.

As a leading U.S. supplier of clean room and automation solutions for semiconductor fabs, Murata Machinery closely follows the status of financial incentives for domestic chip manufacturing. We’re ideally positioned to help new and expanding fabs equip and integrate the leading-edge equipment that precision environments require. Explore our clean room technologies or contact us to inquire about semiconductor material handling and automation solutions. 

semiconductor manufacturers

https://www.bcg.com/en-us/publications/2020/incentives-and-competitiveness-in-semiconductor-manufacturing

https://fas.org/sgp/crs/natsec/IF10515.pdf