America Needs a Semiconductor Industrial Strategy—Here’s How to Start

America Needs a Semiconductor Industrial Strategy—Here’s How to Start

Washington must address existing vulnerabilities across the semiconductor supply chain. To that end, there is much that both Congress and the Biden administration can do to aid this endeavor.

Finally, some may argue that the above policy recommendations will be wasteful—that rapidly growing supplies of leading-node logic chips via government incentives as demand increases gradually may inadvertently harm semiconductor firms.

For example, when demand for GPUs was high in 2018, Nvidia increased supplies. However, demand dropped, harming Nvidia financially. Scott Lincicome, director of economics and trade at the Cato Institute, notes that industrial policy has cost overruns, including deadweight losses and unintended consequences. But any government program can have and often has these costs—did cost overruns prevent the creation of the F-35 stealth fighter? Furthermore, the United States has the appropriate domestic semiconductor environment—established firms, robust infrastructure, and skilled workers—to ensure semiconductor incentives are well-used.

A Twenty-First Century Industrial Strategy

Supply chain vulnerabilities for leading-node logic chips endanger U.S. national security. The plain truth is that these chips are critical in emerging technology affecting key sectors. Simply put, America needs a secure supply of these chips, lest we be relegated to second-tier technological power status. Congress should pass laws that offer grants and tax incentives for supply links of leading-node logic chips, and the White House should prioritize funding for supply links and streamline federal regulations that affect semiconductor supply chains. Though some may argue that these recommendations are ineffective, expensive, and wasteful, foreign governments like Taiwan and South Korea have proven that industrial policy can effectively bolster the quality and capacity of supply chains for leading-node logic chips.

In May 2022, U.S. secretary of state Antony Blinken highlighted America’s need for “a modern industrial strategy to sustain and expand our economic and technological influence, make our economy and supply chains more resilient, sharpen our competitive edge.” He urged Congress to “make historic investments in research and innovation, including in fields like artificial intelligence, biotechnology, quantum computing. These are areas where Beijing is determined to lead.” But to make America the global leader in emerging technologies, the U.S. government—through bills like the CHIPS Act—needs to prioritize funding supply chains for leading-node logic chips specifically, not semiconductors broadly.

Shubham Dwivedi is a Fulbright Doctoral Fellow at Georgetown University’s Science, Technology, and International Affairs Program.

Gregory D. Wischer is a master’s graduate from Georgetown University’s Security Studies Program.