The U.S. Senate Committee on Commerce, Science, and Transportation held a hearing on March 23 focused on the CHIPS for America Act, which calls for spending $52 billion in government subsidies to boost domestic semiconductor research, design, and manufacturing. Three industry CEO heavyweights participated in the hearing: Intel’s Pat Gelsinger, Micron Technologies’ Sanjay Mehrotra, and Lam Research’s Tim Archer.

The U.S. Senate passed the U.S. Innovation and Competition Act in 2021, which included $52 billion in federal investments for the CHIPS Act. The House of Representatives followed suit in February 2022. The final step is for the House and Senate to pass legislation that includes the CHIPS Act for President Biden’s signature.

While the Act focuses on restoring America’s prowess in chip manufacturing, implications for the supply chain are less evident. Semiconductor production still relies heavily on foreign sources of materials, wafers and services such as packaging. While more U.S.-made chips may relieve the tariff burden on imported components, it’s unclear what portion of domestically made semiconductors are destined for adjacent markets. For example, logistics costs would improve significantly if chips don’t have to be shipped from Asia-Pacific.

Source: SIA

In separate research, the U.S. government described the semiconductor supply chain as fragile because of its globality and complexity.

In the last 30 years, the global chip industry has shifted significantly. In 1990, the U.S. manufactured 37 percent of the world’s supply of semiconductors. “Today, that has decayed to 20 percent between the U.S. and Europe and just 12 percent in the U.S. Half of that is Intel,” Gelsinger said. “It is urgent that the vector is changed for the future as Asia now accounts for the vast majority of global supply.”

By 2030, Gelsinger told the Senate Committee, he expects the U.S. share to grow from 12 percent to 30 percent, and the European manufacturing share to grow from 9 percent to 20 percent. “The CHIPS Act is the critical first step to make that happen,” he said. “Federal investment is needed urgently and would unlock tens of billions of dollars in private investment here at home.”

New complications in supply

However, today’s global threats are a significant headwind to those goals. Gelsinger acknowledged as much in an interview before the hearing when he said he now expects the current chip shortage to last until 2024, not 2023. His reasons were the month-old war between Russia and Ukraine while, at the same time, the electronics industry is still dealing with broken supply chains and rising inflation caused by Covid.

The threat to the worldwide semiconductor sector from Russia’s war on Ukraine is not about direct trade. According to World Semiconductor Trade Statistics, Russia is an insignificant direct consumer of chips and accounts for less than 0.1 percent of global purchases.

Instead, the immediate threat impacts raw materials mined and produced in Ukraine and Russia. For instance, the two largest Ukrainian producers of neon, Cryoin and Ingas, responsible for about 50 percent of the world’s semiconductor-grade neon, shuttered their operations when Russia invaded Ukraine. Neon is critical for the manufacturing of chips. Before the invasion, Ingas produced 15,000 to 20,000 cubic meters of neon per month for customers in Taiwan, Korea, China, the United States and Germany, with about 75 percent going to the chip industry.

A more chilling consequence of the Ukraine war could be the role China chooses to play. According to the New York Times, days after Russia’s invasion, Chinese officials reiterated they were committed to “resolving the Taiwan question.” And on March 7, Chinese Foreign Minister Wang Yi reiterated that Taiwan is an “inalienable” part of China and warned the U.S. against formalizing ties with Taiwan, according to Bloomberg.

While the West does not expect China to invade Taiwan any time soon, the threat increases geopolitical tensions and the urgency to sign the CHIPS legislation and bring semiconductor manufacturing back to the U.S.

Intel and Taiwan’s TSMC had already made such commitments before Russia attacked Ukraine. TSMC is committed to building a new fab in Arizona, and Intel has committed to building fabs in Arizona and Ohio. In addition, Intel announced plans to build a fab in Germany and invest as much as 80 billion euros ($87.5 billion) in the European Union over the next decade, according to the company.

The European Union followed CHIPS Act by announcing a plan in February to invest $48 billion by 2030 to double the production of semiconductors. And the EU is in talks with TSMC to invest in developing Europe’s chip industry, according to the South China Morning Post.

Both TSMC and Intel expect their new fabs in Arizona to be fully operational in 2024. Perhaps in time to prove Gelsinger’s prediction correct that the current chip shortage will end in 2024.

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