By Frank Fang June 29, 2020

In a move to counter China’s tech ambitions, a bipartisan group of senators has introduced legislation aimed to boost the United States’ production and development of semiconductors—tiny chips that power everything from smartphones to missiles systems. “With the Chinese Communist Party’s continued efforts to dominate the rest of the world’s microelectronics industries through theft and coercion, it is critical that we work swiftly to strengthen domestic production of semiconductors and maintain our strategic competitive edge,” Sen. Jim Risch (R-Idaho) said in a June 26 statement from his office. The legislation was introduced by Risch, as well as Sens. Tom Cotton (R-Ark.), Chuck Schumer (D-N.Y.), Josh Hawley (R-Mo.), Jack Reed (D-R.I.), Kirsten Gillibrand (D-N.Y.), Susan Collins (R-Maine), Angus King (I-Maine), and Doug Jones (D-Ala.). The lawmakers seek to include the measure as part of the National Defense Authorization Act of 2021 (S.4049). The bill, named the “American Foundries Act of 2020,” would authorize the U.S. Commerce Department to award $15 billion in grants to states to assist in “construction, expansion, or modernization” of semiconductor plants and facilities. States would be limited to receiving no more than $3 billion in grants. It would also allocate $5 billion for the U.S. Department of Defense to provide grants for private sector entities to create, expand, or modernize their manufacturing or research facilities capable of producing “secure and specialized” chips for defense and intelligence purposes. Additional funds of $5 billion would go to research and development of semiconductors to ensure “U.S. leadership” in the industry. Of that total, $2 billion would be earmarked for the expansion of the Electronics Resurgence Initiative of the Defense Advanced Research Projects Agency, which is a Pentagon agency responsible for the development of emerging technologies for use by the military. An additional $1.5 billion would go to the National Science Foundation, $1.25 billion to the Department of Energy, and $250 million to the National Institute of Standards and Technology. None of the funds appropriated under the bill may be provided to entities “under the foreign ownership, control, or influence” of the Chinese regime or other foreign adversaries, according to the bill text.

It also stipulates that the U.S. president will establish a subcommittee under the National Science and Technology Council for efforts such as “strengthening the domestic microelectronics workplaces” and “guiding and coordinating funding for breakthroughs in next-generation microelectronics research and technology.” “America’s technological advantage played a decisive role in our victory in the Cold War, and it will be equally important to our ability to outcompete China over the coming decades,” Hawley said in the statement. U.S. trade body Semiconductor Industry Association (SIA) welcomed the proposal in a statement on June 25. “The U.S. simply cannot afford to cede more ground to competing countries in the production of semiconductor technology, which is the bedrock of our country’s digital economy and defense systems,” said John Neuffer, SIA’s CEO and president. SIA, in a policy report issued on June 18, said the United States currently enjoys a great lead over China in terms of market dominance and technical advancements, despite the latter’s attempts to boost its semiconductor industry through state-backed policies. According to the SIA report, the U.S. semiconductor industry had a market share of 47 percent in 2019, followed by South Korea with 19 percent, and China with 5 percent.

The United States is the leader in logic process technology, which is needed to manufacture advanced semiconductors such as artificial intelligence chips. According to the SIA report, the United States was four years ahead of China in this technology in 2010, and the same gap continued to exist in 2019. Meanwhile, Taiwan and South Korea closed the gap from being two years behind in 2010, to being neck-and-neck with the United States in 2019. The SIA outlined several recommendations for the U.S. government to ensure America’s leadership in semiconductor innovations, such as tax incentives for semiconductor manufacturing, more investment in semiconductor research, STEM education, and more “resources for law enforcement and intelligence agencies to prevent and prosecute semiconductor intellectual property theft.” Federal prosecutors in late 2018 indicted Taiwanese chipmaker UMC, Chinese chipmaker Fujian Jinhua, and several engineers for conspiring to steal trade secrets related to DRAM memory chips from U.S. chipmaker Micron. In early June, both houses of Congress proposed the CHIPS for America Act, part of which includes tax benefits in the form of refundable investment tax credits for companies making purchases of semiconductor equipment or building manufacturing facilities in the United States.