September 19, 2022

Rewire: Semiconductors and U.S. Industrial Policy

Executive Summary

As the United States considers industrial policy for the first time in decades, it should learn lessons from prior government efforts to shape the semiconductor industry, in the United States and abroad. The U.S. government has played a major role in the semiconductor industry since the invention of the first integrated circuit, via funding scientific research and via military procurement, which has driven the commercialization of new technology. However, though government—and specifically, the Defense Department—has had deep connections with the chip industry, it has played only a supportive role in building America’s semiconductor industry, with the key innovations and firms emerging from private-sector expertise.

Other countries have experimented with industrial policy toward semiconductors too. Success stories in industrial policy generally have involved investing in skilled workforces and ensuring competitiveness by pushing domestic firms to sell to international markets. Simply pouring capital into a country’s chip industry rarely has been a winning strategy.

Today, the U.S. government should focus policy toward the semiconductor industry around four main objectives: promoting technological advances, guaranteeing security of semiconductor supply, retaining control of choke points, and slowing China’s technological advances. Key recommendations on these themes include:

  • Promoting technological advances.
    • Invest in workforce development.
    • Reform visa issuance to ensure world’s leading chip experts can work in the United States.
    • Focus new funding on technology development and prototyping.
  • Guaranteeing resilience and integrity of supply.
    • Invest in techniques to identify semiconductor security flaws.
    • Build additional semiconductor expertise in the U.S. government.
    • Mitigate supply chain dependencies on adversaries.
    • Diversify the fabrication base.
  • Retaining control of choke point technologies.
    • Prioritize research and development support around choke points.
    • Deepen export controls around manufacturing equipment, including component parts, with allies.
  • Working with allies to retain U.S. technological advantage versus China.
    • Offer China a deal to limit chip subsidy schemes.
    • Limit foreign investment in China’s chip industry via outbound investment controls.
    • Intensify export controls on choke point technologies.
    • Address Chinese chip subsidies via export controls and sanctions.

The history of industrial policy suggests that government can play a productive role in supporting workforce development and in funding research and development and prototyping. Moreover, the government has a clear role to play in addressing the security challenges posed by the excessive concentration of the industry’s fabrication and assembly capability in and around China, which presents an acute risk of disruption in case of geopolitical crisis. To start, however, the U.S. government must deepen its expertise in the industry to ensure policymakers understand the complex supply chains that undergird the semiconductor industry and produce the computing power that U.S. prosperity and security depends on.

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  • Chris Miller

    Contributing Author

    Chris Miller is the author of Chip War: The Fight for the World’s Most Critical Technology (Scribner, 2022), a geopolitical history of the computer chip. He is an associate pr...

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