Memo: Semiconductor Policy Brief
By Colin McAuliffe Data for Progress
CONTRIBUTORS:
Danielle Deiseroth
Marcela Mulholland
Introduction
The semiconductor industry was born in the 1940s, mostly due to publicly funded research and development as well as large-scale public acquisition programs for space and military applications. Today, the public sector supports the industry in similar ways, with acquisitions for military, surveillance, and some scientific applications, in addition to various incentives for domestic investment through the tax code.
However, yesterday’s industrial policy cannot ensure that public investments will lead to broadly shared prosperity, nor can it ensure that the U.S. remains a global leader in the rapidly changing semiconductor industry. For instance, chips are now specially tailored for a given application, meaning that we can no longer view semiconductors as a single category of general-purpose technology. This increases the risks and uncertainty of investment in semiconductor production since chip specialization requires investment in unique equipment and production techniques, which are more expensive and less adaptable to changing market conditions. Market demand for cutting-edge chips is growing, and consequently, investment in production capacity for these chips has also been growing. Older-generation chips remain a key resource for numerous applications, but low profit margins, high fixed costs, and uncertainty about future demand have created unfavorable conditions for investment in domestic production capacity, which has led to the current chip shortage.
