Reshoring Microchip Manufacturing

The pandemic disrupted supply chains around the world and exposed many weaknesses, but one of the most glaring issues was in microchip manufacturing. Microchips are the engine that runs the modern world, from cars to mobile phones, computers, and electronics of all kinds, disruption to the production of microchips rippled through the world economy. Many industries that require advanced microchips in the manufacturing process experience delays and shortages. The shortages drove the price of goods up and contributed to rising worldwide inflationary pressures.

In response to this glaring weakness in the supply chain and rising tensions with China, congress passed the CHIPS Act of 2022. It was created with the intent of helping American manufacturers re-shore the production of microchips to the continental United States. The country's inability to manufacture the most advanced chips is considered a strategic defense issue by congress. A large percentage of microchips are manufactured in Taiwan, whose political status is a point of contention between the United States and China. The bill was originally proposed with $52.7 billion in funding, but during the congressional process, it ballooned to over $280 billion before President Biden signed the bill into law in August.

As with many political issues, the CHIPS act is not without controversy. Opponents argue the bill is perhaps the largest boondoggle in American history and is a thinly veiled way to influence swing state voters. Supporters argue the bill will strengthen the American semiconductor industry and reduce the country's reliance on foreign suppliers who could cut off the supply of vital materials during a time of direct conflict with China.

The complexity of manufacturing high-end microchips is at the core of the problem. Silicone wafers comprise the base material of all microchips. They are utilized in complex manufacturing processes that layer circuits onto the wafer and require more than 100 steps for even the simplest chips in an ultra-sterile environment. The newly created chips are then tested and put through a final production process.

Intel and Micron’s plans to build new, Ohio and New York based chip campuses are a snapshot of the difficulty of building microchips. Intel’s initial plan unveiled in January included an estimated $100 billion in investment from Intel over a five-year period, with an additional $52 billion in funding needed to be provided by the government. Micron, pledged an additional $100 billion over a ten-year period to build their plant in upstate New York.

Due to the higher wages and manufacturing costs in the US versus low-cost competitors, analysts estimate the chips manufactured by Intel and Micron will be more expensive and potentially less powerful than those produced overseas, and it could take decades for their manufacturing processes to reach the same level as those of already established overseas firms.

No amount of investment over a short period of time can solve one additional issue, the creation of a highly skilled workforce in rural areas of Ohio and New York. The physical manufacturing facilities are but one part of a high-tech manufacturing process. The plants will require thousands of engineers, scientists, physicists, and other highly skilled workers to run effectively, and will require them to relocate to remote areas where the standard of living is quite different than larger urban areas. It is a challenging obstacle to overcome.

Like most high-tech problems, innovation is key to the future. To competitively produce the highest-performing microchips in the United States, the entire design and manufacturing process needs to be improved and simplified. Manufacturability and automation are two of the thorniest problems the semiconductor industry must address. Successful reshoring of microchips will require it, as well as future performance improvements.