By Shane Tews

While the $52 billion of federal funding in the CHIPS for America Act has strong bipartisan support,
it’s been caught in a larger fight between the two legislative chambers over an
attempt to reconcile the bill with other spending priorities. However, on July
26, the Senate voted 64-32 to end debate on the legislation, setting the stage for
Congress to potentially pass the bill and send it to President Biden to sign. Then,
on July 27, the bill passed the Senate and now awaits a vote in the House.

To make sense of this situation and attempt to predict what
comes next, AEI’s Claude
Barfield and I sat down with Peter
Cleveland of Taiwan Semiconductor Manufacturing Corporation (TSMC)
and Jon Hoganson of Advanced Micro Devices Inc. (AMD) We
discussed the ins and outs of Congress’ battle over chip funding, along with
key opportunities that could be missed if action isn’t taken soon.

Below is an edited and abridged transcript of our talk. You
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Shane Tews: Everybody
in the US wants the nation to be a semiconductor powerhouse; however, no one
actually wants to pay for it and nobody can agree on how to go about doing this.
Can you give us the lay of the land from the private sector perspective?

Peter Cleveland: TSMC is optimistic about the current legislative
jigsaw puzzle. Congressional Republican and Democratic leaders may have some
political differences, but they all agree that restoring US leadership in
domestic chip manufacturing is critical—as is lifting American innovative
capacity. The steps that we’re taking to invest in leading-edge chip
fabrication in Phoenix at a five-nanometer level are consistent with what Congress
is trying to accomplish. Politics aside, I think we are headed in the right
direction.

Jon Hoganson: I fully agree with what Peter said. From AMD’s
perspective, getting a fully-funded CHIPS Act across the finish line is
critical to the future of semiconductor manufacturing in the US. It’s also
critical to US leadership in technology.

There is one thing that is missing in the conversation. CHIPS
is more than just manufacturing. It’s about restoring the American semiconductor
ecosystem. It’s a very complex supply chain, and the US is really losing out by
not having domestic manufacturing capabilities. But we also need to restore research
and development. Funding a National Semiconductor Technology Center and
building it out is critical to making sure the next generation of leading-edge
technology is developed domestically.

Secretary of Commerce
Gina Raimondo warned that stalling the bill could lead to companies halting
plans to invest in the US. Is her prediction accurate? How would the bill’s
failure to pass specifically impact both of your companies?

Peter Cleveland: TSMC is trying to expand our global
footprint away from Taiwan and toward Japan, Europe, and certainly Phoenix. However,
our wafer fabs are incredibly expensive as we manufacture the leading, bleeding-edge
chips. These chips are the fastest in terms of performance, thermal energy
efficiency, transistor density, and gigahertz speed.

To Raimondo’s point, if we can’t partner with the US
government in terms of appropriate incentives, we will have to look elsewhere for
support. The United States leads the free world, and we hope we find the
support here. Failure is untenable. Congress is close to working out some
details, but let’s get this done now.

Jon Hoganson: I agree with Peter. I also think that this is
about investing in the future of the industry and the future of US technological
leadership. People get caught up in the price tag, which is enormous, and I’m
not undermining that at all. It’s an incredibly expensive industry. The
industry’s capital expenditure annually is significantly higher than the GDP of
a lot of countries, but that’s what it takes to be competitive. The US has to
decide whether it wants to continue to lead in industries like semiconductors
or not. If it does, it’s going to take a constructive partnership between
government and industry.

There is no leading-edge manufacturing in the United States.
TSMC will build a fab in Arizona, but there is currently no five-nanometer
manufacturing in the United States, and no American company is capable of
producing five-nanometer chips. These specialized chips are important for every
leading technology company in the US. We need that advanced manufacturing
capability.

Claude Barfield: The
computer shortage has been a major factor propelling this bill, but if the
legislation passes, it won’t make much difference because it looks like in some
aspects of chip production, the shortage is mitigating. How would you respond
to that?

Peter Cleveland: This thesis is incorrect. For applications
in the areas of artificial intelligence, networking, virtual reality, augmented
reality, autonomous vehicles, digital currencies, and digital healthcare,
demand vastly outstrips supply. I will concede that there’s a transition
underway in laptops and desktops as people return to work and use those
personal devices less often at home.

The most important reason to onshore advanced fabrication is
so that we can harness the great designs and innovations from companies like
AMD. They design chips for all those aforementioned purposes. If we want to
lead in these new-generation spaces and applications, particularly artificial
intelligence, we need to lead in both chip design and manufacturing. All of
that advanced manufacturing now is occurring mostly in Taiwan, and that needs
to change. We need to bring that onshore.

Jon Hoganson: From AMD’s perspective, the calculus around the
legislation hasn’t changed regardless of the chip shortage status. It’s
important to remember that the CHIPS Act passed as part of the National Defense
Authorization Act before the chip shortage even happened. CHIPS was always
about economic and national security as well as rebuilding the semiconductor ecosystem
here in the United States. We need to reach the minimum viable capacity in the
United States—in other words, what we need to produce at a bare minimum to meet
everything for national and economic security needs.

In an interview with
Brookings, TSMC founder Morris Chang argued that although it was much more
expensive to manufacture in the US, TSMC would still be able to handle those
costs. But with smaller companies, are we looking at a need to continually subsidize
production?

Peter Cleveland: The cost structure is higher here
especially in terms of inputs and material costs as well as labor. That’s why
the incentives become important to help us land in Phoenix. It is important to
state that we will have a catalytic impact on high-tech, high-wage jobs. The thousands
of jobs that we would create will surge economic development and create a
massive supply ecosystem around us. Yet, it’s an expensive undertaking.

On the potential for a permanent subsidy: I don’t anticipate
that. A tax credit, though, could be permanent because it continually
incentivizes the buildout of manufacturing over time. That’ll be up to
lawmakers to decide if they will get a bang for their buck. Is the rate of
return for them good enough to justify a permanent tax credit? I think the
answer to that will be “yes.”

Shane Tews: Part of
the challenge is also just getting enough personnel and workforce in the
semiconductor pipeline. Is that something you guys are addressing when you’re
looking at potential locations?

Jon Hoganson: Workforce is certainly a big issue for AMD as there
is a global war for talent in our industry. We are competing with the Apples,
Amazons, and Metas of the world. It’s not an easy field to be in. But the
legislation contains a big component regarding workforce development. That’s
why we’re supportive of the larger Bipartisan Innovation Act because it
addresses the workforce training issues. For CHIPS to succeed, we will have to
invest in our university infrastructure and the workforce. To connect the local
workforce with our industry’s costs, part of the reason why chip manufacturing
is less expensive in places like Taiwan is because they already have the
workforce. We pay well in this industry and we are doing exciting, innovative
work, but there is definitely a need to rebuild the workforce in the US.

Peter Cleveland: I agree with Jon’s comments.
Software-design engineering is very appealing and high-paying, but there remains
incredible potential to develop a semiconductor workforce pipeline in the US. The
STEM talent pool here is magnificent. It’s the best in the world from Carnegie
Mellon to Arizona State University to CalTech. But still, in the hardware space,
it is very tough.

The post Congress Takes Another Stab at Chip Funding: Highlights from a Conversation with Peter Cleveland and Jon Hoganson appeared first on American Enterprise Institute – AEI.