Seeds of change

John Denslinger is a former executive VP Murata, president SyChip Wireless, and president/CEO ECIA, the industry’s trade association. His career spans 40 years in electronics

Made in the USA was once the preferred branding for manufactured products. It signaled high quality, American ingenuity and skilled jobs for citizens. Following the post war re-build of Japanese and German economies, the advent of strategic trading blocs such as NAFTA and EU, and the rapid industrialisation of South Korea, Taiwan, Singapore and China, the world became equally adept at producing durable goods. One might say it was a natural consequence of advancing societies. Now 50 plus years later quality, ingenuity and skilled jobs are widespread on every continent. So too are sophisticated supply chains that tie it all together.

The seeds of change were visible almost a decade ago. After manufacturing shifted offshore, not all experienced the promises of low cost and high quality. It’s only been the last few years where US based companies stepped up reshoring fueled by corporate tax cuts, easing of onerous regulations and ready access to low cost capital. This coupled with increased costs of operating overseas, a known need to lean existing supply chains, and a desire to avoid the tariff shockwaves has executives recalibrating well-established but complicated global supply networks.

Enter the black-swan of a lifetime: Covid-19. Perhaps nothing has disrupted supply chains more than factory lockdowns, port closures, rising transportation costs, reduced demand and shipping delays. Countermeasures varied widely by country and unfortunately were as much politically motivated as medically driven. Consequently, the risk picture just keeps getting murkier.

On the brighter side, a recent Thomas Insights article cited automotive, aerospace, machined parts and electronics as the most likely sectors benefitting from reshoring. Each is a strong contributor to GDP, as well as, job creation. For perspective, a recent analysis of the current US trade deficit and its impact on employment concluded there are three to five million US manufacturing jobs still offshore. That’s a huge potential particularly at a time when we need to re-vitalise our post- COVID economy.

Electronics should lead the way and it is verging on real, stateside growth, especially semiconductors. Since 2000, according to the SIA website, the US was the only country of the top eight semiconductor manufacturing countries whose government provided no grants, no subsidies, no tax incentives or other assistance to domestic manufacturing. Not coincidently CAGR has been the weakest of the bunch.

Congress was visibly silent for too long. Finally, a recognition that semiconductor research, design and manufacturing are essential to national security and pre-eminent leadership in critical technologies. Legislation is moving forward on two fronts with billions of dollars being proposed. First, there is the American Foundries Act with bi-partisan sponsorship in the Senate. The Act incentivises building new fabs and R&D facilities, as well as, funds for construction and modernisation of fabs that directly support national security, intelligence and critical infrastructure. The second, CHIPS for America Act, is a bi-partisan bill co-sponsored by House and Senate members. This Act offers Federal grants for new domestic semiconductor manufacturing facilities, a refundable investment tax credit for purchase of equipment, establishes a National Semiconductor Technology Center for research and prototyping advanced chips, and creates a center for advanced semiconductor packaging. Both of these bills have broad industry and trade association support.

Whether reshoring operations, growing domestic semiconductor capacity or encouraging foreign direct investment like TSMC’s $12B announced fab in Arizona, the challenge is steep and investment enormous. It seems the Fed is finally serious about localising and protecting semiconductor expertise. Collectively, these seeds can preserve America’s future technology leadership.