America’s manufacturing sector has been struggling lately and has lost more than 500,000 jobs since the start of the COVID-19 pandemic. Compounding these problems is a recent global shortage of semiconductor chips. The heavy reliance on computer chips from Taiwan and Korea has hit US manufacturers hard. The nation’s auto sector has been particularly hard hit, with Ford F, -0.65% forced to cut production of its F-150 pickup and GM GM, + 0.59% halting operations at three plants.
“Unfortunately, Intel is not the only chipmaker concerned about quarterly stock market earnings rather than excellence in future production. ”
All of this points to the broader problem of growing dependence on imports from the United States. Dependence on foreign semiconductor producers has placed the United States in an especially precarious position. Computer chips are a key part of cell phones, laptops, cars, and medical devices. But they are also the brains of America’s military arsenal, including the F-35 fighter and other advanced weapons systems. Opinion: Here’s How the Great Chip Shortage Happened – and How It’s Solved With economic and national security at stake, the United States must rebuild its national chip-making capabilities. Unfortunately, that won’t happen if the US chip industry continues to focus on quarterly earnings rather than long-term stability. Shareholders first, second investment Consider Intel INTC, + 0.86%, for example. The California-based chipmaker operates 15 foundries (“fabs”) around the world, including four in the United States. Last year, Intel invested $ 14.5 billion in capital expenditures. However, it also returned $ 19.8 billion to shareholders, including $ 14.2 billion in buybacks of its own shares. Essentially, Intel chose to return more money to shareholders than investing in operations.
“Washington should set a goal for US manufacturers to supply 50% of the chips consumed in all major semiconductor categories. ”
This is poor long-term thinking, especially when Intel’s business is already under threat. Recently, Apple AAPL, + 0.70% decided to replace the Intel processors in their MacBooks with chips from TSMC in Taiwan. Considering that Microsoft MSFT, + 2.79% and Amazon AMZN, + 2.16% are also switching to TSMC TSM chips, + 5.51%, it is clear that the US dependence on imported semiconductors will only increase in the next few years. Breaking News: Chipmaker TSMC to Invest $ 100 Billion to Increase Manufacturing Capacity. Unfortunately, Intel isn’t the only chipmaker concerned about quarterly stock earnings rather than future production excellence. A new analysis of the U.S. semiconductor industry by the Coalition for a Prosperous America (CPA) found that America’s 13 largest chip companies, including Intel, returned $ 42.7 billion to shareholders last year. That compares to just $ 26.9 billion spent on capital expenditures (“capex”). In contrast, Taiwan’s TSMC spent $ 18 billion last year on capital expenditures while returning just $ 9.2 billion to shareholders. It’s worrying enough that a global chip shortage could halt US manufacturing, but China is also now entering the semiconductor market and investing roughly $ 120 billion in its chip industry. Given the massive subsidies to its state-owned companies, there is a great risk that China will quickly wipe out the global chip market by the end of this decade. However, the tax break will not. Even as American chipmakers continue to lose ground, yet they remain destructively concerned about shareholder return. At a recent Senate Finance Committee hearing, Intel CFO George Davis urged a higher R&D tax credit for chip companies. Surely such a tax break would boost Intel’s earnings. But it won’t address the US chip problem, nor will it prevent Intel from offshoring more production in the future. An R&D tax credit alone will no longer encourage semiconductor manufacturing in the US, and American semiconductor companies are unlikely to gain market share or achieve world leadership by propping up share prices. Instead, Congress must take the reins to ensure the rebuilding of America’s chip-making industry. Washington should set a goal for US manufacturers to supply 50% of the chips consumed in all major semiconductor categories. That would strengthen national security, diversify supply chains, and create hundreds of thousands of high-paying jobs across the country. To accomplish this, Congress must revise the US corporate tax code to emphasize long-term investment rather than share buybacks. Investing in Capex can be encouraged with accelerated depreciation. However, share buybacks should be discouraged by taxes or other measures that force executives to take a longer-term view. This is the only way to ensure that US chipmakers can take root in the face of subsidized global competition. Regarding China, it is time to increase federal enforcement of the Export Control and Reform Act of 2018. Semiconductor equipment manufacturers and electronic design companies in the United States should be prevented from selling to entities linked to the Chinese military. . Unless Congress and the Biden administration take swift action, the United States faces the worrying prospect of becoming completely dependent on imported semiconductors. That is a poor recipe for long-term national and economic security. Short-term thinking has gotten the nation into this mess. It is time to plan more carefully for the future. Michael Stumo is executive director of the Coalition for a Prosperous America, a bipartisan advocacy organization that represents farmers, ranchers, manufacturers, and labor organizations that make and grow things in the United States. Follow him on @michael_stumo