Chip lobby opposes tariffs, urges bills for tax credits and funding to boost manufacturing

The semiconductor industry has stepped up support for federal grants and tax incentives in recent weeks while also criticizing tariffs that cause chipmakers to pay duties on their own goods that are assembled abroad but designed in the U.S. (SIA)

The U.S. needs to offer financial incentives to semiconductor manufacturers like those proposed in recent federal legislation instead of imposing tariffs on chips, the policy director for the Semiconductor Industry Association wrote in a forceful blog issued last week.

The SIA blog didn’t name President Trump, but criticized tariffs he has backed generally and, instead, laid out support for two bipartisan bills before Congress that would offer tax incentives and grants to the industry to compete against incentives made by governments abroad.

Many countries are outpacing the U.S. in semi manufacturing growth because governments are offering tens of billions of dollars in financial incentives to attract fabs to places like China, Taiwan, Singapore, Japan, Korea, Ireland, Israel, Germany and France, according to Devi Keller, global policy director at SIA.

“China is champing at the bit to assume a leadership role in semiconductor technology, especially with regard to chip manufacturing,” Keller warned in the blog.

Devi Keller
Devi Keller

If the U.S. imposes illegal tariffs on chip imports from other countries, the U.S. faces World Trade Organization-sanctioned reciprocal retaliatory tariffs.  Doing so will “negatively impact the sales that support manufacturing jobs here in the U.S. and undermine our $6.5 billion global semiconductor trade surplus,” Keller added. In 2018, China retaliated immediately against President Trump’s tariffs of 25% on $50 billion in Chinese goods, including chips, with tariffs of 25% of its own on autos, agriculture and seafood.

The latest SIA blog comes at a time when chipmakers and their trade associations are taking renewed steps to remind the public, Congress and the Trump administration of the importance of the chip industry in the U.S. in terms of jobs and trade.  Keller noted that U.S. chipmakers have “borne the brunt” of $750 million in  duties paid on chip imports since the U.S. imposed the 25% tariff in 2018 on U.S. imports of semis and other goods from China following an investigation into China’s unfair trade practices.

Noting that some policymakers believe that imposing more tariffs on chips will restore chip production to the U.S., Keller disagreed.  “Tariffs on semiconductors fail to incentivize domestic chip production and will only serve to further erode America’s manufacturing base and technological leadership,” she said.

Part of Keller’s and SIA’s task (and indeed that of many chipmakers and other associations) is to instruct the public and elected officials about the complex and global state of chip production and how that impacts trade.  For example, SIA has tabulated that less than half (44%) of chip front-end work by U.S.-headquartered firms is located in the U.S., while the remaining amount of work in  assembly, packaging and testing comes from operations in European and Asian countries.

percent of us hq chip work abroad

That means that the majority of chips produced by U.S. firms are finished in Singapore, Taiwan, Europe, Japan, China and other countries.  The relationship has been in place for decades. Imposing tariffs on chip imports causes U.S. chipmakers to pay tariffs on their own goods, the industry has said.

stages of semi production
Charts credited to SIA 

Tariffs also threaten to drive away U.S. manufacturing in advanced tech that use chips, such as AI, autonomous vehicles and robots.  “If the cost…is too high, tech manufacturers will be forced to contemplate relocating out of the U.S. and investing more business friendly countries to maintain their competitiveness vis a vis China and other nations that have not important similar tariffs,” Keller added.  “This would be a devastating blow…”

Foreign investment in U.S. manufacturing dropped by more than half following the implementation of the 2018 tariffs, she added.

The U.S. needs the kind of financial incentives for semiconductor manufacturing seen in the proposed CHIPS for America Act and the American Foundries Act, she said.  Both have bipartisan sponsors and provide a range of federal grants, R&D funding and tax credits to build fabs and research facilities.   

RELATED: Chip equipment up 13% in May as industry backs CHIPS Act

SIA tabulated that the cost of the two proposed bills would be less than the cost of tariffs on U.S. semi imports over a decade.  The two bills together envision $30 billion taxpayer costs without tax credits, compared to a price tag of $93 billion to $185 billion for 25% or 50% tariffs on U.S. semi imports over the next 10 years.

In an earlier report, SIA tabulated that each added dollar invested in semiconductor research increases the U.S. gross domestic product by $16.50.  Federal government funding for semiconductor R&D has lagged behind other private sector investments, SIA added.