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Reimagining Supply Chains for National Resiliency

The United States has long led the world in many areas of science, technology, and innovation that have yielded new products, new businesses, and new industries. “We are the inventors, we are the innovators,” said Laurie Locascio, under secretary of commerce for standards and technology and director of NIST, in her plenary address at the 2024 annual meeting of the NAE.

“Unfortunately, we have become complacent as a nation and have exposed ourselves to significant vulnerabilities that hinder our ability to fully capture the benefit of technologies invented here,” she continued. As other countries have expanded their manufacturing bases and have built up highly skilled technical workforces with localized supply chains, the United States has seen a decline in its base of highly skilled technical workers and a growing dependence on highly dispersed and globalized supply chains. These supply chains, optimized for both profit and efficiency, have brought cost savings but are also vulnerable to disruption, as the COVID-19 pandemic made obvious. “Perhaps you tried to buy a new car or a new appliance, but none were available because they sat unfinished, waiting for various components,” Locascio said. For many products, the disruption of global supply chains has not only led to shortages but has contributed to broader economic downturns. “This is not a new story for many of us in the room. We’ve witnessed it. We’ve seen our communities and our families impacted by it.”

THE PIVOTAL ROLE OF SEMICONDUCTORS

In her presentation, Locascio focused on semiconductor chips, “essential components in virtually every technology and every product, on which almost all aspects of our lives now depend.” Worldwide declines in chip

production from 2019 to 2021 had widespread negative effects. “We all suffered the consequences,” she said.

The obvious question, stated Locascio, is “why doesn’t America, the place where the semiconductor was invented, have a steady and secure supply of them to power the medical devices we need, to get the appliances and the cars that we want, and to protect our national security?” In 1990, the United States made 37 percent of the world’s semiconductors. In 2021, that figure was down to just 12 percent.¹

During that time, other countries were investing in their own semiconductor industries while investments in the United States were lagging. “That lack of investment had a notable impact from 2010 to 2020,” Locascio reported. In that decade, 122 major chip fabrication facilities were built around the world, but just 17 of those were built in the United States.

A NATIONAL RESPONSE

“Addressing this decline and fixing these glaring supply chain vulnerabilities requires bold action,” Locascio said. When faced with technological challenges in the past, the United States has placed big bets on science

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¹ More information is available at https://www.semiconductors.org/chips.

and technology to achieve national goals, as in the Manhattan Project, the Apollo Program, and the Human Genome Initiative. With advanced semiconductor electronics, that commitment has taken the form of the CHIPS and Science Act, which was signed into law in 2022.

Of the $52 billion appropriated in the law, NIST and the Department of Commerce are responsible for investing $50 billion to strengthen and revitalize the US position in semiconductor research, development, and manufacturing. This includes $39 billion to incentivize semiconductor manufacturers and their suppliers to build, expand, and modernize manufacturing facilities in the United States. It also includes $11 billion to invest in a portfolio of R&D programs to create a dynamic new network of innovation for the semiconductor ecosystem in the United States. “With these once in a generation resources,” Locascio said, “we quickly began to build a plan to rebuild American semiconductor manufacturing capacity.”

JUMPSTARTING PRIVATE INVESTMENT

NIST brought in experts from the semiconductor industry, financial services, and other sectors to stand up its programs and implement them at full speed. It planned and negotiated a portfolio of large deals with major companies around the globe to build capacity. It created a highly iterative application process that enabled experts to determine how proposed projects would meet the economic and national security needs of the United States. It also worked to ensure that the projects are financially sound, with customers ready to purchase new chips coming off manufacturing lines.

“In just two short years, we’ve successfully executed the largest piece of this program,” Locascio observed. NIST and the US Department of Commerce have announced $36 billion in proposed direct funding and more than $28 billion in proposed loans with entities around the country, “and we’re working as fast as we can to finalize these deals.” Furthermore, the $39 billion going into manufacturing is unleashing an enormous amount of private investment. Public and private investment are projected to total roughly $400 billion between now and the end of the decade, Locascio said, representing “far and away the most investment in new production in the history of the US semiconductor industry.”

All five global, leading-edge chip manufacturers are aggressively expanding within the United States. “No other economy in the world has more than two of these within their borders,” said Locascio. “We have a diversity of technology we’ve not had in decades.” These investments are also going toward the world’s most advanced technologies. Intel, Taiwan

Semiconductor Manufacturing Company (TSMC), and Samsung will each produce a variation on their two-nanometer technology, “the most advanced technology that’s currently on the path to commercialization.” Micron will produce the most advanced memory technologies in the world, including the high-bandwidth memory chips critical for AI. “These achievements are dramatically increasing our capacity to make chips here,” said Locascio.

Prior to the passage of the CHIPS and Science Act, the United States produced none of the world’s leading-edge chips. New investments have “changed the global landscape.” According to a report from the Semiconductor Industry Association, the United States is on pace to grow its share of global logic manufacturing to 28 percent by 2032.² “These are the chips that we need for critical and emerging technologies, like the chips that power AI.”

SUPPORTING RESEARCH AND DEVELOPMENT

Even as the United States builds its manufacturing capacity, “we know we must also refresh and rejuvenate our capability to invent and innovate the next several generations of semiconductor technology by investing in R&D,” Locascio said. “Our companies will not survive and thrive in the semiconductor space unless we continue to innovate. We did not invest all these taxpayer dollars in manufacturing just to have the companies come here, build factories, and then fall behind.”

The $11 billion that Congress provided for R&D is a significant federal investment that will provide the capability to position the United States as a global leader for efficiently bringing chips from idea to market. “It was US innovation that built the industry in the first place decades ago, [and] innovation is essential to protecting technological leadership.”

The CHIPS R&D program is investing in four areas:

1. The CHIPS Metrology Program will, among other objectives, support the development of the tools and technologies needed to measure the performance of increasingly small and intricate devices. “The industry told us that it’s getting more and more difficult to measure the quality and functionality of smaller and smaller devices, particularly as single features are at the atomic scale and devices are built in 3D. In the past year, we have funded more than 50 teams on 34 projects

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² Raj Varadarajan, Iacob Koch-Weser, Chris Richard, Joseph Fitzgerald, Jaskaran Singh, Mary Thornton, Robert Casanova, and David Isaacs. 2024. Emerging Resilience in the Semiconductor Supply Chain. Boston Consulting Group and the Semiconductor Industry Association.

1. with $130 million to address with industry these exceedingly difficult measurement challenges,” said Locascio.
2. The CHIPS National Semiconductor Technology Center Program will partner with a nonprofit called the National Center for the Advancement of Semiconductor Technology (Natcast), which is “a unique structure for government,” Locascio observed. The goal of the program is to accelerate the pace of new innovations from idea to marketplace by giving members access to prototyping research facilities, partners elsewhere in the innovation ecosystem, and an investment fund for research and workforce development funding.
3. The National Advanced Packaging Manufacturing Program will address the domestic deficit in advanced packaging, which is a critical factor in the efficiency, processing speed, power consumption, and cost of semiconductor chips. The program is in the process of awarding $300 million for projects aimed at the next generation of materials to support novel advanced packaging, along with an additional investment of $1.6 billion and an open competition for new advanced packaging R&D activities.
4. The CHIPS Manufacturing USA Program is a program to facilitate the manufacturing of semiconductor digital twins that mimic the structure and function of physical chips to reduce development and manufacturing costs. The $285 million going to the organization that will pursue this mission represents an investment larger than that of any other country, Locascio noted.

Together, these four programs “provide a research infrastructure that simply does not exist anywhere else in the world today.”

THE TECHNOLOGICAL CHALLENGE

The United States is in “a fierce international competition around technologies like artificial intelligence, quantum computing, and biotechnology, which are having and will have significant impact on our economic competitiveness and our national security.” To continue to be competitive in these and other emerging technologies, the United States cannot allow itself to fall behind as it did in semiconductor manufacturing, Locascio said.

Using quantum computing as an example, Locascio pointed out that many years of NIST research into the phenomena of quantum physics have provided the tools to better understand how the universe works and how to control and manipulate matter at the smallest scales and the coldest

temperatures. NIST research, stretching from 1980 to the early 2000s, led to four Nobel Prizes in quantum science and technology. This research has had applications far beyond breakthroughs in fundamental physics. It, along with new capabilities in nanoengineering, has led to the development of quantum devices that represent a new frontier of computing.

Following the passage of the National Quantum Initiative Act in 2018, NIST established the Quantum Economic Development Consortium (QED-C), which SRI International manages. The QED-C brings together companies, federal laboratories, and academic researchers from across the United States to tackle important pre-competitive challenges needed in the quantum field, helping companies enter the emerging quantum market and enabling them to get the supplies they need to manufacture in the United States. The QED-C looks at issues such as supply chain vulnerabilities, as well as standards that can support the development and sale of quantum technologies across the world. “If we can invent it here, we can help support the environment to make it here,” Locascio said.

MEETING THE CHALLENGE

The United States is at an inflection point, Locascio stated. Investments in research, manufacturing science, and workforce development have not kept pace with national needs. “While our strongest global competitors are increasing investment in science and technology, the US is simply not.” The year 2024 saw many cuts in federal science and technology budgets, including at NIST, which experienced a significant cut in program and facilities funding. At almost exactly the same time, China announced a 10 percent increase in science and technology investment. “We know that science and technology investment is how great economies are built.”

When the United States decided that it could acquire chips built elsewhere at less cost, “we lost a lot of manufacturing capacity,” Locascio said. “We no longer had that integrated look at how you get these new ideas to the manufacturer, or even what the manufacturer needs or what’s even possible to manufacture.” The CHIPS and Science program is seeking to develop an ecosystem that can nurture companies while helping people at universities and other research institutions understand what can be done in manufacturing.

“NIST and the US federal S&T [science and technology] enterprise cannot go backwards,” Locascio concluded. “The federal dollars that fuel research and partnership between federal labs and national labs and academics and industry power our great economy, and they feed our superpower. And our superpower is an innovation mindset. If the US is to continue to grow and thrive in so many areas, we need everyone’s voice to ensure continued support for science and technology, because that is the key to our resilient future. It’s time for the United States to make another big bet, a big bet on science and technology, and one that is proactive and one that is forward looking.”

Locascio also appealed to the engineers in her audience. Building reliably great things is manufacturing, and manufacturing entails engineering, she said. “This is a call to all the great engineers in the room to help us be known once again as the country that makes great things reliably.”

TIMEFRAMES, INTELLECTUAL PROPERTY, AND WORKFORCE DEVELOPMENT

In the discussion period, moderator Deanne Bell, the founder and CEO of Future Engineers, asked about the timeframe for increased production. Locascio said that “we want to make sure that by 2032, the fabs are built, production is happening, and we’re pushing out chips onto the market.” NIST also has anticipated future growth in demand, so its programs have been “planned in lockstep with the entire supply chain in mind.” Regarding NIST’s investments in R&D, current plans call for the capabilities to be designed and built in “the next few years.”

In response to a question about managing intellectual property theft, Locascio said, “We have a lot of guardrails built into this program to make sure that we can protect IP that’s developed,” both in the R&D programs and in manufacturing facilities. “We’ve had a very clear eye on security this whole time.”

Asked about the skills gap that needs to be filled to supply workers for semiconductor manufacturing, Locascio pointed to various efforts underway to fill that gap. Between 100,000 and 200,000 new workers are needed in R&D and manufacturing, and “we have deliberately built up an investment of about $250 million in a workforce center of excellence” to help meet that need. The center will take some of the best existing programs and scale them up across the United States. “But we have a lot of work to do to try to make sure that we can cover the skills,” Locascio said.

In response to a related question about what the Commerce Department is doing to help make sure that students understand the careers available to

them and have the skills they need to pursue those careers, Locascio said that the Commerce Department is partnering with the National Science Foundation to launch a new co-investment in workforce development for the semiconductor industry. “We’ve had great partnerships around government thinking about how we’re going to build up the skills and the skilled technical workforce in chips.” Other partnerships are in place with the Department of Education and the Department of Defense.

Locascio noted that a broad range of jobs will be available. Some will require community college or a certificate level program; others will require master’s and doctoral degrees. “We are looking at trying to amplify and promote these places that do have good semiconductor programs right now, but these don’t necessarily have to be BS level or master’s or PhD.” Much needs to be done to get students interested in manufacturing again, she noted. Though computer science departments have seen large growth in enrollments, the hands-on engineering disciplines have experienced much less.

“I travel around the United States a lot, talking to a lot of community colleges, and I find that the community colleges where internships might be available with the semiconductor industry [have] had a tremendous impact. We need to be very creative about how we expose people to these opportunities because there will be good-paying jobs for everyone.”