Maintaining America's Competitive Edge: Government Policies Affecting Semiconductor Industry R&D and Manufacturing Activities
Intensifying Global Competition for High-Tech Research and Manufacturing Investments Challenges U.S. Technology Leadership
New White Paper Highlights Vulnerability of Critical U.S. R&D and Manufacturing Sector
“Maintaining America’s Competitive Edge: Government Policies Affecting Semiconductor Industry R&D and Manufacturing Activity,” a new white paper prepared for the Semiconductor Industry Association (SIA) by Dewey & LeBoeuf, documents the strategic economic benefits of a strong U.S. semiconductor research and development (R&D) and manufacturing enterprise and points to increasing vulnerability of U.S. technology leadership as R&D and manufacturing capacity grow faster in other parts of the world.
The report finds that while the U.S. semiconductor industry has maintained a predominate share of the world market since the early 1990s, most new capacity growth has been in Asia. While sixty-five percent of U.S. industry capital spending for wafer fabrication and three-quarters of U.S. industry R&D is today located in the United States, this does represent a decline by almost 15 percentage points and more than 8 percentage points respectively in recent years. Among the reasons for the decline are:
- Tax breaks and other incentives offered by other countries to attract multi-billion-dollar capital investments in semiconductor manufacturing and R&D capacity – widely seen as key strategic assets for their national economies.
- A U.S. corporate tax rate that is among the highest in the world, and a U.S. R&D tax credit that is among the least competitive among developed economies.
- An un-level playing field that skews investment decisions. It costs an estimated $1 billion more to build, equip and operate a semiconductor manufacturing facility in the United States than it does in other parts of the world. An estimated 90 percent of the cost difference is the result of tax and incentive policies.
- A relative shortage of highly qualified scientists and engineers trained in semiconductor-related fields. The majority of U.S. graduate degrees awarded in these fields are earned by foreign-born students who require a visa or green card to work in the United States.
- Strategic research and education investments by other governments that build innovation capacity in those countries and increase competitive pressure on the United States.
America Cannot Afford to Cede Innovation Leadership
While new federal investments in research and education provided in the American Recovery and Reinvestment Act made a critical contribution to U.S. competitiveness, long-term federal funding commitments for research and education and reform of U.S. tax and workforce policies are still required to bolster economic recovery and ensure future American prosperity. Congress and the Administration must act by:
- Fully funding the America COMPETES Act authorizations beyond fiscal year 2010 to double the federal investment in basic research and improve math and science education;
- Permanently extending a strengthened R&D tax credit and reforming corporate tax policies to attract multi-billion-dollar semiconductor manufacturing investments to the United States;
- Ensuring a level playing field for export intensive companies so they are not disadvantaged against foreign competitors in low-tax countries; and
- Reforming visa policies to retain highly educated workers for the American workforce.