Opinion: Congress Must Secure an American Manufacturing Base for Vital Tech

Tuesday, September 12, 2023

First published by The Hill

During the global semiconductor shortage brought on by the pandemic, many Americans were shocked to learn that over 90 percent of the world’s most sophisticated semiconductor chips are manufactured in Taiwan, which is increasingly menaced by China. Since leading American companies rely on these chips, any sustained disruption in their supply would be disastrous to our economy.

In recent decades, financial markets have encouraged such geographical specialization. They have rewarded U.S. companies for outsourcing and offshoring even high-tech manufacturing to countries with lower costs, greater scale, or greater production expertise — and more generous government subsidies underpinning all these advantages.

Now, with rising geopolitical tensions beginning to fragment global supply chains, it has become clear that the U.S. should have at least some state-of-the-art manufacturing presence in technologies critical to our economy. 

Fortunately, Congress last year enacted laws designed to revive the domestic production of semiconductors, as well as lithium-ion batteries and solar hardware—two other pivotal technologies, whose production and supply chains are now dominated by China. But these are attempts to recapture manufacturing industries already largely lost. We should not repeat this history with the critical technologies currently emerging from American research laboratories, including quantum technologies, biomanufacturing, and down the road, fusion energy.  

Because of the groundbreaking research and development conducted by our universities, businesses, and national laboratories, the U.S. consistently generates great ideas for new technologies. But too often the ideas that originate in the U.S. end up being manufactured in other countries.  

Private investors in the U.S. generally seek out opportunities to earn high returns quickly. The manufacturing of a new technology is rarely such an opportunity. Prototyping can be expensive and challenging. A production process has to be invented and refined over time. Building or retooling factories can cost billions, or tens of billions. Massive production scales are needed to cover costs and produce returns.  Risks abound. 

As a result, the U.S. has experienced decades of underinvestment in manufacturing, leaving us without the ecosystem of talent, expertise, facilities, and suppliers required to steadily bring state-of-the-art products to market.  Since advances in manufacturing processes often inspire product advances, we have lost a source of homegrown innovation.  

This is not just an economic problem, but also a national security problem: Since the defense market alone is too small to provide the scale required to support state-of-the-art manufacturing in the most capital-intensive industries, our military also depends on commercial manufacturing.  

It is time to recognize that the U.S. cannot rely solely on private investment to create the kind of manufacturing base that will protect us from geopolitical upheaval. The federal government needs to actively support the domestic manufacturing of critical emerging technologies, rather than merely react after the fact to particular supply chain crises.  

If instead the U.S. continues playing a catch-up game, we are bound to fall behind China, which intends to dominate global markets in high-tech industries of strategic importance. Given our remarkable culture of innovation in the U.S., we don’t need to mimic China to compete with China. We merely need a keener sense of where and when it is in the national interest for our government to address the systematic underinvestment of private capital in American manufacturing. 

Our focus should be on incentivizing private investments in the domestic manufacturing of emerging technologies with significant national and economic security implications. If we created a new U.S. government corporation for this purpose — underwritten by the government but operating independently in selecting the most promising projects for funding — we could help to de-risk private investment by providing some of the initial patient capital required to prototype a product, build or retool a factory, and scale up.

Tax policies could be redesigned to promote such investment. Government procurement contracts could create a market for the new technology. Once a manufacturing company is up, running, and competing, we should leave it to fend for itself.  

As a country, we are breathtakingly creative in devising new technologies, designs, and services. Now we need to be equally creative on the policy front to ensure that the most important of these technologies — even those with the most challenging of manufacturing processes — can be made and scaled here at home. This is the best way to guarantee a reliable supply of critical emerging products, while also helping the U.S. to lead the world in innovation. 

Rafael Reif is President Emeritus and the Ray and Maria Stata Professor of Electrical Engineering and Computer Science at MIT.