SAN JOSE, Calif. -- Although U.S. semiconductor manufacturers still have 47 percent of the worldwide microchip market, only 20 percent of new, state-of-the-art production facilities now under construction are in the United States. Lower tax rates and incentives that reduce the cost of capital in other countries -- not lower labor costs -- are the principal reasons why most new manufacturing facilities currently being built are outside the U.S., according to the Semiconductor Industry Association (SIA).

"A dramatic shift in semiconductor manufacturing is now under way," said SIA President George Scalise in testimony before the US-China Economic and Security Review Commission in Palo Alto, California, on April 21. "Approximately two-thirds of the 300mm wafer fabrication facilities now under construction worldwide are in Asia, with a significant portion of those facilities in China. Chinese government policies -- not lower labor costs -- are the principal factor in a differential of more than $1 billion in the 10-year cost of building and operating a 300mm wafer fab in the U.S. versus China," Scalise said.

"Even an 80 percent differential in wage rates between China and the U.S. is not a major factor in plant location decisions because semiconductor wafer fabrication facilities are capital- and technology-intensive," Scalise continued. "Government incentives such as favorable tax treatment and other assistance programs account for approximately 90 percent of the cost differential. Like it or not, the reality is that government incentives play a major role in where investment takes place. Given the critical importance of semiconductors in driving U.S. economic growth and ensuring our national security, maintaining a competitive semiconductor manufacturing capability and a supporting ecosystem must be an important priority for America's federal and state governments."

Scalise said the U.S. needs a coordinated strategy to reduce the cost differential created by foreign government tax and incentive policies. He recommended a number of specific actions that Congress should take to change policies that discourage investment in capital-intensive manufacturing facilities in the U.S., including:

--Providing federal tax holidays to match the tax holidays offered by overseas competitors.