The U.S. semiconductor industry continues to be vulnerable to supply chain disruptions that are difficult to detect, particularly from upstream suppliers of raw materials, specialized equipment and intermediate goods. The Semiconductor Industry Association (SIA) cautions in a new report that these invisible dependencies could threaten production and urges for more government-industry cooperation to strengthen supply chain resilience.
Identified sources of risk include geopolitical instability, dependence on countries seen as hostile to US interests for critical materials and concentration of production and suppliers in specific areas. To address these shortcomings, the association recommends boosting domestic manufacturing capacity, bolstering supply networks in allied countries, decreasing dependence on rare earths and critical minerals, and increasing research and development funding for next-generation semiconductor materials.
A complex supply chain for a rapidly expanding industry
Semiconductors are essential to many industries in the US, but their production depends on a complex global network of specialized materials, sophisticated equipment and multiple stages of manufacturing. The SIA report said it takes months of work to produce these components, with several international trips and close co-ordination across multiple tiers of suppliers.
The association says the industry relies on the right combination of materials and equipment, delivered in the right quantities and at the right time. Such requirements are increasingly important as worldwide semiconductor sales are expected to exceed $1.5 trillion in 2026.
Several large companies have made large commitments to increase semiconductor manufacturing in the United States. Micron, GlobalFoundries, TSMC and Apple are among the companies helping to build up domestic manufacturing and related supply chains.
Industry stakeholders have also urged the US government to bolster more domestic capacity at every step of the semiconductor supply chain. One of the key objectives is to boost the country’s standing in its technology race with China, particularly in the development of sophisticated chips that are essential for artificial intelligence and other critical applications.
But the SIA warns that just building new manufacturing facilities will not reduce the risks of upstream supply chains.
Rare earths and upstream dependencies remain huge concerns
One of the most important vulnerabilities identified in the report concerns rare earth elements and other critical minerals. Production remains concentrated in so-called high-risk countries, such as China and Russia, which could leave them vulnerable to geopolitical tensions and disruptions to international trade.
Other shortcomings are less visible as they are further upstream, in the supply chains of raw materials and intermediate products for companies that already supply semiconductor manufacturers.
To assess these dependencies, the SIA developed a vulnerability index based on a number of criteria, including: geographic concentration of production, exposure to higher-risk countries, number and concentration of suppliers for particular inputs, and ownership structures of key suppliers.
Using this methodology, the association identified 200 Tier 1 equipment and material inputs determined to be critical to both the front-end and back-end of semiconductor manufacturing. The analysis also examined lower-level inputs from 100 categories of materials and equipment.
The findings expose the distance between the visible security of direct suppliers and the risks that lie further down the supply chain. The report said that US chipmakers buy about 95% of their Tier 1 equipment and raw materials from US companies or those in Europe and Japan.
But often these first-tier suppliers rely on international chains of intermediate goods makers and raw material producers. Those upstream networks have their own fragilities, including geographic concentration and exposure to geopolitical disruptions.
Overall, about half of the supply categories of semiconductors in the report were characterized as having high or medium vulnerability. The SIA warns that the more you move upstream in the supply chain, the more likely you are to experience disruption due to the compounded dependencies at different levels of suppliers.
5 Building Supply Chain Resilience Priorities
The SIA identifies a number of measures to reduce these vulnerabilities with the aim of increasing the availability of critical materials and equipment and reducing exposure to external disruptions.
1. Build domestic production and strategic stockpiles
It will take time to build up US manufacturing capacity, with some parts of the semiconductor supply chain possibly needing a decade or more to reach adequate production levels.
But it is possible and necessary to speed up the development of capacity to support domestic wafer and chip manufacturing, the report says. Developing these capabilities would reduce exposure to international disruptions and bolster the foundations of U.S. semiconductor production.
The group also urges more stockpiling of critical inputs to enhance the industry’s resilience to supply disruptions.
2. Introduction of targeted investment incentives
The SIA recommends governments provide targeted incentives to equipment and materials manufacturers to develop domestic production capabilities for high-priority inputs.
One proposed approach would involve collaboration between federal and state authorities and industry stakeholders to establish special economic zones. These areas could attract local suppliers to locate near semiconductor manufacturing facilities, which would, in turn, help to develop regional industrial ecosystems and supply coordination.
3. Review regulations that limit stockpiling
Certain regulatory requirements may restrict manufacturers’ ability to maintain appropriate reserves of critical raw materials.
The report points to environmental regulations that restrict the building and purchase of multiyear inventories of fluorinated gasses. “Reviewing such constraints can improve companies’ ability to prepare for supply disruptions while not undermining the broader goal of increasing industrial resilience,” the SIA said.
4. Fortify supply chains with trusted partners
Local production cannot meet all the material, component and equipment items needed by the semiconductor industry. The SIA therefore stresses the importance of building and maintaining good relations with trusted allies and international partners.
Working with these countries would help diversify sources of supply, reducing reliance on high-risk suppliers and aiding development of new technologies. A more geographically diversified supply network would also mitigate the impact of disruptions affecting individual countries or production centers.
5.Invest more in materials research and recycling
The association is calling for more government funding for research on advanced materials and new production processes and recycling technologies that can recover valuable resources.
Examples of public programs supporting advanced materials research include the Department of Energy-funded Minerals to Materials Supply Chain Facility and awards made under the Department of Commerce’s CHIPS and Science Act, the report says.
It also calls for federal investments in recycling technologies to recover useful materials and reduce dependence on vulnerable primary supply sources. Such efforts could help make the semiconductor supply chain more resilient and sustainable in the long term.
The broader challenge for U.S. industrial competitiveness
The SIA findings point to the limits of focusing only on the construction of domestic semiconductor fabrication plants. New manufacturing facilities are necessary to boost US production, but running them depends on complicated webs of upstream suppliers who could be exposed to geopolitical, regulatory and logistical risks.
Thus, building up the industry will require a coordinated approach that combines domestic investment, strategic stockpiling, regulatory adjustments, international partnerships and technological innovation.
As demand for semiconductors continues to grow, especially for artificial intelligence and other advanced technologies, access to critical materials and equipment is becoming a more important part of US industrial strategy. The association’s recommendations aim to tackle these vulnerabilities before disruptions downstream in the supply chain threaten manufacturing capacity and the industry’s long-term competitiveness.
