The semiconductor industry is highly interconnected and interdependent, operating across countries and regions. This has enabled manufacturers to collaborate more effectively, share resources and technologies, increase their competitiveness in the global market, and drive regional integration. Furthermore, recent bipartisan legislation in the U.S. will substantially strengthen domestic semiconductor production and innovation in the years ahead.
North American Interdependence
The USMCA agreement has enabled a significant amount of collaboration between North American countries. By tapping into the vast potential of North America's industrial landscape, global manufacturers and service providers can increase their access to talent, optimize processes and become more productive.
North American Integrated Supply Chains
Supply chains in North America are heavily intertwined and interdependent. The total value of trade within North America exceeded $1.5 trillion in 2022, equal to $3 million per minute. Intermediate goods are those passed back and forth between North American countries' supply chains that are components for final products that are made within the same region. The value of the trade in intermediate goods supports about 9.5 million jobs across North America (Brookings USMCA Tracker).
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Manufacturers in the region can benefit from cost-savings through process efficiency and improved product quality.
North American Talent Collaboration
In North America, talent from different countries work together in the manufacturing industry. They share knowledge and help each other make goods and services. Under the USMCA, there are specific provisions related to intellectual property protection, including patents, trademarks, copyrights and trade secrets. These provisions aim to promote innovation and encourage R&D activities by providing a framework for the protection and enforcement of intellectual property rights across the three countries.
According to a recent Brookings Institute report utilizing data from OECD, over 700,000 students graduated from STEM careers throughout Canada, United States and Mexico in 2019 alone. This talent pipeline serves manufacturers looking to fill technical and engineering roles throughout the region.
Read more about Mexico's STEM students.
In fact, the TN Visa, a temporary nonimmigrant category available for Canadian and Mexican workers under the USMCA, saw an impressive 884% increase from 2010 to 2022. Now, more than ever, talent mobility and integration is reflecting the intertwined supply chains of the region. As a result, North America is well positioned to become an even more attractive destination for investment and nearshoring in advanced manufacturing.
This increasing collaboration creates a win-win scenario for manufacturers in the region, but also strengthens the entire North American talent pool. Collaboration between the North American manufacturing workforce goes beyond physical production. Engineers, designers, and technical experts from the three countries often collaborate on product development, innovation, and process improvement. This collaboration allows companies to tap into the strengths of each workforce, combining expertise and knowledge to drive efficiency and competitiveness. The USMCA supports this regional system of manufacturing production, leveraging the three countries' individual comparative advantages to compete as a region on a global stage.
Nearshoring Investments
Combined, the three countries now account for almost a third of global GDP. Since the onset of the USMCA agreement, trade and investment have expanded across the region. The USMCA agreement has provided a stable and predictable business environment, instilling confidence and encouraging cross-border trade among the countries. The nearshoring trend, accelerated by the pandemic and geopolitical uncertainties, has been a significant driver of investment, as businesses seek to reduce supply chain risks and gain closer proximity to their end markets.
U.S. Policy Focus
The Infrastructure Investment and Jobs Act of 2021 , the Inflation Reduction Act, and the CHIPS Act of 2022 have intended to be catalysts for growth. The non-residential construction industry is booming and "driven by the Administration’s policy focus and led by technology manufacturing" according to the U.S. Department of Treasury. And the similar situation can be found in Mexico, with the average occupation rate of industrial parks at a national level upwards of 97%, according to AMPIP, the Mexican Association of Private Industrial Parks. Manufacturing is truly having its moment.
In fact, the United States invited Mexico to collaborate and help boost semiconductor manufacturing in North America. Major elements of the semiconductor supply chains are already well-established in Mexico. The act underscores the strategic necessity of semiconductors, and the continued collaboration with Mexico on their production and processing in the region. This partnership aims to reduce the United States' reliance on foreign production, thereby enhancing the country's economic security and global competitiveness.
North American Semiconductor Industry
The North American semiconductor industry is facing a period of transformation, with efforts underway to strengthen domestic production and reduce reliance on overseas sources, while also capitalizing on existing strengths in chip design and research.
The North American Semiconductor Conference
The three countries confirmed their collaboration with the launch of the North American Semiconductor Conference, aimed at growing the following areas of collaboration:
- Information exchange to support a more robust and innovative North American research and development ecosystem, with the potential to forge new, cross-border partnerships in semiconductor research and development in areas of mutual interest.
- Industry and academic partnerships to train the semiconductor workforce of the future.
- Investments in the development, manufacture, and packaging of semiconductor technologies and related innovations in a way that addresses supply chain gaps and leverages the strengths of each of our nations.
A mindset of regional collaboration and development presents many benefits and challenges for North America.
Some benefits:
- Strengthening economic integration and cooperation under the USMCA framework, promoting regional competitiveness and resilience
- Enhancing the mutual benefits and opportunities for the three countries to increase trade, investment and innovation in the semiconductor and electric vehicle industries, which are areas of future growth
- Addressing common challenges and interests of the North American countries in securing their supply chains, reducing their dependence on other regions, and also tackling the climate crisis through green technologies
Some challenges:
- Political and legal obstacles in aligning policies and regulations on topics such as energy, environment, labor and trade
- Technical and logistical-development and integration of supply chains considering infrastructure, quality control and security
- Provoking backlash from other regions that may see regional collaboration as a threat, or retaining top talent that may find great opportunities elsewhere
Semiconductor Investments
Even as talent mobility increases in the region, the manufacturing talent shortage concerns have not been widely alleviated, and more demand for skilled workforce is on the horizon. The CHIPS Act is widely attributed to the recent investment in the semiconductor industry in the United States.
U.S. Semiconductor Investments
The announced projects include the construction of 37 new chip fabs and the expansions of 21 fabs, as well as the construction of 2 new advanced packaging facilities and the expansion of 2 advanced packaging facilities. The new fabs will spur additional investment in the supply chain throughout: materials, chemicals, and equipment; high-purity chemicals, specialty gases, and wafers for the production of chips.
View the interactive map here.
Canadian Semiconductor Investment
Canada is investing millions into their semiconductor infrastructure and training, and overall seeing a 13.6% increase in 2022 FDI over their 10-year average. Just recently, Canadian Prime Minister Justin Trudeau announced a nearly $60 million investment in their microelectronics research and innovation leaders, IBM Canada and the MiQro Innovation Collaborative Centre (C2MI), to boost semiconductor creation.
In fact, Canadian semiconductor companies have increased R&D expenditures by an impressive 17% over the past two years, from $301 million in 2020 to $352 million in 2022.
Mexican Semiconductor Manufacturing
In Mexico, several US-based companies conduct R&D, design, assembly and test manufacturing in different parts of Mexico. Mexico exported over 30% of the electronic connectors and parts used in backend semiconductor production in the United States (U.S. International Trade Commission, 2020) in additional to other components.
While Mexico's established strength lies in cost-effective, labor-intensive manufacturing, the landscape is evolving. The presence of leading automotive and aerospace companies like Toyota, BMW, Honeywell, and Airbus has spurred the development of a more skilled workforce capable of advanced manufacturing. Mexico can position itself as a valuable partner by offering crucial support services like chip testing and packaging.
Firms like Intel, Skyworks Solutions, Texas Instruments and Infineon Technology are already in Mexico and building capacity in the microprocessor R&D, testing and manufacturing spaces. Foxconn has established a headquarters in Mexico, and TSMC is in discussions to commence operations in the country. Arizona State University has partnered with the government of Mexico to boost training and capacity to take on more semiconductor manufacturing and testing work.
Issues to Overcome
- Water. Semiconductor manufacturing utilizes a lot of water in its processes. The Northern part of Mexico has seen drought-like conditions over the past few years.
- Electricity. With increased investment, demand has soared while investment has dropped sharply since 2018.
- Asian Competitors. Chinese and other Asian manufacturers are increasing their manufacturing capacity in Mexico at a rapid rate, spurring accusations by Washington, D.C. of going against the spirit of the USMCA.
Conclusion
The North American semiconductor industry stands at a crossroads. Recent years have exposed vulnerabilities in the global supply chain, highlighting the need for a more robust and regionalized approach. Fortunately, the groundwork has been laid through agreements like the USMCA and the North American Semiconductor Conference.
This collaborative spirit, coupled with significant investments across the continent (including the CHIPS Act), presents a unique opportunity for North America to strengthen domestic production, reduce reliance on overseas sources, and capitalize on existing strengths in chip design and research. However, challenges remain. Aligning policies, fostering talent development, and navigating international competition will all be crucial to success.
