The widespread shortage of semiconductors that began in late 2020 highlighted how indispensable these specialized components are in today’s economy. Semiconductors are used to power a vast array of electronic devices—everything from smartphones and cloud servers to modern cars, industrial automation, and critical infrastructure and defense systems.

The global structure of the semiconductor supply chain, developed over the past three decades, has enabled the industry to deliver continual leaps in cost savings and performance enhancements that ultimately made possible the explosion in information technology and digital services. In the past few years, however, several new factors have emerged that could put the successful continuation of this global model at risk. Addressing these vulnerabilities requires a combination of carefully designed actions from policymakers, including targeted incentives to encourage domestic production in order to address strategic gaps.