Photo: CSIS
Sujai Shivakumar testified before the Joint Economic Committee regarding the importance of strengthening American manufacturing for national security and economic leadership.
Chairman Schweikert, Ranking Member Hassan, distinguished Members of the Committee, my name is Sujai Shivakumar, and I am honored to share my views with you on this important topic pertaining to our nation’s innovation strategy. I am a Senior Fellow at the Center for Strategic and International Studies, where I direct the program on Renewing American Innovation. As a bipartisan, nonprofit policy research organization dedicated to advancing practical ideas to address the world’s challenges, CSIS’s purpose is to define the future of national security. The program on Renewing American Innovation aims to revitalize innovation system to enhance our economic competitiveness and strengthen our national security in the emerging world order. CSIS does not take policy positions, so the views represented in this testimony are my own.
Thank you for giving me the opportunity to testify today about how we must center manufacturing in our nation’s innovation system for greater economic competitiveness, broad-based workforce participation, technological leadership, and national security.
Rebuilding U.S. capacity to innovate and manufacture advanced technologies is critical for U.S. economic competitiveness and national security. Renewing manufacturing in the United States is a national strategic objective: manufacturing not only creates jobs, stimulates economic growth, and reduces dependency on foreign suppliers like China, but also reinforces the U.S. innovation system by reconnecting R&D to production.
Innovation without production is a recipe for vulnerability: when technologies are invented in the United States but scaled and manufactured elsewhere, we forfeit not only economic returns but also the technical know-how, iterative learning, and supply chain coordination that are critical to sustained technological advantage.
In the United States, short-term financial pressures on firms, weak workforce training systems, and persistent scale-up challenges have delinked innovation from production.1 Public capital markets and shareholder expectations often reward short-term returns over long-term investment in new production capacity. As a result, many American firms have prioritized outsourcing and offshoring, eroding domestic capabilities over time. The structural separation between "innovate here" and "produce there" has led to an erosion of the “industrial commons”—the networks of skills, suppliers, and know-how needed to support manufacturing innovation. This separation not only limits America’s ability to capture the full economic and security benefits of its advanced innovations but also threatens the nation’s long-term capacity to invent, build, and lead in critical sectors.
The consequences of this structural R&D-manufacturing gap are evident. As the United States outsourced more development and manufacturing work, it steadily degraded the industrial commons. As a result, many foundational technologies—such as solar panels, lithium batteries, and semiconductor components—originated in U.S. labs but were scaled and industrialized in East Asia.2 This pattern has eroded manufacturing leadership and generated national security vulnerabilities.
The ambitious CHIPS and Science Act, passed with strong bipartisan support in 2022, shows what focused policies can achieve. It is already reshoring advanced semiconductor manufacturing to the United States. The CHIPS Act’s comprehensive approach establishes direct federal incentives to expand domestic semiconductor fabrication, builds up the broader ecosystem of suppliers and facilities, and invests in the workforce pipeline needed to sustain long-term competitiveness.
About 95 percent of CHIPS Act incentives will support semiconductor fabrication, focusing on bolstering some of the most capital-intensive segments of the value chain.3 These incentives span the semiconductor value chain, from integrated device manufacturers (IDMs), which design and manufacture their own chips, to contract manufacturers (foundries), which manufacture chips designed by other firms, to outsourced semiconductor assembly and test (OSAT) firms, which assemble, package, and test the chips to ensure they work.
Most CHIPS funds are designed to boost fabrication capacity—and are successfully catalyzing private investment. The legislation has already begun to unlock an unprecedented wave of private capital and commitments to build domestically. In fact, since the CHIPS Act was signed, the Semiconductor Industry Association reports over $540 billion in U.S. semiconductor investments, investments which are projected to triple total U.S. chip manufacturing capacity over the next decade.4 Even though numbers for both demand and supply are in flux,5 they represent a dramatic, game-changing surge in U.S. manufacturing capacity for both advanced and mature chips.
However, this new impetus to renew manufacturing has also revealed critical challenges in the U.S. manufacturing supply chain and ecosystem, particularly on the workforce, infrastructure, and regulatory fronts.
Can tariffs encourage manufacturing renewal in the U.S.? The threat of high tariffs is now being used as a negotiating tool in trade talks with a number of foreign countries. In making the case for tariffs, the administration has claimed that higher import costs will stimulate domestic production. There is unquestionably a need to address unfair trade practices and non-market behavior by other countries. However, in today's era of globalized innovation and manufacturing, tariffs alone are not sufficient to convince firms to rebuild industrial capacity. In fact, high or volatile tariffs can introduce uncertainty, reduce investment confidence, and risk spurring the development of parallel supply chains that bypass the United States.12
Consider how the imposition of Biden-era export controls, for example, has spurred China to double down on its existing deeply subsidized development efforts. The result has been increased state investment, the emergence of new AI chip architectures like DeepSeek, and a sharp rise in research output in critical technology fields. According to the Emerging Technology Observatory at Georgetown University, China is at present producing twice as many research papers as the United States on chip design and production, reflecting their high-level focus on this industry.13 These efforts are showing substantial and even surprising progress and are only destined to grow,14 because China sees this as a vital national competition. Meanwhile, the United States debates whether we should stay in the market for advanced U.S.-owned semiconductor production.15 The answer, of course, is that we should.
In short,a tariff-only strategy does not address the necessary incentives for investment, workforce development, infrastructure build out, and regulatory relief for renewing U.S. manufacturing. We can work to reroute semiconductor manufacturing supply chains, but we also need to invest in a domestic ecosystem that can support it—indeed, allow it to flourish. The successful CHIPS and Science Act is a start to the response, but far more is needed. It cannot be a “one and done” approach. We need expanded support for semiconductor research to maintain the U.S. edge in chip design and materials science. We also need stronger public-private partnerships to facilitate shared infrastructure, accelerate tech transfer, and support innovative firms through the “valley of death.” We have to see this contest as a long-term game. Follow-on support for the industry through tax incentives and related programs will be needed. For the United States to succeed in this high-stakes competition, substantial and sustained public support will be essential.
