Chip manufacturers in USA are experiencing a remarkable resurgence despite a challenging market landscape. In 2023, global semiconductor sales rebounded to reach US$527 billion, with nearly one trillion semiconductors sold worldwide—more than 100 chips for every person on earth. However, the United States faces a critical manufacturing gap as its share of semiconductor production has dramatically declined from 37% in 1990 to just 12% today.
This manufacturing challenge is further complicated by the essential raw materials for semiconductor chips, particularly rare earth metals in computer chips like gallium and germanium. Currently, China dominates this crucial segment of the semiconductor value chain, accounting for 98% of the world's refined gallium and 68% of germanium production. Importantly, the U.S. Geological Survey estimates that even a 30% supply disruption of gallium could cause a staggering $602 billion decline in U.S. economic output, equivalent to 2.1% of GDP.
Fortunately, the industry is responding with unprecedented investment. As of August 2024, companies in the semiconductor field have announced more than 90 new manufacturing projects across 28 states, totaling nearly US$450 billion in investments. Additionally, manufacturing construction spending has doubled since 2021, reaching $189.7 billion in 2024. This surge in domestic investment comes as projections show the U.S. semiconductor market will more than double from $68 billion in 2024 to over $140 billion by 2030, highlighting the critical importance of developing a secure, domestic supply chain from mining operations to finished chips.
America’s Semiconductor Challenge: Why Domestic Production Matters
The global semiconductor industry faces unprecedented challenges that highlight the strategic necessity of domestic chip production. When the COVID-19 pandemic disrupted global supply chains, the resulting chip shortage created a cascade of production delays across multiple industries. Automakers alone lost an estimated $210 billion in revenue due to chip-related production halts, while consumer electronics manufacturers struggled with extended delivery times and price increases.
The global chip shortage and its impact
The semiconductor shortage revealed fundamental vulnerabilities in global supply chains. Major industries experienced significant disruptions:
Automotive production lines halted, with some manufacturers shipping vehicles missing key features
Consumer electronics prices surged as demand outpaced supply
Medical device manufacturers faced critical component shortages
Defense contractors encountered delays in fulfilling military contracts
Decline of U.S. chip manufacturing since 1990
Although America pioneered semiconductor technology, its manufacturing dominance has eroded dramatically. In 1990, U.S. companies produced nearly 37% of the world's semiconductors; by 2020, that figure plummeted to just 12%. Meanwhile, East Asian manufacturers now control 75% of global production capacity. Consequently, the U.S. has become increasingly dependent on international sources for components essential to its economy and defense.
Why semiconductors are critical to national security
Semiconductors form the foundation of modern defense systems—from guided missiles to encrypted communications networks. Moreover, domestic chip manufacturing capability directly impacts national resilience during international conflicts or supply disruptions. Essentially, whoever controls the semiconductor supply chain gains strategic leverage in both economic and military spheres.
This security dimension underscores the importance of developing domestic sources for semiconductor raw materials. The United States possesses substantial deposits of crucial minerals like silica and bauxite, which are fundamental to chip manufacturing. Specifically, American mining operations for these materials represent a frontier opportunity for private equity investment. These investments not only strengthen national security but also create high-paying jobs in mining regions while reducing dependency on potentially unreliable foreign suppliers.
For instance, domestic silica mining operations support both the semiconductor industry and the defense technology sector, creating a virtuous cycle of industrial development and technological independence that benefits the entire economy.
The Raw Materials Behind Every Chip
Modern semiconductor fabrication depends on a precise mixture of specialized materials, each serving a unique function in the creation of advanced chips. Behind every processor powering our devices lies a complex material science foundation that begins with the Earth's crust.
Silicon: Abundant but underutilized in the U.S.
Silicon forms the foundation of most semiconductor devices as the second most abundant element in Earth's crust after oxygen. Found in beach sand, glass, and soil, silicon's semiconductor properties allow precise control of electric current without moving parts. Though domestically abundant, U.S. manufacturing relies primarily on imported silicon despite its availability. Indeed, pure silicon requires extensive processing – starting as quarried silica sand that undergoes purification until reaching electronic grade silicon (EG-Si) with at least 99.9999999% purity. This presents an opportunity for U.S. mining operations to expand silica extraction and processing capabilities, especially given the material's importance for defense technology applications.
Gallium and germanium: Rare earth metals in computer chips
Gallium enables high-power and high-frequency electronics vital for mobile phones, satellites, and radar systems. China currently produces 98% of the world's refined gallium, creating significant supply vulnerability. Similarly, germanium – essential for high-speed transistors and fiber-optic communications – is predominantly controlled by China, which accounts for approximately 60% of global production. Both materials face supply chain risks, as demonstrated by China's 2023 export restrictions. Remarkably, the USGS estimated that even a 30% disruption in gallium supply could cause a $602 billion decline in U.S. economic output (2.1% of GDP).
Palladium and its role in chip durability
Palladium coatings dramatically improve semiconductor longevity and performance. This platinum group metal provides excellent electrical conductivity, corrosion resistance, and mechanical durability. Generally used for probe cards and chip connections, palladium resists oxidation and mitigates contamination effects that could adversely affect testing processes. Russia controls over 40% of global palladium production, creating additional supply vulnerability.
Supply chain risks from China and Russia
The concentration of critical materials in potentially adversarial nations creates significant national security concerns. Notably:
China dominates gallium (98%) and germanium (60-68%) production
Russia controls 40% of palladium supplies
The U.S. produces only 5% of global palladium
This situation underscores the strategic importance of private equity investment in domestic mining operations to secure America's semiconductor value chain.
Mining in the United States: A New Frontier for Tech Security
American mining operations are experiencing a remarkable revival as the strategic value of domestic mineral production becomes increasingly apparent for national security. This resurgence represents a critical development in securing the entire semiconductor value chain from raw materials to finished chips.
Current state of U.S. mining for semiconductor materials
The United States currently faces significant gaps in domestic mineral production for semiconductor manufacturing. The country produces no gallium and less than 2 percent of the world's refined germanium. For palladium, crucial for semiconductor connections, U.S. production represents just 16 percent of national consumption, with only two operations in Montana. In fact, the lack of domestic mining capacity has left chip manufacturers in USA vulnerable to foreign supply disruptions.
Private equity's role in revitalizing domestic mining
Private capital is increasingly flowing into mining operations, recognizing the sector's vital importance. In Q3 2023 alone, private equity deals in mining totaled approximately USD 5.20 billion—a staggering 1,377% increase compared to the previous quarter. Furthermore, government initiatives are encouraging this investment trend, with programs like the Defense Production Act providing USD 250.00 million to support American and Canadian companies in mining critical minerals.
Strategic importance of silica and bauxite mining
Bauxite mining provides gallium as a byproduct, representing an opportunity to reduce dependence on China, which controls 98% of global gallium production. Throughout this process, investors can secure offtake agreements with Western mining companies in bauxite-rich allied nations like Australia. Likewise, domestic silica deposits offer a path to reduce reliance on foreign polysilicon for semiconductor wafers.
Defense and aerospace demand for secure supply chains
The aerospace and defense sectors actively pursue secure mineral supply chains, given their critical importance to national security. According to defense experts, decades of industrial base atrophy and overreliance on fragile global supply chains have eroded America's ability to rapidly mobilize and sustain military operations. As a result, organizations like the Aerospace Industries Association maintain productive relationships with government agencies to secure supply agreements and enable investment in mining critical minerals.
Policy and Investment
Gaps in upstream investment for raw materials
There is a critical gap in the upstream supply chain: The U.S. is 100% import-reliant on 14 critical minerals and over 50% import-reliant on another 15. Currently, raw material reserves required to service semiconductor manufacturing still come primarily from abroad, especially China, which dominates the critical mineral mining and processing sector globally.
Lessons from the Inflation Reduction Act (IRA)
The IRA offers valuable lessons about integrated climate and energy investments. Like the CHIPS Act, it provides substantial incentives for domestic manufacturing. The complementary nature of these initiatives demonstrates how coordinated policy can strengthen supply chains. The IRA's approach to climate technology development provides a template for addressing critical mineral challenges.
Why CHIPS 2.0 must include mineral supply chains
Recent proposals advocate redirecting approximately $2 billion from CHIPS funding toward domestic critical minerals initiatives. This approach recognizes that semiconductor manufacturing relies heavily on minerals like germanium and gallium. Therefore, supporting the upstream supply chain would still serve the legislation's intent to strengthen domestic semiconductor production. A comprehensive "CHIPS 2.0" would need to address these mineral supply chains to ensure long-term security and sustainability for chip manufacturers in the USA.
Conclusion
America stands at a critical juncture in semiconductor manufacturing. The dramatic decline in domestic chip production capacity, coupled with China's dominance in critical minerals, creates significant vulnerabilities throughout the supply chain. Nevertheless, recent developments signal a promising future for U.S. technological independence.
Private equity investment emerges as a powerful catalyst for revitalizing American mining operations. Therefore, this financial backing represents more than profit-seeking—it embodies national resilience against supply chain disruptions. Domestic silica mining, abundant yet underutilized, offers immediate opportunities for strategic investment with substantial returns both financially and for national security.
Similarly, bauxite mining provides access to gallium, reducing dependence on Chinese suppliers who currently control 98% of global production. These mining operations deliver essential materials for defense technology systems while simultaneously supporting commercial semiconductor manufacturing. Accordingly, every investment dollar strengthens both economic competitiveness and military readiness.
Though the CHIPS Act has catalyzed unprecedented manufacturing investment, gaps remain in the upstream mineral supply chain. Consequently, forward-thinking investors recognize the extraordinary opportunity in closing these gaps through strategic mining investments. The remarkable 1,377% increase in private equity mining deals during Q3 2023 demonstrates growing recognition of this sector's importance.
Above all, securing America's semiconductor future requires a complete value chain—from mining operations to manufacturing facilities. Private equity investment in domestic mining operations serves as the foundation upon which America's technological leadership will be rebuilt. The path forward demands continued investment in mining capabilities, especially for silica and other defense-critical minerals that form the building blocks of modern technology.
American mining operations certainly possess the potential to transform vulnerability into strength. As these investments mature, they create high-paying jobs, strengthen national security, and reduce dependency on potentially unreliable foreign suppliers. The resurgence of domestic mining thus represents not merely an investment opportunity but a crucial step toward ensuring America's technological sovereignty for generations to come.