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Countries can use subsidies to address a clearly identified semiconductor supply-chain gap, but spending more is not a strategy by itself. Start by deciding what public goal matters most, identify the part of the chain that obstructs it, and fund projects only when demand, infrastructure, skills and a credible route to production are in place. Make payments conditional on verifiable progress, measure results beyond announcements, and change course when evidence shows a program is not delivering.
Define the public objective before choosing what to subsidize
“Build a semiconductor industry” can mean very different things: securing access to chips during a disruption, reducing dependence on a particular supplier or region, strengthening economic competitiveness, supporting innovation, or attracting investment and skilled jobs. Those objectives can point toward different projects. A national-security objective might favor domestic capacity in a strategically important product; a resilience objective might instead value suppliers distributed across several locations.
Policymakers should name a primary objective, explain why public intervention is needed, and decide in advance what evidence would count as success. That prevents a prominent project or a large announced investment from becoming a substitute for a measurable public benefit. The OECD’s 2026 Industrial Policy Handbook offers a useful sequence for this work: set strategic orientation, coordinate across the economy and relevant sectors, ensure effective delivery, then evaluate and adapt. It is a planning framework, not evidence that any particular subsidy will succeed.
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- Choose a measure that follows from the goal: a resilience program might track concentration of supply, while a production-security program might track qualified domestic output for specified products.
- Set an evaluation horizon: semiconductor facilities and supply chains take time to develop, so distinguish near-term delivery milestones from longer-term outcomes.
Do not use subsidy totals, project announcements or planned capacity as the main proof of success. Those measures show what governments committed or companies proposed; they do not establish that new, useful production came online or that the stated public objective was met.
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Find the supply-chain gap instead of defaulting to a new fab
Semiconductors are produced through a chain of specialized activities. A country may have strengths in one stage and a constraint in another, so the right intervention depends on a country-level diagnosis—not on which facility is most visible or attracts the largest headline investment.
| Supply-chain activity | What it does | What the diagnosis should establish |
|---|---|---|
| Chip design | Fabless firms design chips and rely on other firms to manufacture them. | Whether local design capability, customers and access to manufacturing are present, and whether a specific design gap matters to the stated objective. |
| Wafer fabrication | Foundries manufacture chips for design clients; integrated device manufacturers may combine manufacturing with other stages. | Which products or production capabilities are unavailable or too concentrated, and whether sufficient demand and operating conditions exist to support a facility. |
| Assembly, packaging and testing | Outsourced semiconductor assembly and testing firms provide downstream assembly, packaging and testing services. | Whether downstream capacity is a bottleneck or a useful complement to existing design and manufacturing activity. |
| Materials and equipment | Suppliers provide inputs and tools needed across semiconductor production stages. | Which inputs or supplier capabilities are missing, how they affect existing or proposed production, and whether domestic support is feasible. |
The OECD’s account of the industry distinguishes fabless design firms, foundries, outsourced semiconductor assembly and testing (OSAT) firms, and integrated device manufacturers. The U.S. Government Accountability Office (GAO) also describes awards across wafer and chip manufacturing, assembly/testing/packaging, materials and equipment; seven of the 40 projects it reviewed covered multiple stages. Together, these examples underline why “build a fab” should not be the automatic answer to every semiconductor policy problem.
A useful diagnosis asks where the constraint actually lies. A country with a potential manufacturing project but no timely utility connections, trained operators or dependable input suppliers may not have a viable manufacturing opportunity yet. Conversely, a country with production capacity may find that packaging, testing, materials, equipment or workforce capabilities are the more relevant gaps. The evidence available here does not rank those choices for any unspecified country.
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When several segments could serve the objective, assess them consistently rather than letting the largest requested subsidy or most impressive facility determine the choice. The following framework is a policy tool, not a set of universal numeric thresholds: available evidence does not establish a single cutoff for an acceptable subsidy, additionality or project return.
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| Test | Questions for decision-makers | Evidence to request |
|---|---|---|
| Fit with the diagnosed gap | Does the project address a specific constraint tied to the public objective? | A documented supply-chain assessment and explanation of how this capability changes the identified risk or dependency. |
| Demand and commercial viability | Are there credible buyers, suppliers and a sustainable operating case? | Customer commitments where available, demand assumptions, operating-cost analysis and an explanation of market risks. |
| Readiness and time to operation | Can infrastructure, approvals, equipment and people be ready on a realistic schedule? | Permitting and utility plans, construction and commissioning milestones, equipment plans and workforce commitments. |
| Additionality | Would the public benefit or investment happen without support, or does the subsidy materially change the outcome? | A transparent counterfactual explaining what the company would do without the award and what capacity or capability is genuinely additional. |
| Public value and fiscal exposure | Is the requested support proportionate to the expected public benefit, with a way to limit taxpayer losses? | Cost and risk estimates, the recipient’s contribution, conditions for disbursement and remedies for material underperformance. |
| Measurability | Can delivery and outcomes be verified over time? | Defined milestones, production or capability measures, reporting duties and an evaluation schedule tied to the stated objective. |
These tests help distinguish a sound industrial-policy case from a proposal that simply asks government to absorb risks a private investor will not take. They do not guarantee that forecasts will be right. Their value is that assumptions and trade-offs become visible before public money is committed.
Plan for long lead times and operational constraints
Construction is only one part of turning a facility proposal into productive capacity. Regulatory approvals, construction, utility connections and equipment installation all affect the route to operation. In its 2025 review of U.S. semiconductor awards, GAO said a new facility may take two to five years to become operational. That is the range reported by GAO, not a universal schedule for every facility type or country.
Project screening should therefore test whether supporting conditions can arrive in the same sequence as the project needs them. A building that is complete but awaiting equipment qualification, utilities or trained staff is not yet productive capacity. Nor should a country count a facility as a solution to a supply gap before it can make output at the required scale and meet relevant customer needs.
- Connect the schedule to dependencies: identify when approvals, site work, utility connections, equipment installation and workforce readiness must occur.
- Track qualification as well as installation: installed tools are not equivalent to qualified production equipment.
- Include operational assumptions: evaluate whether the project can obtain the inputs and customers needed to sustain production after construction.
- Make timing risks visible: distinguish a delayed milestone from a permanently missed target and specify how each affects disbursement.
These checks matter for public budgeting as well as project execution. A long implementation period means that a government may need to track performance across multiple budget cycles and administrations rather than judge results from the announcement year.
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Make public support conditional on delivery
Support should be structured so that public payments follow verifiable progress rather than being released entirely on the strength of a proposal. GAO’s 2025 review found that U.S. semiconductor awards included milestones for construction, equipment installation and qualification, and minimum production levels. The awards’ milestones extended from November 2024 through October 2033, illustrating how far the monitoring period can stretch.
The same review reported that statutory guardrails can allow clawbacks when recipients miss specified target dates. Commerce also negotiated upside-sharing agreements for 27 of the 40 U.S. projects GAO examined, requiring firms to share profits above a threshold. These are features of a specific U.S. program, not a universal legal template. Other governments would need to design remedies and risk-sharing mechanisms that fit their laws and bargaining position.
A practical support agreement can define a sequence of disbursements and consequences in advance:
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- At approval: state the public objective, project scope, eligible costs, recipient obligations and baseline against which additional investment will be assessed.
- During construction: release funds against documented progress, with reporting on schedule, costs, permits and critical dependencies.
- At equipment installation and qualification: verify that equipment is installed and meets the agreed qualification requirements before treating it as operational capability.
- At production: track minimum production or other outcome milestones that correspond to the project’s public purpose.
- If performance materially diverges: use agreed remedies, which may include pausing later payments, revising milestones for justified changes, or recovering support where legal provisions apply.
- If performance substantially exceeds expectations: consider whether the public should share upside through an appropriate, pre-agreed mechanism.
Conditions should be enforceable and proportionate. A milestone system that cannot be verified is mostly paperwork; one that ignores legitimate project changes can also create avoidable failure. Agreements need clear definitions, reporting access and a process for distinguishing ordinary schedule variation from nonperformance.
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Fund the workforce and enabling ecosystem alongside facilities
A production site depends on people and connected capabilities, not only capital equipment. Workforce training, utilities, materials, equipment suppliers, packaging, testing and research coordination may all matter, depending on the diagnosed gap. Funding a facility without checking whether its operating workforce and essential support systems can be built on time can leave public investment underused.
GAO’s 2022 summary of interviews with 17 selected experts reported that all 17 agreed workforce development required action. The interview group was selected, not a representative poll, and the experts emphasized that no single policy option would be sufficient. This is a strong signal to plan workforce policy, but not a basis for claiming that every region needs the same training program or job mix.
GAO’s 2025 review found that 13 of the 19 companies receiving U.S. semiconductor awards received workforce-development funds tied to their projects. That program-specific figure shows workforce support being paired with awards; it does not establish what share of a country’s total semiconductor budget should go to training.
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Before an award, officials should identify the skills needed at each stage of the project, who will train workers, when qualified staff must be available, and how the pipeline connects to actual jobs. They should also assess local evidence on utilities, water and energy needs, input suppliers, customer access and existing firms. Those conditions vary by location and project, so they should be measured rather than presumed.
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Evaluate outcomes and adapt the program
A public scorecard should separate inputs, delivery, outputs and outcomes. That makes it harder to confuse money spent or facilities announced with the public benefit the policy was meant to produce.
| Layer | What to measure | What it can and cannot show |
|---|---|---|
| Inputs | Public support committed and disbursed, recipient contributions, and workforce or infrastructure resources. | Shows the scale and timing of resources used; does not by itself show that they changed investment decisions. |
| Delivery | Construction, utility connections, equipment installation and qualification against agreed milestones. | Shows whether implementation is progressing; does not alone prove that useful production or resilience has resulted. |
| Outputs | Qualified capacity, actual production, workers trained and retained, or supplier capabilities established. | Shows what the project produced; relevance depends on whether the output addresses the original gap. |
| Outcomes | Additional capacity, changes in supply concentration or dependency, resilience or security benefits, and private investment that would not otherwise have occurred. | Tests the public objective, but requires a clear baseline and careful reasoning about what would have happened without support. |
Possible indicators include subsidy per unit of genuinely additional capacity, time to commissioning, actual rather than planned output, workforce retention, and changes in relevant supply-chain concentration. GAO’s U.S. award review specifically documents milestone monitoring and minimum production levels; the broader scorecard above is a recommended evaluation approach, not a list of measures GAO reported using in every case. The OECD’s 2026 handbook supports evaluating policy effectiveness and adapting programs as part of industrial-policy design.
There is reason to be cautious about equating support with relocation. The OECD reported in 2025 that subsidies relative to revenue for firms in its MAGIC database increased considerably since at least 2020, while firms covered by that database did not appear to reshore production activities between 2017 and 2023 despite relatively large recent subsidies. This aggregate finding does not prove that every supported project failed, or that subsidies never influence location decisions. It does show why governments should test what changed, for whom, and compared with what would otherwise have happened.
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The U.S. award program provides concrete examples of project milestones, workforce support, multiple supply-chain stages and upside-sharing arrangements. GAO reported $30.9 billion in direct funding across 40 U.S. semiconductor projects as of July 2025. It also reported that two of the 19 recipient companies received loans totaling $5.5 billion and that 13 received workforce-development funds. These are program-specific award figures—not a universal estimate of the cost of building a semiconductor industry or a benchmark for another country’s budget.
In June 2026, the European Commission presented a proposal to reinforce existing European strengths, including mainstream chips, while building cutting-edge capacity and reducing dependencies. It is a proposal, not evidence of enacted policy or completed results. Its broader framing illustrates that industrial strategy can include existing capabilities and more than one technology segment rather than treating advanced fabrication as the sole measure of ambition.
Neither example determines what another country should subsidize. The strongest implementation evidence described here comes from U.S. program oversight; the OECD subsidy-trend finding covers firms in the OECD MAGIC database; and the European example is a 2026 proposal. A country still needs its own assessment of capability, customer demand, energy and water, fiscal capacity, workforce, trade access and existing firms before choosing a segment or committing public funds.
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