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Illustration: Aïda Amer/Axios

Warning bells are sounding for the U.S. semiconductor industry as Intel grapples with internal and competitive challenges that could imperil the future of domestic chipmaking.

Why it matters: Chips are some of the only strategic tech products that are actually manufactured in the U.S., accounting for a quarter-million U.S. jobs. They're also a small but key piece in the power struggle between the U.S. and China.

Driving the news: Intel is weighing whether to outsource some manufacturing after struggling mightily to get its next-generation chip production up and running.

  • Costly delays are already handing a technical edge to rivals like AMD, which outsources its manufacturing to Taiwan's TSMC.
  • The percentage of chips made in the U.S. has already declined from 37% in 1990 to 12% today, according to the Semiconductor Industry Association, the trade group that represents U.S. chipmakers.

Policymakers and chip industry reps are now pleading for government intervention to keep what remains of U.S. chip manufacturing in the country.

The big picture: Beijing has grand designs on dominating the global chip market, which would in turn boost China's economic and technological might and could give the country an edge in A.I. and other next-generation technologies.

  • China's efforts have run into troubles of their own, but Intel falling behind will do the U.S. no favors.

Between the lines: For all the talk of how computers and smartphones should be made in the U.S., the practical reality is that we have neither the infrastructure nor the labor force nor the economic setup to bring such manufacturing here.

  • Chips, on the other hand, are highly strategic, require a modest but well-paid labor force and are already made here.

What they're saying: Both Treasury Secretary Janet Yellen and Defense Secretary Lloyd Austin talked about the strategic importance of the U.S. chip industry in their confirmation hearings.

  • SIA head John Neuffer said in a statement to Axios, "Semiconductors are critical to our economy, national security, and future innovation."
  • "To strengthen America’s semiconductor supply chains and keep our country on top in chip technology, leaders in Washington need to fully fund the semiconductor manufacturing incentives and research investments called for in the annual defense bill."

That bill — the most recent incarnation of the National Defense Authorization Act — has a provision that provides for federal incentives for domestic manufacturing and investments in semiconductor research.

  • However, those provisions still need to be funded through congressional appropriations.

Be smart: The right government investment and incentives could encourage other firms to expand U.S. chipmaking and prevent an exodus of chip jobs even if Intel does reduce the amount of manufacturing it does in-house.

What's next: Pat Gelsinger, recently tapped to be Intel's new CEO, acknowledged on an earnings call last week that "it's likely that we will expand our use of external foundries for certain technologies and products."

  • But he maintained that he remains "confident that the majority of our 2023 products will be manufactured internally."

Go deeper

California governor declares drought emergency in most counties

A sign in April on the outskirts of Buttonwillow in California's Kern County, one of the top agriculture producing counties in the San Joaquin Valley, after historically low winter rainfall. Photo: Frederic J. Brown/AFP via Getty Images

California Gov. Gavin Newsom (D) extended a drought emergency declaration to cover 41 of the state's 58 counties on Monday.

Why it matters: Most of California and the American West are experiencing an "extreme" or "exceptional" drought, per the U.S. Drought Monitor. Newsom and other officials are concerned California could experience a repeat of the catastrophic 2020 wildfire season.

3 hours ago - World

Jerusalem crisis escalates after Hamas and Israel trade rocket fire

Israeli air strikes in the southern Gaza Strip on May 10. Photo: Said Khatib/AFP via Getty Images

Nine children were among 20 Palestinians killed in Israeli airstrikes after Hamas fired dozens of rockets at Jerusalem for the first time since 2014 Monday, per AP and Reuters.

The big picture: The rockets come after escalating violence in Jerusalem has injured 250 Palestinians and several Israeli police officers during protests over the planned evictions of Palestinian families from their homes that began Friday.

Pelosi's Republican playbook

Illustration: Aïda Amer/Axios

As Republicans fight among themselves, House Speaker Nancy Pelosi (D-Calif.) is showing the myriad ways she deals with the GOP herself.

Between the lines: We've seen Pelosi cut opponents off at the knees, like she did with President Trump, or pretend to forget their names, as she did to Sen. Ron Johnson (R-Wis.). Now she's feeding oppo research against her House counterpart, Minority Leader Kevin McCarthy (R-Calif.), so others can use the same harsh rhetoric to frame the Republicans as the party of dysfunction.