The U.S. semiconductor industry may need to rely more heavily on government investment to build new plants in coming years, executives and officials said Monday at an event marking the expansion of Minnesota’s largest chip factory.

The growing cost of new chip factories — the most advanced of which exceed $10 billion — and the need to keep up with chipmakers in countries where government help is common are pushing the U.S. chip industry and government together in a way not seen since the 1980s.

The U.S. Department of Defense paid $170 million to fund SkyWater Technology Inc.’s third clean room at its factory near the Mall of America in Bloomington.

The company will use the room, which is bigger than the size of a football field and about four stories in height, in part to build radiation-hardened chips. Such chips, known as rad-hard and a relatively small portion of the chip business, are used in weapons, medical devices and in space.

For SkyWater, a contract manufacturer for other chipmakers and design firms, the clean room expansion will allow it to enter the rad-hard market.

“We’re all standing here today because of a very successful private-public partnership,” Tom Sonderman, SkyWater’s chief executive, said at an opening ceremony. “When done right, these partnerships represent a tremendous opportunity to help domestic manufacturing take a leap forward.”

The expansion was announced last October and construction proceeded even after the coronavirus outbreak. After equipment installation and testing, production will begin a year from now. SkyWater will continue to produce chips in its two existing clean rooms, built in the 1980s and 1990s.

While the U.S. is producing more chips from more factories than ever, it has been far outpaced by the growth of chip production in Asian countries, particularly in South Korea and Taiwan.

But it is China, where chip factories are rising after it came to dominate the making of finished electronics goods, that has alarmed U.S. officials like nothing since Japan’s rise in the chip business in the 1980s.

The U.S. now accounts for 12% of global chip manufacturing, down from 37% in 1990.

“Our manufacturing has continued to rise. The rest of the world has exploded,” John Neuffer, chief executive of the Semiconductor Industry Association, said after the SkyWater event. “We’re not talking about bringing all the supply back. We’re talking about rebalancing.”

He said the trade group would like Congress to back an effort to stop the declining U.S. role in global chip manufacturing, in part through more partnerships like the one between the Pentagon and SkyWater and in part by boosting funding for chip-related research and development.

“If we stay on the trajectory we’re on right now, in the next 10 years we’ll go from 12% to 10%,” Neuffer said. “At a minimum, we want to arrest the fall and then build back.”

Jeb Nadaner, deputy assistant secretary of defense for industrial policy, said the coronavirus pandemic has revealed the risk to the U.S. of relying too heavily on other countries to produce important products, particularly those like chips that are important for national defense.

“It creates new security technologies given the U.S. tech sector’s reliance on foreign suppliers and customers that have close ties to China,” he said during the SkyWater event. “Under the civil-military fusion approach pursued by the Chinese Communist Party, the boundaries that we Americans are accustomed to between the commercial and the academic, the government and defense sectors, most of those barriers do not exist.”

He said the Pentagon doesn’t have the purchasing power to direct the U.S. chip industry and doesn’t want it. But deals like SkyWater’s expansion create a bargain, Nadaner said.

The Pentagon can take advantage of the likelihood that SkyWater’s commercial customers will generate enough demand from the new clean room that the company will be able to hold down costs of the chips built for military, he said.

“The investment in high-volume, state-of-the-art microelectronics makes it possible to sustain production of lower-volume parts for DoD systems, systems that may be comparatively old but are still critical to U.S. warfighting capabilities,” Nadaner said, referring to the defense department by its acronym.

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