By Bob Davis, Asa Fitch and Kate O'Keeffe

The American semiconductor industry is gearing up for a lobbying push to obtain billions of dollars in federal funding for factory building and research to keep the U.S. ahead of China and other countries that heavily subsidize their chip industries.

The $37 billion in proposals from the Semiconductor Industry Association, a trade group, includes subsidies for the construction of a new chip factory, aid for states seeking to attract semiconductor investment and an increase in research funding, according to a draft of the proposals viewed by The Wall Street Journal.

The push comes as the administration and Congress try to grapple with twin challenges: reducing U.S. dependence on Asia for technology products and competing effectively with China. The global coronavirus pandemic has deepened those concerns and re-energized a debate about the role the government should play in encouraging innovation.

The growing tension with China "has moved the dynamic toward accepting a national industrial strategy," said Robert Atkinson, president of the Information Technology & Innovation Foundation, an industry think tank. "In the old days, it was about protecting steel. The consensus now is much more about helping sunrise industries," referring to those pursuing advanced technology.

Industry officials consider expected legislation with additional coronavirus relief funding, the annual National Defense Authorization Act and some emerging technology bills as potential vehicles for the proposals.

While it is unlikely that the SIA's recommendations will be accepted without modifications, some influential lawmakers and administration officials, including Secretary of Commerce Wilbur Ross and Secretary of State Mike Pompeo, are examining ways to help the industry.

"The Trump administration is committed to ensuring the United States has a secure, vibrant, and internationally competitive high-tech ecosystem, supported by domestic chip production," said Mr. Ross.

A State Department spokeswoman echoed that support, saying State is "working closely with Congress and industry to ensure that the future of the semiconductor industry remains in the United States."

In Congress, a bipartisan group of lawmakers including Senate Minority Leader Chuck Schumer (D., N.Y.) and Sen. Todd Young (R., Ind.) have proposed a $110 billion boost in technology spending that would include semiconductor research. Sen. Tom Cotton (R., Ark.) is putting together a bill that mirrors some of the SIA's proposals.

"Advanced microelectronics are essential to future U.S. technological leadership, and we can't allow the CCP to control these critical supply chains," said Sen. Cotton, referring to China's ruling Communist Party.

The scale of the technology proposals is well beyond what has been contemplated in recent years. Federal funding for research and development, as a percentage of gross domestic product, has fallen by about half since the mid-1980s.

The SIA's proposal is related to the concern that the U.S. is losing its edge to countries that have been more generous with incentives, especially China. Computer chips underpin some of the most important commercial and defense technologies of the future, including 5G networking and artificial intelligence, both areas where the Trump administration wants to stay a step ahead of global rivals.

China is expected nearly to double its share of global chip production capacity to around 28% by 2030, according to SIA estimates, although that includes production by foreign companies based in China. U.S.-based companies such as Intel Corp. and GlobalFoundries are some of the largest chip makers in the world, but only 12% of chips are produced within the U.S.'s borders, following a subsidy-spurred shift toward Asia, Israel and Ireland.

The SIA's recommendations include $5 billion in federal funding for a new semiconductor factory that would be financed and operated in cooperation with the private sector. In a letter to Defense Department officials, Intel Chief Executive Bob Swan proposed in April that the company work with the Pentagon to build and operate such a facility. Intel declined to comment.

Another $15 billion would go to states as block grants that they could use to provide incentives for new semiconductor manufacturing facilities. The remaining $17 billion would add to federal research coffers, including $5 billion for fundamental research, $7 billion for applied research and $5 billion for a new technology center, according to the draft of the SIA's proposals.

"Our plan has a big number, but the cost of inaction would be far bigger to our economy, our national security and our leadership in critical technologies of the future," said SIA President and Chief Executive John Neuffer.

Some experts warned that the U.S. shouldn't try to engage in a subsidy race with China. Despite spending tens of billions of dollars subsidizing its chip industry, Beijing isn't competitive with the U.S. in advanced semiconductor technology, said Nicholas Lardy, a China specialist at the Peterson Institute for International Economics. "If China wants to pour money into doing that, I don't see why we would want to follow," he said.

Different segments of the semiconductor industry, which ranges from manufacturers to chip-design firms and makers of manufacturing equipment, disagree on how the aid should be structured.

Block grants, for instance, were criticized by one industry insider briefed on the proposal because states often compete with one another for investment, rather than China. "Are the states expected to come up with better ways to compete with China Inc.?" the industry insider asked.

There is also division within the industry about whether the plan would mainly benefit larger players, further cementing their share of U.S. manufacturing. The SIA was seeking to win industry approval by making the proposal broad enough for many segments of the industry to benefit, said people familiar with the plan.

Separately, SEMI, a group representing chip manufacturing equipment companies and others, has for months been pushing an investment tax credit for purchases of machinery. Such a credit "would provide a strong foundation for all other proposals by taking effect immediately and closing the cost gap for all investments, effectively 'raising the floor' and reducing amounts needed via other targeted programs," said Ajit Manocha, SEMI's president and chief executive.

Two Texas Republicans, Sen. John Cornyn and Rep. Michael McCaul, are putting together a bill that envisions an investment tax credit among its provisions, according to congressional aides. Such a provision is included in the SIA's recommendations.

The most modern chip factories typically cost more than $10 billion to build, and rising cost has been a major factor in reducing private investment in U.S. manufacturing in recent years. GlobalFoundries, which is based in Santa Clara, Calif., but owned by Abu Dhabi, two years ago decided to stop development of what were then the most advanced chips, largely because of the cost.

The industry's recommendations follow the Trump administration's courting of Taiwan Semiconductor Manufacturing Co., the world's largest contract chip manufacturer, which said it would spend $12 billion on a chip factory in Arizona between next year and 2029.

Some U.S. chip makers and lawmakers complained that the money ought to go to American companies willing to build factories before being pledged to foreign ones. Mr. Schumer, whose state is home to several large chip-making plants including ones run by GlobalFoundries, and two other lawmakers criticized the investment as "inadequate to rebuilding U.S. manufacturing capacity in microelectronics."

Under the SIA's plan, funding would be dedicated to building facilities in the U.S., but would be available to both foreign and domestic companies.

Although the SIA said its plan doesn't pick favorites, the $5 billion for foundry development was seen by some in industry and government as an incentive for Intel to build a plant, rather than a foreign manufacturer.

Write to Bob Davis at bob.davis@wsj.com, Asa Fitch at asa.fitch@wsj.com and Kate O'Keeffe at kathryn.okeeffe@wsj.com