How the U.S. Can Beat the Semiconductor Shortage (and China)

The U.S. Senate last week passed a bill that aims to slow China’s threat to our economic competitiveness and national security by providing hundreds of billions of dollars to boost U.S. development and manufacturing in critical technology areas including artificial intelligence, quantum science, and 5G networks. It’s a welcome start, but it is not enough.

The U.S. Innovation and Competition Act, introduced by Senate Majority Leader Chuck Schumer, D-N.Y., is a major step to address China’s political-economic challenge to the United States. But it comes in the context of a greater geopolitical standoff between democracies and autocracies, highlighted this week during President Joe Biden’s European trip, including an increasingly tense political-military and trade competition between China and the United States—particularly for advanced technology.

Our trade and tech competition with China is part of this larger geostrategic reality: the Chinese Communist Party wants to stop the spread of democracy, undermine the post-World War II international order, and take control of existing global institutions in order to protect their political system. The party’s “China 2025” plan aims to achieve Chinese dominance in key technology areas in service of their values and political system in China, but also, more alarmingly, worldwide. We see this in Xinghang province and Hong Kong, where surveillance has essentially rendered populations prisoners to the Beijing government. We’ve also seen it in China’s leading role selling surveillance technology, globally. China is competing with U.S. and other foreign companies to sell crime-fighting technology that bolsters safety and security. However, Chinese companies are selling systems and introducing operations—the rules for their use—to other autocracies in Africa and Asia, and illiberal democratic states in Europe. The Chinese model for using their technology leaves no room for privacy or individual rights. It is a clear danger to human rights and democracy all over the world. 

Indeed, the rising specter of a Chinese invasion of Taiwan puts the issue in startlingly clear terms. U.S. manufacturing companies rely almost completely on microelectronics produced and integrated in East Asia, and U.S. tech firms get as much as 90 percent of their semiconductor chips from Taiwan. Semiconductors are a microelectronic component required in everything from electric toothbrushes to missile systems. A sustained disruption in the flow of trade from Taiwan could devastate the U.S. economy and national security.

The situation has become urgent with the recent and ongoing pandemic-induced shortage of semiconductors upending global markets and threatening national security. It was the impetus for the CHIPS Act, now a component of the Schumer bill, to provide a $52 billion boost to domestic semiconductor manufacturing. The Senate goal is to jumpstart American research and development efforts and revitalize competitive manufacturing of semiconductors. If Congress sets requirements so that subsidies come with standards, a demand for American chips can eventually become market-driven, based on quality and reliability. Whatever the congressional action, it should come with assurances that we will continue to stand by Taiwan, which is in greater danger daily as it provides the nearest democratic refuge for mainland or Hong Kong Chinese dissidents.

Without a more comprehensive approach toward protecting the integrity of the U.S. supply chain, the current effort will leave our nation vulnerable to many of the same risks this bill is intended to address.

While the media has headlined China’s internet-based espionage and sabotage, including the Equifax, Microsoft Exchange, and OPM hacks, less attention has been paid to significant breaches of U.S. government and commercial networks by Chinese companies paid to assemble final products for the U.S. semiconductor market. Trusted domestic semiconductor manufacturing is critical for commercial competitiveness and national security, but if chips and other microelectronic systems continue to be integrated onto circuit boards in East Asia before making their way back to the U.S., as is often the case, our nation remains exposed to unacceptable risk.

Moreover, the bill doesn’t address the vital issue of protecting the American intellectual property that underlies many of the most advanced chip designs, a key risk given China’s aggressive espionage and explicit goal of dominating this vital industry.

Shortly after taking office, Biden signed an executive order directing federal agencies to review crucial gaps in domestic manufacturing capacity, and in particular instances of reliance on supply chains dependent on “competitor nations,” meaning China. The next steps involve establishing a more proactive, cooperative relationship between the government and the American industrial base developing and manufacturing these critical technologies. This is perhaps most urgent when it comes to the billion-dollar defense industry. In the future, the U.S. military’s success on the battlefield will be determined by the government’s ability to rapidly incorporate technological achievements from the commercial sector. The Pentagon must insist on the state-of-the art in the design of its defense systems, especially the sensitive microelectronics designs. 

Congress should significantly expand the funding and responsibility of the expert DOD microelectronics office known as the Defense Microelectronics Activity, or DMEA, and convert it into a full-blown agency. The new organization should leverage and scale American microelectronics expertise to maintain a qualitative U.S. technological advantage in the effectiveness, production, and integration of microelectronics in the defense sector. The new DMEA should be charged with safeguarding America against potential microelectronic trade disruptions, working with industry leaders to protect critical IP, and ensuring that our microelectronics industry remains globally competitive not just in innovation, but in manufacturing and integration, as well. DMEA should become the hub of government-wide efforts to articulate a holistic microelectronic industrial and security strategy, implementing anticipated recommendations by the secretary of defense’s Cross-Functional Team on Microelectronics. Meanwhile, Congress can help by creating a statutory requirement that major government procurement programs incorporate commercial best-practices in microelectronic systems development.

The costs and risks of our current system are clear, and increasingly untenable. Incorporating advanced commercial microelectronic solutions can help address the production delays and cost-overruns that have hamstrung the fielding of so many advanced systems. The beleaguered KC-46 tanker’s Remote Vision System and the historically troubled F-35 program are just two recent examples in which commercially available microelectronic pre-fabrication emulation technologies could have helped mitigate costly delays.

Microelectronics literally enable the advanced technology domains that represent the future of global competition, from artificial intelligence to quantum computing. If the United States is to prevail over the challenge posed by China, we must reverse our reliance on foreign manufacturing, and microelectronic systems integration, and reconstitute our relationship with our domestic microelectronic industrial base. This is not merely an issue of economic competitiveness, it is critical to winning the faceoff between democracy and autocracy.

Dr. Evelyn N. Farkas was a deputy assistant secretary of defense under President Obama, serves on the board of the Project 2049 Institute and is a consultant to several technology companies doing business with the Department of Defense.