How the US (and China) can overcome the semiconductor shortage
The U.S. Senate passed law last week aimed at slowing China’s threat to our economic competitiveness and national security by allocating hundreds of billions of dollars to U.S. development and manufacturing in critical technology areas like artificial intelligence, quantum science and to promote 5G networks. It’s a welcome start, but it’s not enough.
The U.S. Innovation and Competition Act, introduced by Senate Majority Leader Chuck Schumer, DN.Y., is an important step in addressing China’s politico-economic challenge to the United States. But it’s related to a larger geopolitical stalemate between democracies and autocracies highlighted this week during President Joe Biden’s tour of Europe, including an increasingly tense politico-military and trade competition between China and the United States – particularly over advanced technology.
Our trade and technology competition with China is part of this larger geostrategic reality: The Chinese Communist Party wants to stop the spread of democracy, undermine the international order after World War II, and take control of existing global institutions to its political system. The party’s “China 2025” plan aims to achieve Chinese dominance in key technology areas in the service of its values and political system in China, but, alarmingly, worldwide. We see this in Xinghang Province and Hong Kong, where surveillance has essentially turned the population into prisoners of the Beijing government. We’ve also seen it in China’s leading role in selling surveillance technology around the world. China competes with US and other overseas companies to sell crime-fighting technology that increases security. However, Chinese companies sell systems and implement operations – the rules for their use – to other autocracies in Africa and Asia and to illiberal democratic states in Europe. The Chinese model of using their technology leaves no room for privacy or individual rights. It is a clear threat to human rights and democracy around the world.
Indeed, the rising specter of a Chinese invasion of Taiwan puts the problem in strikingly clear terms. US manufacturing companies rely almost entirely on microelectronics manufactured and integrated in East Asia, and US technology companies source up to 90 percent of their semiconductor chips from Taiwan. Semiconductors are a microelectronic component used in everything from electric toothbrushes to rocket systems. A prolonged disruption to the flow of trade from Taiwan could devastate the US economy and national security.
The situation has become more urgent as the recent and ongoing pandemic-induced semiconductor shortages are turning global markets upside down and threatening national security. It kicked off the CHIPS Act, now part of the Schumer Act, which gives domestic semiconductor manufacturing a $ 52 billion boost. The goal of the Senate is to stimulate American research and development efforts and revitalize the competitive manufacturing of semiconductors. If Congress sets requirements for subsidies to go along with standards, demand for American chips can eventually become market-driven based on quality and reliability. Whichever way Congress will act, it should be accompanied by an assurance that we will continue to stand by Taiwan, which is in greater danger every day, as it is the closest democratic haven for Chinese dissidents on the mainland or in Hong Kong.
Without a broader approach to protecting the integrity of the U.S. supply chain, current efforts will leave our nation vulnerable to many of the same risks that this bill is intended to address.
While the media made headlines to China’s internet-based espionage and sabotage, including the Equifax, Microsoft Exchange, and OPM hacks, less attention was paid to the significant violations of the U.S. government and commercial networks by Chinese companies that were being paid to produce end products for the US semiconductor assemble market. A trusted domestic semiconductor manufacturing facility is vital to commercial competitiveness and national security, but if chips and other microelectronic systems continue to be integrated onto circuit boards in East Asia before they return to the US, as is often the case, our nation will be exposed unacceptable risk.
In addition, the bill fails to address the important issue of protecting American intellectual property that underlies many of the most advanced chip designs, a key risk given China’s aggressive espionage and the express goal of dominating this vital industry.
Shortly after taking office, Biden signed an executive order instructing federal agencies to review critical gaps in domestic manufacturing capacity, and particularly cases of dependency on supply chains that depend on “competitive nations,” ie, China. The next steps include building a more proactive, collaborative relationship between the government and the American industrial base that develops and manufactures these critical technologies. This is perhaps the most urgent when it comes to the multi-billion dollar defense industry. Going forward, the success of the US military on the battlefield will be determined by the government’s ability to quickly incorporate technological advances from the commercial sector. The Pentagon must insist on state-of-the-art technology in the design of its defense systems, especially sensitive microelectronic designs.
Congress should greatly expand the funding and responsibilities of the DOD microelectronics expert bureau known as Defense Microelectronics Activity (DMEA), transforming it into a full-fledged agency. The new organization should use and scale the American microelectronics know-how in order to obtain a qualitative US technological lead in the effectiveness, production and integration of microelectronics in the defense sector. The new DMEA should be tasked with protecting America from potential disruption to the microelectronics trade, working with industry leaders to protect critical intellectual property, and ensuring our microelectronics industry remains globally competitive not only in innovation but also in manufacturing and integration. DMEA should become the center of the government’s efforts to formulate a holistic microelectronics industry and security strategy and implement the expected recommendations from the Secretary of Defense’s cross-functional microelectronics team. In the meantime, Congress can help by creating a legal requirement that large public procurement programs incorporate commercial best practices in the development of microelectronic systems.
The costs and risks of our current system are clear and increasingly unsustainable. Incorporating advanced commercial microelectronic solutions can help overcome the production delays and cost overruns that have hampered the use of so many advanced systems. The beleaguered KC-46 tanker’s far-sight system and the historically ailing F-35 program are just two recent examples where commercially available emulation technologies for microelectronic prefabrication could help alleviate costly delays.
Microelectronics literally enables the advanced technology domains that represent the future of global competition, from artificial intelligence to quantum computers. If the United States is to overcome the challenge posed by China, we must reverse our reliance on foreign manufacturing and microelectronic systems integration and re-establish our relationship with our domestic microelectronic industrial base. This is not just a question of economic competitiveness, but crucial to victory in the struggle between democracy and autocracy.
Dr. Evelyn N. Farkas was Assistant Secretary of Defense under President Obama, serves on the board of directors of the Project 2049 Institute, and is an advisor to several tech companies doing business with the Department of Defense.