Chip shortage could undermine national security

The global shortage of semiconductors has impeded the production of everything from pickup trucks to PlayStations. But there are graver implications than a scarcity of consumer goods. If the U.S. does not ensure continued domestic access to leading-edge semiconductor manufacturing, experts say our national security could suffer.

Powerful semiconductors, often called chips, are integral for everyday products from modern refrigerators to medical devices like pacemakers. They also are a necessary component of high-tech weaponry and secure communication systems that are key to America's defense.

“Semiconductors are the backbone of our military infrastructure and incredibly intertwined with our defense systems,” said Rob Atkinson, founder and president of the Information Technology and Innovation Foundation. “They’re used to power crucial functions like advanced aircraft, AI, autonomous systems, next-generation computing, and our secure communications.”

Chips are in short supply due to several colliding factors, including spikes in demand for electronic products and supply chain difficulties during the pandemic. In recent decades foreign governments have increasingly incentivized chip production while the U.S. government sat on the sidelines, creating a vulnerable reliance on foreign manufacturers. Today, only 2% of global memory is manufactured in the U.S., and all of that is produced by Micron Technology. Eighty-five percent of the world’s $555.9 billion chip market is made in just three countries with low-cost manufacturing facilities: China, South Korea, and Taiwan.

“That’s a dangerous imbalance,” said Atkinson. “Why should the U.S. risk this level of foreign dependence on something as essential as microchips?”

Any disruption from suppliers could severely limit America’s ability to build and maintain secure critical infrastructure and advanced defense systems. “Almost every electronic device and system depends on semiconductor memory,” said Sumit Sadana, Executive Vice President and Chief Business Officer at Micron. “A weak, easily disrupted supply chain creates far-reaching consequences to our economy and national security.”

But that’s exactly what has happened, and it could get worse.

Foreign governments are ramping up spending on semiconductor R&D and accelerating their manufacturing advantage. Chief among them is China, which increased its overall semiconductor output by 33% in 2021. Since 1979, China has used hefty state investments in infrastructure, education, and research, along with technology acquisitions and supportive business policies, to produce incredible economic growth. China’s State Council has set the goal of becoming a global leader in all segments of the semiconductor industry by 2030.

Any major supply chain disruption or intentional blockage could severely limit the U.S.’s ability to build and maintain secure critical infrastructure and advanced defense systems.

“Simply catching up to China is not sufficient,” said Jamil Jaffer, executive director of the National Security Institute as well as an Assistant Professor of Law at the Antonin Scalia Law School at George Mason University. “We need American labs and American companies to develop the next generation of chips. We need to build here and then get ahead. That's going to cost money, time and effort.”

CHIPS and credits

To ensure American security, prosperity and technological leadership, industry leaders say the U.S. must encourage domestic manufacturing of chips in order to reduce our reliance on East Asia producers for crucial electronics components.

Leading-edge memory production requires such ongoing government support “to create and sustain an environment that will enable ambitious expansion of memory and storage manufacturing capabilities in the U.S.,” said Micron CEO Sanjay Mehrotra.

Some advances are being made. In October, the Department of Defense awarded more than $197 million to strengthen the American microelectronics industrial base and help create state-of-the-art facilities to design and build at scale. Through the Rapid Assured Microelectronics Prototypes (RAMP) plans, the DoD hopes to create a reliable and resilient domestic source of chips for its artificial intelligence, 5G communications, quantum computing, and autonomous vehicle needs.

Congress is also trying to incentivize investment in the U.S. semiconductor industry through direct funding and an investment tax credit. The Senate passed the bipartisan U.S. Innovation and Competition Act, which includes $52 billion in funding for chips, last summer. The House passed its version of the legislation — the CHIPS (Creating Helpful Incentives to Produce Semiconductors) for America Act — in February, but the two chambers have yet to agree on a compromise bill.

The CHIPS Act and Investment Tax Credit will help level the playing field for domestic manufacturers and bring many high-paying advanced manufacturing jobs to the U.S. “An American semiconductor manufacturing industry will produce tens of thousands of jobs, high-skilled jobs,” Mehrotra said. “If we don't get this legislation across the finish line, then these jobs will go overseas.”

Micron’s Executive Vice President of Global Operations Manish Bhatia testified before the House Science Committee in December 2021, highlighting the 35-45% cost delta that building and operating a fab in America incurs over lower-cost markets, mainly in Asia. “‘The gap that we have with Asia was not created overnight, it was created over the last 20 years. And while action in the U.S. continues to stall, the rest of the world is moving forward aggressively. The gap is getting bigger, not closing.”

“We must get this done now.”

That transition to building a competitive U.S. semiconductor industry is underway. In June, TSMC started construction at a site in Arizona where it plans to spend $12 billion to build a computer chip factory. The factory remains on track to start volume production of chips using the company's 5-nanometer production technology starting in 2024. In addition, Micron is investing more than $150 billion over the next decade in leading-edge memory manufacturing and R&D.

Experts say that chip shortages are likely to remain into 2024. In the meantime, U,S, technological strength in this area can be reinforced by investing more in basic science and government research at home. And legislation is key.

In the coming weeks before their August recess, U.S. lawmakers are expected to reconcile various versions of legislation that include the CHIPS Act into final form. This is an important part of the multi-step process to turn proposed legislation into law.

Industry leaders say that Congress needs to get the bill to President Joe Biden’s desk quickly. “We must get this done now,” said Mehrotra. “We must have a secure a supply chain here to address national security considerations. We need to get CHIPS and an investment tax credits measure across the finish line.”

Congress' delay in passing these measures could jeopardize a key industry at a critical time. Noted Atkinson: “A failure to support domestic semiconductor manufacturing would place national security at significant risk. This may be the only opportunity we have to turn the situation around and make sure the U.S. has a viable semiconductor industry going forward.”