Last week, President Biden signed the bipartisan CHIPS and Science Act into law, following a long and arduous legislative process. The purpose of the bill is to help protect the semiconductor supply chain from disruption and defend against cyber threats, while encouraging the nation’s semiconductor industrial base and stimulating research and development as well as manpower development for American industry. This is a significant legislative achievement that demonstrates the important link between economic security – and industrial policy, more broadly – ​​and the security of our homeland. By investing in American industry, the United States can become safer.

One of the necessary advances in our strategy to reduce risk to the country has been to focus on changing the technology footprint of US critical infrastructure and supporting supply chains to reduce reliance on against China and other adversaries. Unreliable software and hardware – most of which can be linked to China – creates significant cyber vulnerabilities for the United States; at the same time, the potential loss of availability of critical technology components threatens critical national functions and the interests of communities and businesses.

In recent years, across presidential administrations and congressional majorities, there has been a growing awareness that China is a threat to homeland security. In an excellent 2020 Economic Security Report (https://www.dhs.gov/sites/default/files/publications/final_economic_security_subcommittee_report_1.pdf), the DHS Homeland Security Advisory Council (HSAC) found that “the evidence is overwhelming that China has successfully exploited supply chain vulnerabilities to the detriment of US economic security” and that “encouraging US companies to cut costs by outsourcing their supply chain to China could have a cost…when we need these components the most, an adversarial Chinese government might decide to cut off deliveries. HSAC made a series of recommendations to DHS leadership to address China’s organizational challenge, some of which were adopted. The others must be taken into account.

Reforming DHS and improving its programs, however, is not the primary way to address China’s industrial challenge to our security. Instead, strengthen US industrial policy with economic security and national security in mind. This is especially true when it comes to the semiconductor industry, which is one of the most important sets of technologies for national security and critical infrastructure.

The threat to semiconductors and other microelectronics lies not so much in China’s current position as in what the future may hold. The problem with semiconductors is not that China is currently the main supplier or controls the industry, but rather that the Chinese government has the ability to endanger the industry through its actions toward Taiwan. Any attempt to exert control over Taiwan, whether through direct military action or illegitimate economic aggression, threatens the supply of critical components to the United States.

This is due to the importance of the Taiwanese Semiconductor Management Corporation (TSMC) in the market. Our research at Exiger revealed that TSMC operates the largest foundry in the world and:

• is one of only three manufacturers (along with Samsung and Intel) that can manufacture the most advanced semiconductor chips containing transistors of 10 nanometers (nms) or less;
• accounts for 92% of the world’s most advanced semiconductor manufacturing capacity, as well as 40-65% of revenue in the 28-65nm category, used primarily for cars; and
• is the only chipmaker capable of producing 3nm chip technology, considered the world’s most advanced chip with capabilities to enhance artificial intelligence functionality, an emerging technology applicable to both public and private sectors.

The RAND Corporation recently organized a public-private war game linked to China-Taiwan and the semiconductor industry, which highlighted the lack of good options to remedy the current dependence of the United States on towards the Taiwanese if the Chinese government decided to become aggressive. There would be immediate shortages of national goods and, quite quickly, the risk of lack of availability of high-end chips needed for national security applications and maintaining critical manufacturing capacity. Among the takeaways was the need for additional contingency planning and significant investment in US industry.

The purpose of the CHIPS and Science Act is not to weaken TSMC per se, but rather to diversify the industrial supply base of semiconductors and related materials so that more is produced in the United States and that there are alternative supplies in case of additional pressure. from the Chinese government or other influences in the Asian market. This legislation, of course, will not solve the problem immediately, but, coupled with the Infrastructure Investment and Jobs Act passed last year, Congress and the administration have signaled their understanding that the infrastructure security and resilience can be aligned with economic opportunities.

Building a strong industrial base is a resilience-building measure, and boosting that base through smart incentives is a crucial role for the federal government. This puts the United States on the offensive in our competition with China and sends a strong message to industry that the government is ready to invest in the security of our supply chains.

Added to this message, however, is the need to continue planning for the homeland implications of a China-Taiwan eventuality. Investment is part of the necessary mitigation, but so is increased government and industry awareness of reliance on critical technologies that could be threatened by Chinese aggression. As it is increasingly clear, comprehensive risk management – ​​including identifying opportunities for growth – is necessary to protect America’s interests.