By Stephen Talik
The CHIPS Act
When he signed the CHIPS and Science Act of 2022 in August, United States President Joe Biden greenlit a major investment into the American semiconductor industry. The CHIPS Act puts $52 billion dollars toward boosting semiconductor innovation and production domestically in grants to microchip companies. Representing an unprecedented investment in the area, the legislation signals a growing American awareness of this crucial technology’s importance and the security threats involved with falling behind in its production.
What Are Semiconductors Used For?
Semiconductors are absolutely essential for almost every modern technology. A Congressional Research Service report on semiconductors stated that, “They are fundamental to nearly all modern industrial and national security activities, and they are essential building blocks of other emerging technologies, such as artificial intelligence, autonomous systems, 5G communications, and quantum computing.” Microchips operate everything from PlayStations to fighter jets, power plants to cars, computers to medical equipment, and everything in between. Without semiconductors, industry would grind to a halt, unable to finish products, and this includes both domestic and civilian applications as well as crucial government and military equipment.
The United States has steadily fallen behind in the global semiconductor race, and the CHIPS Act is an attempt to remedy the problem. Most production of microchips takes place in East Asia, which in 2019 produced almost 80% of the world’s semiconductors but is simultaneously located in an area of high risk. South Korea and Taiwan, the latter of which is globally acknowledged as the producer of the highest quality cutting-edge chips in the world, produced 50% of the world’s chips, with Japan and China contributing another 28%. The United States, which once produced over 40% of the world’s supply, is currently at an all-time low of production at 12%. U.S. market share is expected to continue decreasing in the near future as more East Asia facilities open and domestic production moves abroad. This has led to growing concerns about the concentration of production in East Asia and related vulnerability of semiconductor supply chains in the event of a trade dispute or military conflict.
Furthermore, product tampering and intellectual property theft are also constant threats, as China in particular is notorious for stealing intellectual property on a massive scale. Federal Bureau of Investigation Director Christopher Wray noted that “The greatest long-term threat to our nation’s information and intellectual property, and to our economic vitality, is the counterintelligence and economic espionage threat from China.” Four out of every five intellectual property theft cases handled by the U.S. Department of Justice involve allegations of crimes committed by China, with thefts targeting everything from Apple products to manufacturing company Westinghouse Electric Company’s nuclear technology. China’s attempts to bolster their domestic semiconductor industry have succeeded up to this point in large part due to stolen microchip designs and cutting edge technology from the U.S. and Taiwan. This has enabled them to close the gap rapidly, and the production of high end semiconductors near China makes intellectual property theft easier.
At the same time, China is pouring an unprecedented number of resources into boosting its semiconductor production abilities, with the aim of dominating the globe in semiconductor design and production by 2030. China is also purchasing semiconductor capabilities from countries around the world. Over the objections of security and intelligence agencies, both the United Kingdom and Germany have recently sold semiconductor companies to China.
Additionally, if China waged war on its neighbors, the conflict would be a crippling blow to the semiconductor industry, because China, Japan, South Korea, and Taiwan provide most of the world’s chips. China’s intentions of forcefully reunifying with Taiwan are public knowledge, while Japan and South Korea, both close allies to the United States, exist in the shadow of their much larger neighbor, and have a bitter past with China. Russia’s brutal invasion of Ukraine serves as a demonstration of how disruptive such a conflict can be and has redoubled worries about the implications of a war in East Asia. The resulting global economic shocks have also shown the inherent problems of being reliant on an enemy for essential products. As Europe is finding out the hard way, its reliance on Russian energy has hamstrung efforts to stop funding the Russian war machine and has seriously influenced its ability to respond. A scenario where China makes a military play for Taiwan and refuses to send chips to the United States and Europe would disrupt supply chains on a massive scale around the world and cripple industrial production. Any involvement with South Korea and Japan in this case would only exacerbate the problem.
The Impact of the CHIPS Act
Immediately after the passing of the new legislation, several chip manufacturers announced new plans to build major research, fabrication, and production plants within the United States. Micron announced plans for a chip fabrication site in New York which would become the largest ever American semiconductor plant, while Samsung revealed major plans to build 11 factories in Texas. Other companies like TSMC, SkyWater, and Intel have also declared plans to build new facilities in Ohio, Indiana, and Arizona, respectively. Should all of these plans come to fruition, they would represent a major step forward in the American semiconductor industry, providing a crucial injection as the United States scrambles to shore up their future supply of microchips. While the long term results of the CHIPS Act are yet to be seen, the early results seem promising as the U.S. tries to regain their former position in the semiconductor supply chain.