After 9/11, the country took swift action to secure cockpits and improve airport security. Today, we must act with similar urgency to build America’s ability to design and manufacture new microchips—starting with the passage of CHIPS Act.
Despite America’s impressive semiconductor design and innovation advantage, the US is lag in advanced semiconductor manufacturing. USA is doing justice 12 percent of the world chips while 80 percent come from the Indo-Pacific region. In addition, global demand is outpacing supply with chip sales rising to 17 percent from 2019 to 2021. The world’s semiconductor manufacturers responded by making chips of maximum capacity, but the realities of chip manufacturing made those efforts insufficient. Only in 2021 the chip supply shortage costing the US economy $240 billion.
The high-tech weapons and systems that help ensure the superiority of the United States everywhere any area of war depends on the chips. The Javelin anti-tank missile alone, for example, contains more than 200 microelectronic components.
All of this creates irresponsible risks to US national security and to US warfighters. We should know: one of us just stepped down as deputy assistant secretary of defense for industrial policy; the other led the US intelligence community’s assessments of foreign investment in US technology.
The answer is to build more manufacturing capacity in the United States, but it’s not a quick fix. There are new semiconductor manufacturing plants technically complex and require significant capital to sponsor. McKinsey and Company estimates that building a modern factory requires more than three years and $10 billion. Even less advanced fabs come with a hefty price tag: about $5 billion for a 5nm chip fab and $0.17 billion for a 10nm one.
The CHIPS Act will reduce US dependence on foreign semiconductors. The Atlantic Council estimates that with the CHIPS Act, by 2030, U.S. semiconductor manufacturing will account for about 14 percent of global production; without it, the US would fall to ten percent. But that four percent difference is much larger than the numbers suggest because what the US will be producing are the most advanced chips. To that end, the CHIPS Act provides approximately $52 billion to promote domestic semiconductor manufacturing.
This investment will provide the necessary down payment to avoid technological dependence on foreign chipmakers, limit semiconductor price inflation, and enable a competitive U.S. market that benefits from our know-how in designing and manufacturing the most advanced chips , especially those at 14 nanometers and below.
Critics argue that the CHIPS Act would distort the market. It can. Lawmakers should seriously consider how to stimulate local development in market segments and avoid picking corporate winners. America’s economic competitiveness has always come from its ability to harness market power.
But the global semiconductor market is like that already distorted by a network of foreign competitors that undermine the U.S. ability to compete on production costs—by subsidizing almost 30 percent of semiconductor revenue. Beijing has already provided more than $160 billion in subsidies of Chinese chipmakers. Taiwanese chip makers are investing 120 billion dollars; The Republic of Korea waives the 450 billion dollars in tax credits over the next 10 years; and Japan’s subsidies are intended to allow it to triple chip production by 2030. The European Union is also committed 48 billion dollars for chip production to reduce dependence on foreign firms.
The CHIPS Act, which at press time was advancing in the Senate and awaiting action by the House, would renew a critical area of American strength while creating new opportunities with our allies. Japan, South Korea, Germany and Taiwan produce some of the most advanced chips in the world. Dutch lithographic technology it is currently key to producing the smallest chips in any nation. The drive to build global semiconductor resilience is accelerating U.S. efforts to deepen defense industrial cooperation with our allies and partners. Together with our allies, we can strengthen supply chain resilience, develop our sources of economic strength, and ensure our warfighters have reliable advantages on the battlefield.
Jonathan Panikoff is a senior fellow at the Atlantic Council‘s Geoeconomics Center and former Director of the Investment Security Group in the Office of the Director of National Intelligence. Jesse Salazar most recently served in the Biden administration as Deputy Assistant Secretary of Defense for Industrial Policy.