The Chips and Science Act Promises to Make the U.S. China's Greatest Technological Threat

As the largest research and development initiative in United States history, the CHIPS and Science Act of 2022 has the potential to significantly increase American economic independence. Over the past three decades, the U.S has been falling behind Chinese technological advancements due to a decline in the domestic production of semiconductors. The act makes a necessary attempt at competing with China before it monopolizes the microchip industry and threatens national security. It is unique in that it holistically addresses the U.S’s lack of production through not only five and ten year investments in research and construction projects, but also long term educational initiatives that bolster STEM education beginning at the elementary level. This ensures that if U.S dominance in the semiconductor industry attained, it is also maintained for future generations.

The CHIPS and Science Act of 2022 was signed by President Biden on August 9th in an effort to compete with China as the global leader of semiconductor sales and create a more secure supply chain for semiconductor manufacturing. The act was passed 63-33 by the Senate and 243-187 by the House. In total, it invests $280 billion over the next ten years. The majority of its investment is categorized into $55 billion for research, development, and commercialization of new products; $175 billion for STEM education programs; and $25 billion to supply, construct, and offer tax credit to new chip factories. 

Semiconductors are small, electrically conductive chips used in nearly every form of technology, from cars and clean energy to medical devices and smartphones. Most importantly, however, is the role they play in military technology. Semiconductors are vital in the production of satellites, missiles, and surveillance aircrafts. While the United States’ production and research of semiconductors has been in decline since 1990, this shortage has only become apparent in recent years as China’s semiconductor technology has become more advanced. Because semiconductors are the foundation of the military’s intelligence systems and their technology is constantly improving, the US’s lack of resources to keep up with their changing design increases China’s likelihood of completing a successful hack of classified military information. While China only produces about 5% of the world’s semiconductors, they are responsible for 53.7% of global semiconductor sales. China conducts advanced research in chip applications, but  it is unable to produce leading models of semiconductors. Because of this, they source parts from Taiwan, South Korea, and the U.S and assemble the semiconductors in Chinese factories before selling them commercially, though 83.38% of their net profit is lost due to the cost of part imports. The Chinese government plans to address this, however, with goals to reduce the percentage of its profit lost to imports to 70% by 2025 and to continue constructing semiconductor factories. Currently, it owns 8 of 19 factories worldwide, and by 2023 it plans to construct 17 more. 

Seventeen Republican senators voted in favor of the CHIPS Act, proving both parties view China as a pressing threat to national security. Microchip hacking can present in different forms. In one instance, a Chinese group hacked a Taiwanese semiconductor company using what is known as a “skeleton key injector”: the group first compromised a private network, disguised their malware as a Chrome update, then stole intellectual property, source key code used to attain statistical marketing data, software development kits, and chip designs. Five similar attacks  occurred from 2013 to 2019. In another instance, Amazon detected a small microchip in one of their “motherboards”, a circuit board that lies within computers, suspectedly placed by a company with which they collaborated called Elemental Technologies. Investigations later showed Elemental’s servers were present in Department of Defense data centers, CIA drones, and Navy warship networks, and concluded chips had been inserted in factories managed by subcontractors in China.

Currently, domestic firms depend on China as well as Taiwan and South Korea, China’s closest competitors in the chip industry, to source semiconductors; only 12% of the world’s total are made in the U.S today compared to 37% in 1990. Not only has manufacturing decreased, but the U.S is also unable to produce the most advanced form of semiconductors, or those with smaller “transistors”—a component of chips that allows for the most efficient amplification and switching of electrical signals—leaving no option but to outsource materials. One of the main reasons politicians of opposing parties agree the U.S ought to increase its presence in the semiconductor industry is because its worth is predicted to be $1 trillion by 2030 and has potential to generate sizable income.

Yet it is impossible to increase production without addressing the U.S’s labor shortage of both STEM professionals and semiconductor factory employees. In 2015, the U.S set a goal to obtain one million STEM research professionals, but has failed to reach this goal due to its lack of funding of STEM education across all levels. The need for researchers has only increased, especially considering the extensive research initiatives established in the CHIPS Act. Without professionals developing more efficient chip designs, manufacturing will stall and threaten supply chain reliability. 

The CHIPS and Science Act employs both long and short term approaches to combat domestic manufacturing flaws and emerge at the forefront of microchip research and production. While the U.S. is dependent on other nations to manufacture the majority of its semiconductors, it currently exports chips to China because it possesses the leading chip model for smartphones, supercomputers, and similar devices. The Act’s short term solution counters Chinese progress by withdrawing this supply and preventing American companies from exporting materials to China. Its long term strategy is to invest in federal STEM research and education programs over the next ten years. Some of the research programs have the goal of designing new commercial security products to sell to other nations, while some conduct research that will advance artificial intelligence, clean energy, nanotechnology, and quantum computing. The goal of the Act is not to fully isolate the U.S from trade with other countries, but rather to increase national research and production to the point that other leading countries in the industry become equally dependent on our supply of chips as we are on theirs. 

The CHIPS Act allocates about $175 billion to establishing various educational programs for students from elementary to graduate school. The act’s summary states the goal of the elementary programs is to cultivate early interest in STEM fields and provide schools the resources to support STEM learning. To make this possible, the government invested in the National Science Foundation and amended the Department of Energy Research and Innovation Act to authorize programs that encourage collaboration between National Laboratories, teachers in elementary and secondary schools, and professors of higher education. It also encourages students of underrepresented groups to pursue careers that serve the mission of the Office of Science. For undergraduates, the act invests in the creation of STEM workforce and technical training programs, career support, and hands-on research opportunities in community colleges. For graduate students, it requires federal research projects be granted more funding to increase mentorship, increases the number of graduate fellows who receive annual scholarships, and provides supplemental funding to graduate and postgraduate researchers for professional development. Finally, it establishes a new program that trains young professionals in Federal AI.

The act also funds the construction of federal chip plants and offers tax credit to independent entities that build and stock plants: $52.7 billion is allocated toward semiconductor manufacturing, research and development, and workforce development, $24 billion is allocated toward tax credits for chip production, and $3 billion is allocated toward programs that advance wireless supply chains. This final, long-term strategy ensures the manufacturing of semiconductors stays up to speed with the act’s research initiatives and creates an incentive for private investors to support the industry. Private investors are necessary, as even the government’s overall investment of $280 billion is not sufficient to compete with China’s plans to invest $1.4 trillion into semiconductor R&D between 2020 and 2025. 

This $52.7 billion investment in manufacturing, research and development, and workforce development holds much promise for the economy, as issues in manufacturing are the greatest inhibitor of semiconductor production according to the Center for Strategic and International Studies: “the United States is struggling to halt and reverse the loss of its leading capabilities in manufacturing microelectronics. The recent shortage of automotive chips has driven home the damage that the steady erosion of capabilities in chip manufacturing can inflict on the U.S. civilian economy.” In addition to rehabilitating chip manufacturing, the act will create thousands of jobs in research, construction, and production and allow the U.S economy to be more independent. By reducing reliance on other nations to supply materials, errors in communication between foreign providers and instances of semiconductor factories being forced to halt projects due to supply delays and cancellations will lessen. While the U.S does not aim to source the entirety of its semiconductors domestically in order to prevent a national emergency from inhibiting all production, the Act’s goal is to increase the country’s presence in chip trade. This way, the U.S will have greater control over the supply chain and other nations will be held more accountable when communicating and executing shipments.

One example of the detrimental effects of chip supply errors was the car shortage of 2021. Because international commerce was delayed due to COVID, automotive companies around the world did not receive sufficient numbers of chips used to produce cars. Vehicles would sell before entering their respective lots and the number of people opting for car rentals greatly increased. Further, some car companies were forced to change their design to reduce the number of chips involved in production by ridding their designs of features like automatic engines that turn off at stop lights. The issue of unreliability among chip manufacturers is separate from that of Chinese competition, yet the CHIPS act’s prohibition of exporting materials to China can aid the US’s endeavor to become more independent in the industry.

However, ending trade with China alone will not fix all foreign supply chain errors; many of the delays over the past 18 months are attributed to global issues including natural disasters, the Russia-Ukraine War, and the pandemic. Developing economic independence will require the minimization of as many international transactions as possible, for less communication and transportation leaves less room for error and delay. While problems of supply chain security and China’s sales dominance are connected, they must be addressed separately in order to fully rehabilitate domestic production. 

The act’s final expenses go toward funding the defense sector to bolster national security. It directs $2 billion toward the U.S Department of Defense to improve their microelectronic research and better their system of microelectronic researcher training. It directs $500 million to the U.S Department of State and suggests they improve communication and relations with foreign chip suppliers to increase their reliability. Finally, it invests $1.5 billion in the Public Wireless Supply Chain Innovation Fund established under the USA Telecommunications Act of 2020 to improve the supply chain supporting 5G radio access networks, or wireless telecommunications used in phones and other cellular devices. The Center for Strategic and International Studies warns that without these improvements, the U.S would be left vulnerable to “the potential for intellectual property theft, the introduction of counterfeit devices, and the disruption of the far-flung and delicate chip supply chain by natural disasters or geopolitical conflicts.”

Biden's recent executive order revoking citizenship for Americans employed by Chinese technological companies bans American citizens and permanent residents from working at Chinese-owned semiconductor factories without a license. American employees have lost their jobs due to companies like Naura Technology that have proactively asked their American researchers to leave. This has proven to be counterproductive: the government is in desperate need of STEM professionals, yet Chinese-American academic researchers have reported an increase in feeling as though their work environment is hostile. Combined with the CHIPS Act, the Biden administration is enacting the most aggressive effort the U.S has taken against Chinese suppliers, especially considering this order is the first regulation to target people instead of organizations. This has caused a 22% increase in Chinese academics choosing to stop research on behalf of the U.S in 2021 as compared to 2020. The U.S finds it difficult to differentiate between foreign nationals seeking work in the U.S who support American innovation and offer their intellect and foreign government-owned companies aiming to hinder American advancement. Biden’s order fails to make this distinction and, as a result, is causing individuals with the educational and professional background the country desires to decline research opportunities.

Due to the severity of domestic production decline, the short-term solutions outlined in the CHIPS Act are necessary to protect national security. However, its long-term solutions that promise to counter Chinese innovation and reduce dependency on foreign nations possess the risk of wasting substantial investments. The act devotes billions of dollars to strengthening the STEM workforce the U.S has struggled to grow for decades, and it requires independent investors to enter the chip industry in order to have a chance at reaching China’s level of production. If successful, this could advance not only semiconductor manufacturing, but the American technology industry as a whole; if unsuccessful, it would be a devastatingly wasteful use of money. 

The image used in this article is licensed under a Creative Commons Attribution Share-Alike 4.0 International license. The original image was published by Marco Verch and can be found here.