Congress eyes big bucks for tiny computer chips

By John M. Donnelly - CQ-Roll Call

President Joe Biden holds a semiconductor Feb. 24 during his remarks before signing an executive order on the economy in the State Dining Room of the White House in Washington, D.C.

President Joe Biden holds a semiconductor Feb. 24 during his remarks before signing an executive order on the economy in the State Dining Room of the White House in Washington, D.C.

President Joe Biden stood in the White House’s State Dining Room on Feb. 24 and recalled the centuries-old “for want of a nail” proverb — the one about the outsize significance of small things.

For want of that nail, Biden reminded his audience, the horseshoe was lost, followed by the horse, the rider, his message, the battle and ultimately, the kingdom.

The president then held up a tiny semiconductor, a component that is smaller than a postage stamp and that he said contains 8 billion transistors, each of which is 10,000 times thinner than a single human hair.

That chip, he said, is a “21st-century horseshoe nail.”

Biden was talking about semiconductors because a recent shortage of them, due partly to a pandemic-driven surge in computer usage, has triggered an economic crisis in some sectors. Automakers, in particular, having been unable to build thousands of digitized vehicles, have temporarily laid off workers and lost billions of dollars in earnings.

The chip shortage comes on the heels of another supply chain disaster: the struggle in recent months to get protective gear and medical supplies — not to mention products such as toilet paper — from overseas markets, including China. The bitter memory is still fresh of U.S. medical workers reusing masks or covering themselves in trash bags in emergency rooms.

These events have cast in bold relief two facts: the indispensable role semiconductors play in modern life, and the risks of over-reliance on overseas supplies of the most critical products for economic security and defense.

The risk is especially acute, experts say, when the dependence is on companies either based in China or close enough to China for Beijing to imperil or coerce them.

“If a potential adversary bests the United States in semiconductors over the long term or suddenly cuts off U.S. access to cutting-edge chips entirely, it could gain the upper hand in every domain of warfare,” the National Security Commission on Artificial Intelligence concluded in a recent report that described China as the country’s “principal strategic competitor.”

As bad as the coronavirus-induced disruptions to semiconductor supply lines have been, the future could hold even bigger problems if reliance on overseas chip fabrication plants is not changed, many observers worry. The next disruption could be caused by another pandemic, a natural disaster, a trade dispute or a shooting war, they say.

“In some ways, the auto chip shortage is the canary in the coal mine,” Tarun Chhabra, the National Security Council’s senior director for technology and national security, said in an interview.

Economic, security lifeblood

Besides energy, semiconductors are arguably the most important category of products in the world, and their significance will only grow. They are the red blood cells of the global economy’s circulatory system — tiny carriers of its lifeblood.

They are vital, too, for America’s national security. The military’s most advanced weapons and computers, as well as more pedestrian products like Army trucks, are increasingly digital. And cyberspace is a domain of ongoing and future strife.

The struggle for domination of the chip market, pitting America and its allies against China (and to some extent, America against its own allies) is a key subplot in the burgeoning battle for global supremacy between Beijing and Washington. It is a contest with huge implications, playing out on the smallest of scales, on objects with features not much larger than a single molecule.

While American companies still lead the world in designing chips, they are now just minor players in producing them, and so the United States is at the mercy of vulnerable choke points in Asia.

U.S. reliance on foreign-made computer chips “is a national security problem writ large,” said Frank Kendall, a former Pentagon acquisitions chief.

Washington is poised to spend a lot of money, perhaps $37 billion just for starters, to address the problem. But some say America may be too far behind to catch up. And the federal money will only help if it is accompanied by an implementation strategy that is so far incomplete, experts said.

Lastly, semiconductor security is only partly about access to the chips. It is also about ensuring they are trustworthy, and a system for monitoring that is still embryonic.

The near-term issue, though, is the upcoming congressional debate over whether and how to find the $37 billion that some say is a necessary down payment to reinvigorate U.S. chip manufacturing. It would be a massive bonanza, with scores of thousands of jobs in play, and one virtually every member of Congress will want some piece of.

“I think a substantial amount of money will be appropriated in one bill or another this year,” said Michael Fritze, director of microelectronics policy at the Potomac Institute for Policy Studies, a research center. “There are a few issues that both parties agree on, and this is one of them.”

Peter Harrell, the director for international economics and competitiveness on Biden’s NSC, told CQ Roll Call the issue is front and center for the White House.

“This is a high-priority item for us,” Harrell said.


The U.S. share of the global chip production market has plummeted from 37 percent in 1990 to 12 percent today, and the free fall is not over, according to industry estimates. Companies in Taiwan and South Korea are the world leaders in volume and sophistication of what they produce in fabrication facilities, or fabs. China is already ahead of the United States in production market share (15 percent to 12 percent) and is looking to widen its lead on America and close in on South Korea and Taiwan.

China has announced a goal of dominating the world chip manufacturing market by 2030. It will not get there, but it is making headway and will spend the equivalent of about $150 billion in the process, according to a recent Center for Strategic and International Studies report.

The United States will soon buy roughly 90 percent of its high-volume, advanced chips from countries in East Asia. Almost half the world’s advanced semiconductors, and all the world’s iPhone chips, are made by the Taiwan Semiconductor Manufacturing Co. TSMC’s chips are largely fabricated in its home country, which U.S. military commanders said this month is increasingly at risk of Chinese attack within the decade.

The world’s second biggest maker of high-end chips is South Korea-based Samsung, whose primary facilities are not far from the border with unpredictable and heavily armed North Korea.

Arkansas Republican Tom Cotton said at a Senate Armed Services Committee hearing in February that chip makers in Taiwan and South Korea are both “within striking range of mainland China.”

“This is not a vulnerability that the American people can continue to permit,” he added.

At the same hearing, former Google CEO Eric Schmidt, who chaired the artificial intelligence commission, said TSMC’s chips are popular for a simple reason. “They’re just faster, better, et cetera,” he said.

They are also heavily subsidized, with tax incentives in those countries of up to 30 percent, more than double the United States’, domestic semiconductor industry executives say. A growing consensus in Congress favors increasing the U.S. refundable tax credits to up to 40 percent, which could mean billions of dollars in write-offs.

China is also accessing the most cutting-edge chips off the commercial market in ways that the Pentagon, which still relies on dedicated foundries for specialized defense chips, is not, experts said.

“China is buying chips that are state-of-the-art,” said Mark Lewis, a former top Pentagon civilian who now runs the Emerging Technologies Institute at the National Defense Industrial Association. “They’re buying chips that are one or two generations more advanced than the stuff that we’re buying for our most protected defense applications.”

President Joe Biden holds a semiconductor Feb. 24 during his remarks before signing an executive order on the economy in the State Dining Room of the White House in Washington, D.C. Joe Biden holds a semiconductor Feb. 24 during his remarks before signing an executive order on the economy in the State Dining Room of the White House in Washington, D.C.

By John M. Donnelly

CQ-Roll Call

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