Race for semiconductor supremacy: China vs. emerging democratic technology alliance

Center for the Study of the Presidency and Congress organized a conference today on the launch of the report on the race for semiconductor supremacy: China vs. an emerging democratic technology alliance.

United States and China are locked in a battle for semiconductor supremacy. The implications for the outcome are not just economic. USA’s national security is also at stake, as semiconductors provide the backbone of military weapons systems and communications platforms, making semiconductors a critical national security commodity.

Glenn Nye, President and CEO, CSPC, introduced the participants: Andy Keiser, Principal, Navigators Global, and Senior Advisor, Center for the Study of the Presidency and Congress, and Michael Lumpkin, former US Navy SEAL, and former Special Envoy, US State Department’s Global Engagement Center. Dan Mahafee, Senior VP, National Security, Political Strategy & Analysis, CSPC, was the moderator.

Andy Keiser said there is work being done on geo-technology issues. China uses this technology to their own advantage. We are currently in a situation where there is the idling of about 20 automotive plants due to shortage of chips. We have now begun to think of semiconductors as a national commodity. Having to rely on an adversary for critical supply chains is not a great place to be for any power. The issue comes to light due to all of these developments.

In the last 30-40 years, semiconductors moved from West to East. Almost 70 percent of semiconductor manufacturing is done in Taiwan and South Korea. US provides 12 percent of the global chips. The world looks at supply chains, and so do the adversaries. China has made some state mandates such as ‘Made in China 2025’. China could be the world’s leading semiconductor maker by 2030. There is an emerging democratic technology alliance to counter all that. We also cannot allow Huawei to dominate the telecom market.

There are companies in China, such as SMIC. It has ties with Chinese military and CCP. They make high-end processing chips. Another is HiSilicon that makes chips for Huawei. So is YMTC, making advanced memory, which has ties with the Chinese Communist Party. Yet another is CXMT, taking direct aim at the DRAM market as per the direction of CCP leadership’s division of labor.

How do we counter all this? TSMC can’t build fabs fast enough in Taiwan. It has plans for a fab in Arizona, USA. Intel will also build a fab in Arizona. In Japan, there is a signal for making semiconductors a top priority. Europe has put in resources to secure their own chip production. Intel has plans for two plants in Europe worth $95 million. India has put out statement that they are working on securing semiconductor supply chain. We are recommending that YMTC and CXMT are also added to the entity list, along with SMIC and HiSilicon. We also encourage a multilateral democratic alliance.

Trojans in chips!
Michael Lumpkin said there are many semiconductor chips being built. Trojans can be installed into semiconductors during manufacturing that can make them behave erratically. The consequences are enormous. They are so integral to the manufacturer that we never know what we are getting. We do know that counterfeits are already in the supply system. We do not know how vulnerable we are. However, we recognize the problem, and need to figure out what we need to do.

So, how do we address the semiconductor issue? Lumpkin said there is a policy issue. At times, we need to take baby steps. It is near impossible to discuss how complex this issue is. We cannot solve this in a 30-second discussion. If you look at numbers, there is a conflict between China and Taiwan, and that can impact USA and its allies. He believes in increasing ties and dialogs with other allies. Keiser added that we need to diversify the reliance on the supply chain. We can stand up for a democratic ally like Taiwan. We can help Taiwan take potential steps. There is an Intel plant also going into the UK.

Chips Act helps!
What are the key US strengths in IP that we should be protecting? Keiser said the thickness of wafers is one area. South Korea and Taiwan are currently ahead of China technologically, but the gap is closing. Huawei’s growth was huge, and it was also going to swallow up competition. There is unlimited state financing, as well. Huawei has 64 percent of the Chinese telecom market. The Chips Act helped USA get in the game. It gives the US innovation a fighting chance. Lumpkin added China can spend everything they can. We want to secure our supply chain. We have to react accordingly.

The personnel side of things — education, attracting talent, is also important. Lumpkin said H1B visa exists for a reason. We have talent to work on high-end problem sets. He would love to focus on education in the USA, as well. Keiser added we need more STEM workers. We need to get our children more interested.

And, what about the policy toolbox and export controls? Aerospace has many components made overseas. How do you use export controls so that we don’t put American companies behind? Keiser said we need to anticipate, and make it right. We have an interest in multilateral export regime. There is no way we can shut off access to most critical technology for our adversaries. Today, China has taken the innovation and technology, and sometimes used that against us. Lot of security watchers want us to get this right.

There were proposals for semiconductors and telecoms. Should USA be investing in the Nokias and Ericssons? Lumpkin said we need to consider all options. We can nationalize semiconductors. However, we need to be creative in how we solve problems, as this will only get more complex. We need to do some hard analysis. Keiser noted we should protect the pathway for companies to innovate. Unless we do that, we will fall into China’s trap.

Build partnerships
How do we build partnerships with the developing world? Lumpkin said we can work with nations that do not have enough or no STEM folks. We need to find the right balance. We can look for simple answers to complex problems. We are looking at layered approaches to get things done. Keiser said we need to look at countries like India and Vietnam.

What could the future chip supply chain look like? Lumpkin said we also need to do diagnostics on semiconductor chips. That addressed some issues in the past. We achieved that with secure foundries. We need to have sensors to check there are no trojans inside. Keiser added CISOs have the potential to protect networks. With Covid-19, we have seen CISOs doing that much more. A couple of disruptions, and we may see semiconductors rising to the same level.

Keiser added data is the new oil. Now, semiconductors is the new oil. National security apparatus relies on them. The interest is very high, and the Center has done lot of work. 12 months from now, we can have a new set of issues to discuss. Lumpkin said the industry should be incentivized to do certain things.