Microelectronics: –
Semiconductors are ubiquitous across the electronics industry and represent the keystone of the digital age. The global market for semiconductors was valued at $600 billion in 2021 and is expected to grow to $1 trillion by 2030. The United States owns 47% of the semiconductor market but is lagging in critical areas and its lead is deteriorating. The U.S. has passively observed the migration of semiconductor manufacturing capacity to China and other parts of Asia over the past 30 years. Government investment into R&D is not keeping pace with other nations, creating a risk to innovation, the lifeblood of the United States’ historical competitive edge. America can remain complacent no longer. The U.S. and its allies must remain in the lead of the semiconductor industry to protect national security, ensure economic prosperity, and maintain rules-based world order.
Semiconductors present a wicked problem for the United States leadership. The globally integrated semiconductor ecosystem has created economic efficiency but has become a critical vulnerability and threat to national security. Dependence on semiconductor chips sourced from competitors, such as China, has the potential for counterfeits and compromise of critical systems such as military weapons and critical infrastructure. Decoupling from nations whose values do not align with the U.S. remains challenging due to market forces or a lack of viable alternatives.
The COVID-19 pandemic exposed vulnerabilities to the global supply chain and created a shortage of semiconductor chips across other industries. Governments and industries are working to expand capacity to meet the growing demand for chips, but geopolitical dynamics and other natural disasters continue to disrupt supply chains. Three interrelated dynamics drive the inability to establish a reliable, secure supply of semiconductors: first, the rising dominance of China in the semiconductor ecosystem and its geopolitical assertiveness, second, the geographic dispersion of the value chain throughout the global ecosystem, and third, the shallow value chain.
This paper uses Porter’s Diamond Model to analyze U.S. national competitiveness in the semiconductor market. The U.S. semiconductor ecosystem has critical shortfalls in all four model points (firm strategy, structure, and rivalry; related supporting industries; demand conditions; and factor conditions). Major issues fall into the categories of human resourcing shortfalls, deficiencies in R&D to spur innovation, and enforcement of international trade policies.
Deterioration of the U.S. semiconductor competitiveness has garnered enough attention for the government to respond. The Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act was enacted in FY21, yet remains unfunded. Industry, academia, and government agencies continue to analyze the problem and provide key recommendations. Still, no agency or government leader has emerged to align numerous stakeholders and created a cohesive strategy. Over a decade has passed since the U.S. first identified this wicked problem. The United States and its partners must act to protect global markets and national security interests or risk losing the technical edge in semiconductors to China.
This paper recommends establishing a governing organization to lead efforts to bolster the nation’s semiconductor related security posture, build alliances and partnerships to ensure resiliency, and reinvigorate the global rules-based order. Additionally, this paper recommends short-term solutions and refinements to current policy actions to resolve DoD and national security requirements.
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