Microelectronics (Formerly Electronics) –
The future of economic and national security competition will be determined by compute power. As Artificial Intelligence (AI) increasingly enables decision-making in business and military systems, the firms and nations that can best leverage compute power to conduct tasks like training AI models, rapidly processing incoming data, and deploying drone swarms will have a competitive advantage. At the heart of this advantage are semiconductors, or chips. Robust access to leading-edge chips is a baseline imperative for both developing and employing advanced technologies. Furthermore—and well outside the most advanced applications—because chips enable virtually every aspect of the modern world, reliable and cost-effective semiconductor supply is critical for national health in any realm. U.S. leadership across the semiconductor environment is thus essential to the nation’s economic strength and dominance in the critical technologies that underpin the deterrence, and competition aims laid out in the U.S. National Security Strategy and National Defense Strategy.
At a foundational level, this means that semiconductors are poised to shape the conduct and results of ongoing strategic competition between the United States and the People’s Republic of China (PRC) over the coming decades. Whether searching for the next biotechnology breakthrough, building a next-generation weapons system, or leveraging digital twins to improve modeling and performance, maximizing semiconductor industry strength and resilience will be critical. That makes chips a quintessential dual-use product as lines blur between military and non-military potential uses. Washington and Beijing are both highly attuned to this fact. Today the semiconductor industry is very publicly at the crosshairs of their competition, as each nation forges a pathway for advantage.
U.S. national security leadership has been clear that it is no longer sufficient to stay a generation or two ahead of the PRC in this area; now, the desire is for as large a lead as possible.2 In line with this guidance, the United States is striving to constrain PRC chipmaking capabilities while attempting its own industrial resurgence, via the 2022 CHIPS and Science Act, after relinquishing leadership in several industry subsets over the preceding decades. However, the United States faces a significant challenge, one that is less difficult for the PRC to navigate within its authoritarian system. The varying priorities of those seeking to enhance economic efficiency, national security, and business-firm value creation generate competing interests. These three perspectives certainly overlap in the U.S. semiconductor space, but they do not neatly align. Failure to better synchronize these perspectives—along with those of U.S. partners and allies crucial for ensuring chip resilience—will risk further erosion of U.S. competitive advantages and lost opportunities to outpace the PRC.
The key question then is how best to overcome this challenge and improve U.S. semiconductor posture vis-à-vis the PRC. This paper seeks to address this question first by detailing and understanding the strategic environment, to include key trends, industry characteristics, and public sector efforts to date. Next, it analyzes this environment by breaking the larger problem set down into its constituent components, focusing first on assessing ‘offense-oriented’ issues impacting U.S. efforts to strengthen its own posture and then on ‘defense-oriented’ issues regarding U.S. capacity to limit the PRC’s semiconductor prospects. In analyzing each of
these offensive and defensive elements, this paper evaluates whether current approaches are sufficient and where gaps remain. Finally, policy recommendations highlight opportunities to close those gaps in the most sustainable and self-reinforcing manner, recognizing that the American taxpayers will not have an appetite for unending semiconductor-related subsidies.
Overall, the prospects for future U.S. semiconductor strength and resilience are favorable. Certain structural advantages—to include a robust share of the industry’s core intellectual property (IP) and a strong network of partners and allies—will help offset weaknesses like price competitiveness of U.S.-based production and an inability to block every PRC pathway. These structural advantages will not be enough to maintain a persistent advantage in compute power over the PRC without mutually reinforcing investments and smart policy implementation.
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