Semiconductors, the “brains” of modern electronics, power just about everything in our daily lives, from our smart phones to our internet of things (IoT) devices and laptops. Semiconductors are also particularly important to certain industries like auto manufacturing, where new vehicles have computer systems that contain over 100 million lines of code. In the health care industry, high-tech applications like robotic surgery depend on secure, reliable chips. Advanced chips are needed to enable technologies of the future, like quantum computing and artificial intelligence. And most importantly, semiconductors enable the nation’s military capabilities, including transportation, weapons systems, communications, and intelligence gathering capabilities, which make a trusted and secure supply of chips a national security priority.
There is one big problem—there are simply not enough chips. The process of chip manufacturing involves around 700 intricate steps with potentially long lead times. As the COVID-19 pandemic shut down factories and increased demand for products like laptops, the fragility of the supply chain became apparent. For example, 11.3 million automobiles were not produced globally due to the chip shortage in 2021, and an estimated 3 million fewer will be produced in 2022. And while there are some signs that the shortage is easing, many executives expect it to continue into 2023.
This leads to a second problem: The United States only manufactures around 12% (down from 37%) of chips globally, while Asia produces around 75%. TSMC, the world’s largest chip manufacturer located in Taiwan, accounts for around half of the world’s supply. As tensions in that region continue to escalate, a Chinese invasion of Taiwan would have a severe impact on the global economy and on national security.
First, Chinese control over Taiwan’s manufacturing capabilities could dramatically impact the economy. China could, for example, decide to stop supplying certain countries with chips. What would a world without a supply of chips look like? Technology-related sanctions against Russia, for example, have led Russians to resort to harvesting chips from consumer appliances like dishwashers and refrigerators to use in their military equipment.
Second, there are important national security risks. Concerns about the security of foreign-made 5G telecommunications equipment, with potential eavesdropping and availability risks, resulted in national bans of certain Chinese equipment manufacturers. Stealth backdoors that can grant unauthorized access to systems can be inserted into hardware, as was reportedly done by a Chinese manufacturing facility that inserted a tiny chip onto server motherboards. And there are quality and reliability issues as well—according to one report, 40% of Chinese chips sent to Russia are defective.
In August, the CHIPS and Science Act was signed into law, providing $52 billion of incentives, including grants and investment tax credits, to stimulate investment in the domestic semiconductor ecosystem. The Department of Commerce has recently published an initial implementation strategy for the CHIPS funding moving forward. As the implementation begins, it is important that a comprehensive supply chain vision is maintained.
The first thing is to think about the entire end-to-end supply chain. As mentioned above, the lifecycle of a chip is long and complicated. Creating a trusted, secure, end-to-end ecosystem is necessary. For example, printed circuit boards (or PCBs), on which the semiconductors are mounted, can introduce their own vulnerabilities. Other important post-fabrication steps, such as packaging and testing, are areas where the U.S. lacks capacity. A supply chain is only as strong as its weakest link, and manufacturing chips in the U.S. is not an effective risk management strategy if we have to turn around and send them overseas for subsequent lifecycle stages before they can be used. Developing a network of trusted suppliers across the entire lifecycle is an effective way to reduce risk and prevents one from having to rely upon potentially untrusted sources.
Additionally, a comprehensive supply chain strategy would look not only at new, leading-edge chips but also at legacy, trailing-edge chips, which are still used widely. The imbalance between supply and demand has led to counterfeit chips being introduced into the supply chain. Counterfeiting is especially a problem for industries that face obsolescence issues like aerospace and defense, where systems like airplanes are used for decades but chip technologies rapidly advance.
Furthermore, it doesn’t help much to build new facilities if we don’t have skilled workers to operate them. This is why education and workforce development are critical. Universities can play an important role by developing curricula on topics related to hardware security and trust, equipping the next generation with the skills they need for jobs in this important area. Industry and academia can partner to create research consortia that solve practical industry challenges while giving students practical, hands-on learning opportunities.
A strong industrial base, from the sourcing of raw materials to the manufacturing capabilities across the entire lifecycle, is necessary for national security. Yet decades of deindustrialization and offshoring have led to foreign dependence and vulnerabilities in the nation’s supply chain for critical electronic components. Establishing a strong, trusted semiconductor supply chain is imperative not only for the security of our nation but for our lasting economic strength and technological leadership.
