Semi-protecting semiconductors poses a risk to national security

When it comes to semiconductors, protectionism is alive in the omnibus spending bill that Congress passed in December. Whether it is strengthening supply chain protections against major Chinese semiconductor companies or appropriating long-awaited domestic manufacturing incentive programs included in the CHIPS and Science Act, the United States has committed to restoring America’s edge on its shores.

Washington’s latest action signals another step toward reversing decades of globalization rooted in economics rather than national security. It recognizes that a specialized supply chain is only more cost-effective until relationships become reliance, as is the concern with Taiwan Semiconductor Manufacturing Company (TSMC), which alone produces about 50 percent of the world’s semiconductors.

While the United States is wisely pursuing protectionism to mitigate national security concerns related to manufacturing sole-sourcing, proximity and capacity, it should not seek to replicate the entire semiconductor supply chain at home. Allies and partners are likewise investing in their semiconductor supply chains, such as Japan and the European Union, and the United States should seize this moment to coordinate resources and skills in a way that leverages individual strengths.

Viewing protectionism through a strength-maximizing lens reveals a significant missed opportunity in the omnibus for building semiconductor supply chain resilience. By focusing investments largely on the manufacturing capabilities it currently lacks, the United States may now inadvertently erode its existing strengths: semiconductor design and innovation capacity. Ultimately, failing to protect these areas, both of which deliver near-term progress, could pose an even greater risk to national security.

As the inventor of the semiconductor, the United States continues to lead in semiconductor design capabilities, averaging 49 percent of world market activities. In the broader semiconductor supply chain, design is critical for two reasons. First, design determines where a chip can be used and how efficient it will be, requiring a tremendous amount of skill, time and labor. Second, given how the design stage is the most intensive for R&D activity, the United States must protect its advancements while continuing to encourage innovation among current and emerging players, both domestic and international. 

Considering America’s leadership in semiconductor design capabilities, the U.S. has the opportunity to harness its intellectual foundation to spur higher levels of innovation — particularly in the face of a determined China, which is investing heavily into its domestic supply chain — and to play a key role globally in ensuring supply chain resilience as semiconductor technologies and applications quickly evolve. As the first stage of the semiconductor manufacturing process, design is the blueprint for action that charts supply chain success. 

Yet the over 4,100-page omnibus bill, worth $1.7 trillion, only touches on design, primarily in the form of reports and strategies to assess production capacity for traceability purposes, included in the 2023 National Defense Authorization Act. 

Perhaps more striking are the scant references to intellectual property (IP) protections and research security. These two measures not only would secure new U.S. investments into domestic manufacturing, but also are vital national security protections for design and innovation capacity.

Overlooking IP rings of the 1970s, when industry leaders in the United States successfully pushed back on proposed amendments to include chip protections under the Copyright Act. They argued that the Copyright Act would inhibit a manufacturer’s ability to analyze designs for reverse engineering, which long has been standard industry practice for entering the semiconductor market. 

Loose trade secret enforcement once may have been the key to the semiconductor industry’s success, but this practice did not account for nations that steal technology for authoritarian purposes. Moreover, without IP protections today, entrepreneurs have little incentive to innovate, and the prospect of developing a “novel” or “market-leading” capability all but disappears. As such, strong protections are key to encouraging and sustaining the nation’s entrepreneurial spirit. 

Fueling innovative ideas also requires investment into, and clear processes for, research security, which enhances market competitiveness and builds the structure and confidence needed for reporting requirements. Despite efforts to address research security nationally and internationally, the lack of prioritization in the omnibus for semiconductor research security leaves investment in R&D activities vulnerable to theft and mishandling. These consequences are acute for design activities because the ensuing manufacturing process is driven by innovative thinking, which is cultivated through research. 

Ultimately, the benefits of strengthening design go beyond the United States. Indeed, it will enable more confident collaboration with international partners who want to participate in the U.S. research ecosystem but hesitate because of  undefined rules, or who want to build trusted and resilient supply chains from the start. 

As the United States makes significant investments in semiconductor manufacturing as a long-term solution, it cannot forgo its existing strengths. The next Congress should work with the White House to prioritize semiconductor design protectionism so that the U.S. can secure its supply chain from idea to application, from now into the future.

Alexandra Seymour is an associate fellow for the Technology and National Security Program at the Center for a New American Security, where her work focuses on issues including artificial intelligence, semiconductors, and defense innovation. Follow her on Twitter @ASeymourDC.