By: Lauren Clouser
Semiconductors are a strategic resource vital for the United States’ economic and national security. A sound semiconductor policy will be essential for the new presidential administration. President Trump should install a national strategic semiconductor reserve and ensure the Biden Administration’s outbound investment policies are implemented.
Semiconductors, also called chips, are ubiquitous in American life. They are found in personal electronics, cars, appliances, medical equipment, aircrafts, military equipment, and servers and data centers that support every major industry. Legacy chips account for most global semiconductor production. Advanced chips are used to perform cutting-edge functions and require specialized manufacturing equipment.
The United States experienced significant shortages of chips during COVID-19 due to supply chain disruptions. Because most chip manufacturing and production occurs overseas in Taiwan, South Korea, Japan, and China, the disruptions severely impacted U.S. industry’s access to chips. According to a Commerce Department report, the chip shortage also contributed to the record high inflation seen over the past two years.
As a technology policy analyst, I covered the Biden Administration’s semiconductor policy in response to U.S. supply chain vulnerabilities. In 2022, the Biden Administration signed the CHIPS and Science (“CHIPS”) Act into law. The bill designates $52 billion for rebuilding the U.S. semiconductor manufacturing industry, research and development, subsidies, and tax incentives. This program is meant to secure U.S. access to semiconductors by onshoring some manufacturing and increasing U.S. innovation. Building on the first Trump Administration’s policies, the Biden Administration also implemented export controls to restrict U.S. exports of advanced semiconductors and manufacturing equipment to China. The export controls are meant to prevent China from enhancing its military, intelligence, and surveillance capabilities using U.S. semiconductors.
To secure U.S. access to chips and restrict Chinese military innovation, the new Trump Administration must install a national strategic semiconductor reserve and restrict U.S. outbound investment in the Chinese semiconductor industry.
Coupled with the investments from the CHIPS Act, a national strategic semiconductor reserve can mitigate the effects of another semiconductor shortage. The stockpile should only be accessed in the event of a national emergency or shortage. Pandemics, natural disasters, and geopolitical events can all impact the global chip supply chain. Currently, Taiwan holds 92 percent of the world’s advanced semiconductor manufacturing capacity and is particularly vulnerable to geopolitical risks, most notably a Chinese invasion. If the Taiwanese supply of logic chips—which control operating systems and process data—were disrupted, the price of logic chips to U.S. producers could increase up to 59 percent. This shortage would directly impact nearly all sectors of the U.S. economy including manufacturing, finance, healthcare, and the military.
One foreseeable obstacle to maintaining a chip stockpile is the innovative nature of semiconductors. The technology quickly becomes outdated. Therefore, the reserve should be updated with chip designs most relevant to national security needs (healthcare, military, and manufacturing) every 3 to 5 years or when there is a significant change in design, whichever comes first.
The United States must also restrict investment from U.S. companies into the Chinese semiconductor industry, also known as outbound investment. Allowing American money to fund the development of China’s domestic chip industry is counterproductive to the very export controls the U.S. has put in place to limit China’s access to this technology. Last year, the Biden Administration signed an Executive Order directing the Treasury and Commerce Departments to create a program to restrict outbound investment in sensitive technologies, including the semiconductor industry, for “countries of concern” (i.e., China). In June, the Treasury Department issued proposed regulations to implement the program. The second Trump Administration must continue this work to ensure that U.S. companies are not funding technological advancements for the Chinese military.
Some members of Congress and the finance industry have pushed against an outbound investment program, arguing that it will decrease U.S. competitiveness, lose U.S. market share in China, and decrease foreign investment in the United States. However, Derek Scissors, Senior Fellow at the American Enterprise Institute, argues that “the cost of restricting investment in China is dwarfed by the military and economics risks of boosting Xi [Jinping]. If disclosure [of U.S. investment in China] shows little sensitive investment, potential losses from restrictions are tiny. If dangerous investment is larger, restrictions will pay for themselves many times over in protecting American prosperity, security, and values.”
Two days ago, voters made their voices heard in the presidential and congressional elections. The public has the right to voice their opinion on issues of national and economic security. However, semiconductor policy is technical and complex, and elected officials do not often make such issues a cornerstone of their agenda. Contact your newly elected or re-elected Members of Congress to voice your concern about this issue. After the inauguration, write to the White House to appeal to President Trump to prioritize these goals in his second term.
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