The CHIPS Act has passed. Now comes the hard work.

ALAN R. SHAFFER, MIKE FRITZE and BOB HUMMEL

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The CHIPS Act has been hailed by supporters as a game-changing piece of legislation in the microelectronics tug-of-war between the US and China. But is it a revolution, or is it just a starting point? In this new op-ed, Alan Shaffer, Mike Fritz and Bob Hummel of the Potomac Institute lay out how much more work there is to do.

On July 28, Congress finally passed the “Creating Helpful Incentives for Producing Semiconductors,” or “CHIPS” Act, also called the “CHIPS & Science Act.” The bill authorizes $280 billion for technology and R&D over five years; of that, $52 billion is allocated to semiconductor production and another $25 billion in corporate tax credits. The $52 billion for semiconductors was appropriated, with $39 billion allocated for increasing domestic manufacturing, and $13 billion for research and development over the next five years. Already, American semiconductor manufacturers are lining up to “get their share of the pie.”

The CHIPS Act is critical, because the United States only produces 12% of worldwide chips, while US semiconductor consumption is estimated at 33%. The United States economic well-being is dependent upon foreign entities (South Korea, China, and Taiwan) making their chips available to American industry. It may seem far-fetched that any country would restrict access to microelectronics, but similar restrictions have happened before. The Organization of Petroleum Exporting Countries (OPEC) embargoed oil to the United States and the west, creating the recession of the early 1970’s. At that time, the US produced 67% of its oil needs, meaning it was less dependent on foreign oil than it currently is on foreign microelectronics. If the phrase “Data is the New Oil” is true, the US economic well-being is critically dependent on a resource of which the United States does not produce enough.

Now, the hard reality. The funding allocated by the Government is barely a down payment. In the last year, South Korea has pledged $450 billion, China $150 billion, and the European Union about $41 billion toward future semiconductor production. More troubling is that a coordinated US investment strategy has not been developed, and too much focus has been given just on fabrication and not other key steps in the process.

The chip must be designed (US is the global leader here), produced as dyes on wafers (US produces 12% of the global wafers), packaged and tested (US has about 5% of global market for package and testing), and then assembled in a system on a printed circuit board (US is less than 5% of this market, China is greater than 50%). If the US focuses only on augmenting its wafer fabrication capacity, without packaging, test and assembly, and other steps, the United States will still be critically dependent upon a product not made domestically. Without a balanced investment, developed by assessing the risk and payoff of each supply chain phase, the United States investment will aid individual companies, but not overall economic or national security.

While seemingly a big investment, the $52 billion in the CHIPS act will only go so far to address what the US would need for all-domestic production. A modern, state of the art foundry can cost $20 billion or more; creating two such facilities could absorb all the manufacturing funds, while still not substantially changing national security, because any existing DoD weapon, platform or system that uses microelectronics would still be vulnerable to malicious actions, given their current production relies on parts likely imported from elsewhere.

We have to consider the risks at all phases and all types of production and reduce risk using the available funds. People often assume that all needs will be served by “state of the art” technology, and that this equates to a small node size. This misses the mark. State of the art silicon chips are largely defined as 5-7nm, but they will make a small percentage of the overall market over the next 10 years. Chips that are “feature rich” can meet most performance needs at 12nm and larger.

The majority, about 70%, of chips currently used in the United States and for the next decade will be between 12–45nm. The great auto constriction of 2021 occurred because of the lack of availability of 45nm chips known as micro-controllers. This shortage resulted in more than $200B loss in worldwide auto sales — a slump expected to last until 2023. Of significance, this is the market that the People’s Republic of China is targeting, and state a goal to dominate this market by 2030. Thus, the US needs to invest heavily in the larger node sizes 12-45nm (and above).

Even with the CHIPS act, the US will not have the capabilities it needs in both package and test and printed circuit board (PCB) construction. Unfortunately, in both of these supply chain stages, a potential adversary can introduce hardware or software elements that could allow them to remotely modify or control the performance of microelectronics. Having a domestic capacity for producing chips without having secure access to package and test and reliable PCB construction means the United States could be harmed by either remote attack, or more likely, serious disruptions to the supply chain. This vulnerability also needs to be addressed.

Without sufficient capacity in each step, the United States faces national and economic security risk. While there are promising approaches to reduce the risk of malicious implants from potential adversaries, these approaches are currently unproven. Further, validation of the integrity of foreign microelectronics only matters if the parts are actually available to the United States. Without domestic capacity in all elements of the supply chain, the United States is vulnerable.

So, how can this problem be addressed? First, the government has to commission a risk-based strategy to identify the cost and value of all aspects of the microelectronics supply chain, and the risk of not having a portion of the chain meeting domestic demand. This would develop an investment priority (step 1). Such a strategy could be done by a short-term commission, or perhaps better, a Public-Private-Partnership.

Second, there needs to be a concerted effort to incentivize domestic production. This includes creating demand by establishing a policy or law that ensures the integrity of microelectronics used in critical national infrastructure (step 2). This means that all microelectronics used in such systems meet production standards to ensure components used would be free of hidden bugs, triggers, back doors and the like. These standards would be established by industry (similar to the auto industry), and would be audited prior to use in critical infrastructure. Critical infrastructure would include, at a minimum: weapons platforms, the electric, power and water grid, the air traffic control network, and banking and health industries. In doing this the nation would build the demand for secure microelectronics.

These two additional steps, along with the money from the CHIPS Act begin the process of restoring the United States microelectronics industry. Not doing so leaves future generations of citizens at national and economic risk, and ensures the United States will continue to wane on the international stage.