Semiconductor chips are part of every aspect of our modern life, from televisions and coffee makers to smartphones and satellites. Most Americans, however, rarely think about their importance.
Chinese Communist Party Chairman-for-life Xi Jinping thinks about semiconductors every day. He wants to develop China’s chip manufacturing capacity under Beijing’s “Made in China 2025” initiative. China 2025 would establish a new world technology order where China dominates robotics, advanced information technology, aviation, electric vehicles, quantum computing, AI, and autonomous systems, and all of these sectors require lots of semiconductors.
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The supply chain crisis we witnessed during the pandemic caused us to revisit three decades of flawed U.S. policies that resulted in semiconductor manufacturing migrating from America to lower-cost producers in Asia. In 2020, four Asian nations — Taiwan (22%), South Korea (21%), Japan (15%), and China (15%) — accounted for 73% of global semiconductor production. The once-dominant U.S. had only a 12% share. The bipartisan CHIPS Act of 2022 will provide tens of billions of dollars in public support for the revitalization of domestic semiconductor manufacturing, workforce training, and “leap ahead” wireless technology. It is a step in the right direction.
U.S. reliance on Chinese chips from companies such as SMIC, YMTC, and CXMT poses a national security risk to our nation that will only increase if we do not remedy the situation immediately. The idea that “made in China” chips are embedded in U.S. defense and intelligence systems, national critical infrastructure, and government networks is both absurd and, unfortunately, our reality. A single compromised chip in the right place can provide our adversaries with unfettered access to critical platforms.
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Chinese-manufactured chips could be used for espionage, theft, or sabotage by providing a gateway for our adversaries to insert false instructions into a computer and manipulate systems. In today’s network-centric environment, the potential for widespread harm from even a handful of adversary chips is high.
Section 5949 to the James M. Inhofe National Defense Authorization Act for fiscal 2023 represents a serious effort by Congress to address the risks we face from our potentially compromised semiconductor supply chain. The legislation prohibits the U.S. government from procuring or using any parts, products, or services that include semiconductors manufactured by specific Chinese companies that represent security risks. It also bars U.S. government vendors from using parts or products that contain these chips in systems related to national security.
Section 5949 is a step in the right direction, but because of its narrowly drafted language, the NDAA provision leaves most U.S. critical infrastructure vulnerable. Further, it does not cover state and local governments.
The section’s contracting prohibition covers information systems related to intelligence and cryptologic activities, national security, command and control of military forces, and integral parts of weapon systems. The legislation does not affect wide swaths of services performed by companies supporting the federal government that would be of great interest to our adversaries. The bottom line is that it doesn’t cover many critical infrastructure sectors.
Further, unlike the 2019 NDAA, which prohibits recipients of federal grants, loans, loan guarantees, and cooperative agreements from purchasing or using equipment or services from Huawei and ZTE, Section 5949 does not include such a prohibition when it comes to chips made in China.
Consequently, taxpayer funds are being used to install critical infrastructure or purchase equipment containing SMIC, CXMT, and YMTC chips. Thus, key functions from air traffic management to electric power distribution and to public emergency communications are at risk of disruption because they contain Chinese-manufactured chips.
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And both the 2019 and 2023 NDAAs fail to address Other Transaction Authority agreements, which are used to fund research, prototyping, or production and are exempt from the Federal Acquisitions Regulation.
The scope of Section 5949’s contractor “use” restrictions appear to be ambiguous. Fortunately, the Federal Acquisition Security Council can solve this problem by determining what additional functions within companies’ supply chains should be included under Section 5949’s prohibition.
There is no doubt that Section 5949 will help to protect our potentially compromised semiconductor supply chain. But more can be done, and we should not wait for the next NDAA to address the remaining issues.
Fortunately, there is a growing bipartisan consensus that the Chinese Communist Party is a threat to our very way of life. The new House Select Committee under Rep. Mike Gallagher (R-WI) will review the panorama of Chinese threats against America. Our semiconductor supply-chain vulnerabilities should be at the top of the committee’s list.
