Analysis | Semiconductor Sovereignty: Strengthening Alliances to Maintain U.S. Technological Leadership
“Recently enacted policies on semiconductors promote America’s ability to stop advanced technology from reaching China, investments in America’s semiconductor manufacturing capabilities, and strategic reshoring of semiconductor supply chains. But if these policies are going to maintain U.S. leadership in global semiconductor technology, policymakers must focus on implementing each of them in coordination with partners in Asia and the European Union.”
Kenneth Gatten III
Background
Over recent years, concerns have risen among U.S. policymakers and Members of Congress over the diminished presence of advanced semiconductor fabrication capacity within the United States, a stark shift from the country’s historical role as a pioneer of semiconductor development and manufacturing through the 1960s and 1970s. This shift can be attributed to the development of semiconductor manufacturing capabilities in Asian markets, particularly as U.S.-based semiconductor companies move their fabrication facilities overseas and concentrate production in East Asia. Currently, U.S. companies lag behind those in Taiwan and South Korea in advanced chip technology, and semiconductors’ foundational role in a wide array of industrial and national security functions has fueled worries about the United States losing its leadership in the semiconductor sector.
China’s state-led efforts to build a vertically integrated semiconductor industry — marked by significant investment and aggressive tactics to acquire advanced chips and intellectual property — pose an existential challenge to U.S. competitiveness in semiconductors. As a matter of grand strategy, China has sought to thwart the status quo of Western dominance in technologies and establish its companies as leaders in the sector, securing the rents of technological leaders and controlling the on-ramping and growth of technology. These developments have prompted U.S. policymakers to adopt policies aimed at safeguarding the country’s semiconductor capabilities against China’s ambition to dominate the global semiconductor industry by 2030.
Three policy areas considered in this article are export controls, domestic investments, and friendshoring. Recently enacted policies on semiconductors promote America’s ability to stop advanced technology from reaching China, investments in America’s semiconductor manufacturing capabilities, and strategic reshoring of semiconductor supply chains. But if these policies are going to maintain U.S. leadership in global semiconductor technology, policymakers must focus on implementing each of them in coordination with partners in Asia and the European Union.
Export Controls
Chiefly enacted by the White House, Treasury Department on Foreign Assets Control, and Commerce Department Bureau of Industry and Security (BIS), U.S. export controls on semiconductors are designed to prevent the export of advanced chips to foreign adversaries. They are intended in part to stymie intellectual property theft, decelerate Beijing’s development of advanced chips, and constrain China’s capacity to build the configurations of chips required to replicate and compete with U.S. advancements in technologies such as AI and cloud computing.
One major development in this space was the February 2023 joint launch of the Disruptive Technology Strike Force by the Departments of Commerce and Justice, with partners at the Federal Bureau of Investigation and Homeland Security Investigations. Enforcing BIS Export Control Regulations to “protect advanced technology from being unlawfully acquired by foreign adversaries,” the Strike Force in its first year charged 14 cases, issued Temporary Denial Orders against 29 entities, and contributed “numerous parties” to Commerce’s Entity List and Treasury’s Specially Designated Nationals and Blocked Persons List. In January 2024, an American was arrested for allegedly running a years-long scheme to export hundreds of thousands of Semiconductors to a sanctioned Russian business, working in part through networks in China to evade export controls.
The massive interagency effort required to gather and share intelligence, detain, and prosecute individuals through the Strike Force is just one example of the shared resolve of top Executive Branch officials to defend American superiority in commercial and military applications of semiconductors.
Domestic Investments
A highlight of U.S. government investments in the domestic semiconductor industry is the CHIPS and Science Act, passed by Congress and signed into law by President Biden in late 2022. The act allocates $39 billion to a “CHIPS for America Fund” to offer financial incentives for the construction, expansion, and outfitting of domestic fabrication facilities and companies within the semiconductor supply chain. It also earmarks $11 billion for semiconductor research and development activities and charges the new National Semiconductor Technology Center (NSTC) to distribute $5 billion to programs that facilitate workforce development, applied research, startup support, and more.
Since the passage of the CHIPS and Science Act, over 50 new semiconductor-related projects and over $210 billion of private investments have been announced across 20 states. Projects include the construction and expansion of manufacturing facilities for various chips, semiconductor equipment, and key material inputs.
Friendshoring
The United States has also vigorously pursued a “friendshoring” policy for its semiconductor supply chain, which — somewhat vaguely — refers to the strategic reshoring of supply chains to trusted countries to lower risks to the U.S. economy and its partners. These partners include countries such as Taiwan, India, Vietnam, Mexico, and European Union member states. One diplomatic mission arising from this policy is the “Fab 4” semiconductor alliance of Taiwan, the United States, Japan, and South Korea.
Interest Group Influence on U.S. Foreign Policy on Semiconductors
Interest groups have played a central role in the formulation of these policies. Comprising industry leaders, federal agencies, and foreign governments, they each compete to shape the options available to U.S. policymakers who are determined to counter China’s rise in semiconductor technology.
In his New York Times bestselling 2022 book Chip Wars, Tufts University Professor Chris Miller devotes a chapter to the critical moment around 2015 when the U.S. government began to appreciate the threat posed by China’s chip subsidies. As Miller states, Intel CEO Brian Krzanich “hobnobbed with U.S. government officials” on behalf of the Semiconductor Industry Association to urge the Obama administration to counter China’s semiconductor subsidies. Testimony provided in the book by unnamed officials corroborates the success of Krzanich’s influence efforts, but as Miller notes, they were largely back-door in nature, with U.S. chipmakers in the difficult position of having to publicly preserve relations with China — the chipmakers’ largest customer and greatest competitor.
Krzanich’s influence campaign did not immediately succeed under the President Barack Obama administration, which offered little more than rhetoric denouncing the anticompetitive practices it alleged were taking hold in China. But as Miller explains, Obama administration officials pressed the issue in briefings of President Trump’s transition team, and it was not long before an executive bureaucracy led by revolving-door experts on semiconductors seized control of the space to transform domestic and foreign policies on the technology. “The government’s trade negotiators saw China’s chip subsidies as a flagrant violation of international agreements,” Miller writes. The Pentagon nervously watched China’s efforts to apply computing power to new weapons systems. The intelligence agencies and the Justice Department discovered further proof of collaboration between the Chinese government and its industrial sectors. The National Security Council abandoned longstanding technology policies, significantly altering America’s approach to China.
Foreign governments, including the European Union, have also tried to influence U.S. foreign policy on semiconductors. This was evident during recent discussions in the U.S.-EU Trade and Technology Council (TTC) meetings in Washington, which the EU used as an opportunity to push coordination on semiconductor industrial policy and prevent a subsidy race. U.S. Commerce Secretary Gina Raimondo and Margrethe Vestager, the European Commission’s Executive Vice President, each issued statements advocating for a joint strategy. “We can’t allow companies to play us off one another,” Vestager stated.
Challenges and Recommendations for Policy Makers
The practical implementation of U.S. policies on domestic investments, friendshoring, and export controls in coordination with international partners present the greatest challenge to safeguarding the country’s semiconductor capabilities against China’s ambitions in the sector.
One example of the obstacles facing investment in domestic semiconductor manufacturing is Taiwan Semiconductor Company’s (TSMC) experience building its Arizona plant, which is set to produce 4-nanometer chips — some of the world’s most advanced. Due to skilled labor shortages and onerous construction regulations, TSMC has had to delay opening the facility until 2027 or 2028. While the NSTC was established to address these labor shortages, it faces a tall order in helping to provide the estimated additional 70,000 to 90,000 fab workers required to ease the shortages and enable the United States to successfully reshore major sections of its semiconductor supply chain.
To avoid supply chain disruptions, friendshoring will also require cultivating and maintaining relationships of trust with partners at a time when internal divisions and distractions abroad have made it difficult for the United States to marshal the human resources and political capital needed to establish a free trade agreement in Asia.
Moreover, as noted in a November 2022 report by the Center for Strategic International Studies, the Bureau of Industry and Security is “in urgent need of a technology upgrade” and “far too reliant upon public internet search engines” compared to other federal agencies and the private sector. Chronic underfunding has left the Bureau of Industry and Security’s technology “in a dreadful state,” hampering its ability to effectively administer and enforce export controls using modern, data-driven digital technologies. As a result, BIS struggles to keep pace with the creation of new Chinese export control evasion networks. More urgent action must be taken to incorporate modern technology into operations, which, among other things, means reconciling Raimondo’s request for a BIS funding increase and objections by the House Foreign Affairs Committee.
Finally, U.S. policymakers must heed Raimondo’s advice to maintain and strengthen relations with the European Union and other allies. A coordinated approach to semiconductor policy, including harmonized regulations and shared objectives, can better secure supply chains in partner nations and advance American technological leadership. This approach should emphasize collaboration in areas such as R&D projects, export controls, manufacturing capacity building, and beyond.
Kenneth Gatten III is an International Trade Specialist at the U.S. International Trade Commission in Washington, D.C., and a recent former intern at the U.S. Department of Commerce Bureau of Industry and Security. He will graduate this month with a Master of Public Policy from The Pennsylvania State University.
This article is solely meant to represent the opinions and research of its author. It is not meant to represent in any way the view of the U.S. International Trade Commission or any of its individual Commissioners or the United States Government.
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