A U.S. National Semiconductor Strategy Must Include Export Controls

Between the chip shortages that have plagued countries around the world during the pandemic, China’s designs on conquering Taiwan (where 90% of the world’s most advanced chips are produced), and the CHIPS Act being developed in the U.S. Congress, both policymakers and ordinary citizens alike are putting a new focus on ensuring a stable supply of semiconductors.

Two new think tank papers raise the idea of national semiconductor strategies. The first, from the UK’s Policy Exchange, is ambivalent on the need for a UK national strategy, noting that “the UK semiconductor industry is part of a globally interdependent production system in which no country, even one as large as the US, can hope to be self-sufficient.”

Nonetheless, the Policy Exchange paper does a good service by highlighting the risks involved with the potential Chinese acquisition of a British chip production facility called the Newport Wafer Fab (NWF). Right now the British government is deciding whether to let a Dutch firm controlled by China, Nexperia, to purchase the fab. The Policy Exchange paper clearly defines the risks of such a deal:

  1. Chinese ownership of two of the country’s main wafer fabrication plants, Newport and Manchester, will make the UK a less trusted partner in the eyes of countries with which the UK needs to cooperate in handling supply chain issues…
  2. The defense-related technologies on which NWF has been working will pass into the hands of a hostile power…
  3. There is a strong possibility that when Wingtech’s Shanghai plant reaches full capacity the company might close Newport and shift production to China, thus supporting China’s drive to reduce semiconductor imports.

The China-related dangers inherent in the Newport takeover are universally applicable. These are all risk factors to consider when countries and companies entertain letting China-linked actors participate in their technological ecosystems, including the semiconductor sector.

What about the U.S.? A second paper by Owen Daniels and Will Hunt at Georgetown University’s Center for Security and Emerging Technology recognizes the potential for China to supplant the U.S. as the world leader in leading-edge semiconductor production:

“The United States and several allies and partners presently enjoy an advantage over China in collectively producing the advanced semiconductors necessary for artificial intelligence (AI) and other leading-edge computing technologies… Yet the complexities of the global semiconductor industry do not guarantee a future edge for the United States and other democratic chipmaking leaders amid strategic competition with China.”

What are the pillars of a national strategy to maintain American superiority? Besides calling for a reshoring effort to boost chip production inside the U.S., the CSET paper notably recommends that “protecting the U.S. SME advantage entails preventing China from producing leading-edge chips.”

Daniels and Hunt note, “Protect’ policies should aim to maintain China’s dependence on foreign imports at the chokepoints mentioned above through export controls on software, advanced materials like photomasks and photoresists, and advanced SME, particularly extreme ultraviolet (EUV) photolithography and argon fluoride (ArF) immersion photolithography tools.”

With a solid new leader in Alan Estevez in place, the Commerce Department’s Bureau of Industry and Security has the opportunity to implement new export controls that will restrict Chinese access to sensitive American technologies which Chinese semiconductor firms linked to the Chinese military like YMTC depend on. A sound national semiconductor strategy would nip China’s dangerous national semiconductor ambitions in the bud now before the problem becomes unmanageable later.

See more of Will Hunt’s analysis on the Chinese semiconductor industry and YMTC in this conversation with Roslyn Layton of China Tech Treat.