OPINION:
Those who control the semiconductor market will control virtually every aspect of our lives globally, now and in the future. The Chips Act of 2022 does not address the core challenges necessary to enable U.S. dominance in this critical market. Rather, CHIPS wastes taxpayer dollars by creating redundant programs that do nothing to enhance our position.
The U.S. needs to develop and implement a National Chip Strategy that integrates and uses what we have already effectively implemented within the Department of Defense, Department of Commerce and other federal agencies, vice creating more programs in the Department of Commerce. Establishing a competitive and (eventually) dominant position requires a whole of government solution, which will help position the U.S. as a leader of this industry, rendering China and any potential military aggression over Taiwan and others producing chips a lesser threat to the U.S.
The NCS must incorporate many facets, including enhancing domestic sourcing of raw materials (i.e., silica) and creating secure and resilient production lines of chips (3-13 nm). The subsidy component of CHIPS is not enough to deliver the number of chips needed to support U.S. needs, but incentivizing capital markets instead of using tax dollars will.
All core pieces required for an NCS were developed during previous administrations and exist as component parts of the Defense Production Act, the Defense Finance Corp and the Opportunity to Invest Act. CHIPS unnecessarily replicates these exact same capabilities.
We must ramp up the power of the U.S. and allied capital markets, vice use the CHIPS approach to fund grants and loans that are totally insufficient to achieve the required end state for national security.
We need to start sourcing our own raw materials, assist in aggressive private-public capital partnerships to create production facilities and provide tax incentives to U.S. and allied manufacturing companies to buy “our” chips rather than “theirs.”
Finally, we must incorporate and use innovative technology like blockchain within each sector in the NCS to maintain the security of our efforts.
OIA can provide private capital and is structured to incentivize companies by waiving capital gains taxes for an extended period of time. This spreads risk to more stakeholders than just the U.S. taxpayer. We should amend OIA to include workforce housing and special incentives for anything related to the NCS vice accepting the stipulation in CHIPS that provides for a meager Advanced Manufacturing Investment Credit of 25% tax credit for investments in semiconductor manufacturing.
The Department of Defense Trusted Capital Program provides vetted, secure sources of strategic private capital that should be in a blockchain to ensure security and prevent our adversaries from “buying up” any effort we put forth. Additionally, we should use cryptocurrency to fund any of these programs for added security and resiliency.
The Department of Commerce should provide tax credits for firms that purchase and utilize U.S.-produced chips. An important first step is to require all Department of Defense acquisitions to use only U.S. or allied partner chips by 2024, during which time we will continue to build out facilities and supply chains to scale nationally. This guaranteed “buy America” strategy provides private capital investors risk reduction.
China has established a dominant position as the world’s largest supplier of silicon or polysilicon (producing 64% of global market demand), in part, because of the low value it places on the human rights of its workforce and environmental concerns. The NCS should provide incentives to capital markets to partner with institutions to develop cleaner ways to produce products from raw materials like silicon, gallium nitride and gallium arsenide.
Extreme Ultraviolet Lithography Machines are at the heart of chip manufacturing and are made only by Advanced Semiconductor Materials Lithography based in the Netherlands. The backorder for these is measured in years, which underscores the paramount need for a rapid resolution of this single-source quandary.
Some efforts are underway to create an Intel U.S. chip facility but are insufficient. The day CHIPS was passed by the Senate, Intel declared that it missed profit projections for the second quarter and needed government assistance, while concurrently increasing its stockholder payout and stock buyback. CHIPS could give it access to anywhere from $9 to $12 billion, and like all good publicly traded corporations, they will pass that to the stockholders.
CHIPS includes $500 million for the Department of State to support international information and communications technology security for semiconductor supply chain activities, which is redundant to our existing blockchain and supply chain illumination capability. This funding is better spent elsewhere.
Establishing risk criteria (such as level of funding by adversary nations) to determine the permissibility of companies as U.S. semiconductor chip suppliers is a most pressing need. The Federal Acquisition Security Council was established to do this and is challenged to accomplish envisioned results because participating federal agencies are reluctant to assume the risk that another agency might put on a company or product.
CHIPS is considering designating Semiconductor Manufacturing International Corp (China’s largest chipmaker) and an estimated 50-60 other entities as organizations that can and most likely will pose a national threat. Removing these suppliers will create even greater deficits with no acceptable alternative suppliers. We cannot rip out what we cannot replace and must ensure we have a federally mandated risk reduction strategy for these items until we have a trusted supply chain.
Lacking an effective NCS, America’s economy and national security will remain exceptionally vulnerable. We have the necessary elements of our NCS already and successfully implemented them across separate silos of government. We do not need to create new and duplicate programs, but rather integrate and leverage the ones we have into a cohesive strategy supported by associated policy and detailed planning and timelines.
• Katie Arrington is the former chief information security officer for the Department of Defense.
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