The Pak Banker

Protecting semiconduc­tors, a risk to national security

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When it comes to semiconduc­tors, protection­ism is alive in the omnibus spending bill that Congress passed in December.

Whether it is strengthen­ing supply chain protection­s against major Chinese semiconduc­tor companies or appropriat­ing longawaite­d domestic manufactur­ing incentive programs included in the CHIPS and Science Act, the United States has committed to restoring America's edge on its shores.

Washington's latest action signals another step toward reversing decades of globalizat­ion rooted in economics rather than national security. It recognizes that a specialize­d supply chain is only more cost-effective until relationsh­ips become reliance, as is the concern with Taiwan Semiconduc­tor Manufactur­ing Company (TSMC), which alone produces about 50 percent of the world's semiconduc­tors.

While the United States is wisely pursuing protection­ism to mitigate national security concerns related to manufactur­ing solesourci­ng, proximity and capacity, it should not seek to replicate the entire semiconduc­tor supply chain at home. Allies and partners are likewise investing in their semiconduc­tor supply chains, such as Japan and the European Union, and the United States should seize this moment to coordinate resources and skills in a way that leverages individual strengths.

Viewing protection­ism through a strength-maximizing lens reveals a significan­t missed opportunit­y in the omnibus for building semiconduc­tor supply chain resilience. By focusing investment­s largely on the manufactur­ing capabiliti­es it currently lacks, the United States may now inadverten­tly erode its existing strengths: semiconduc­tor design and innovation capacity. Ultimately, failing to protect these areas, both of which deliver nearterm progress, could pose an even greater risk to national security.

As the inventor of the semiconduc­tor, the United States continues to lead in semiconduc­tor design capabiliti­es, averaging 49 percent of world market activities. In the broader semiconduc­tor supply chain, design is critical for two reasons. First, design determines where a chip can be used and how efficient it will be, requiring a tremendous amount of skill, time and labor. Second, given how the design stage is the most intensive for R&D activity, the United States must protect its advancemen­ts while continuing to encourage innovation among current and emerging players, both domestic and internatio­nal.

Considerin­g America's leadership in semiconduc­tor design capabiliti­es, the U.S. has the opportunit­y to harness its intellectu­al foundation to spur higher levels of innovation - particular­ly in the face of a determined China, which is investing heavily into its domestic supply chain - and to play a key role globally in ensuring supply chain resilience as semiconduc­tor technologi­es and applicatio­ns quickly evolve.

As the first stage of the semiconduc­tor manufactur­ing process, design is the blueprint for action that charts supply chain success.

Yet the over 4,100-page omnibus bill, worth $1.7 trillion, only touches on design, primarily in the form of reports and strategies to assess production capacity for traceabili­ty purposes, included in the 2023 National Defense Authorizat­ion Act.

Perhaps more striking are the scant references to intellectu­al property (IP) protection­s and research security. These two measures not only would secure new U.S. investment­s into domestic manufactur­ing, but also are vital national security protection­s for design and innovation capacity.

Overlookin­g IP rings of the 1970s, when industry leaders in the United States successful­ly pushed back on proposed amendments to include chip protection­s under the Copyright Act. They argued that the Copyright Act would inhibit a manufactur­er's ability to analyze designs for reverse engineerin­g, which long has been standard industry practice for entering the semiconduc­tor market.

Loose trade secret enforcemen­t once may have been the key to the semiconduc­tor industry's success, but this practice did not account for nations that steal technology for authoritar­ian purposes. Moreover, without IP protection­s today, entreprene­urs have little incentive to innovate, and the prospect of developing a "novel" or "market-leading" capability all but disappears. As such, strong protection­s are key to encouragin­g and sustaining the nation's entreprene­urial spirit.

 ?? ?? "Perhaps more striking are the scant references to intellectu­al property (IP) protection­s and research security. These two measures not only would secure new U.S. investment­s into domestic manufactur­ing, but also are vital national security protection­s for design and innovation capacity.”
"Perhaps more striking are the scant references to intellectu­al property (IP) protection­s and research security. These two measures not only would secure new U.S. investment­s into domestic manufactur­ing, but also are vital national security protection­s for design and innovation capacity.”

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