Event Recap: "Ante Up: Going All In on the Global Chips Race"

On December 7, Silverado Policy Accelerator hosted "Ante Up: Going All In on the Global Chips Race," a virtual discussion about the economic and national security considerations driving the U.S.'s strategy on semiconductors. The discussion was moderated by Silverado's Co-Founder and Executive Chairman Dmitri Alperovitch and featured Congressmen Ro Khanna (D-CA) and Mike Gallagher (R-WI), the Cyberspace Solarium Commission's Mark Montgomery, and Silverado's Executive Director Sarah Stewart.

Find a full recap of the event below, with key takeaways quotations from the panelists. A full recording of the event is available here.

Issue #1: Supply Chain Diversification

Key Takeaway: The current concentration of semiconductor production in East Asia poses major national security risks for the United States.

• Rep. Gallagher: “I view ensuring access to semiconductors as a matter of national sovereignty at this point because, without them, any country could functionally be held hostage. Certainly, the Chinese understand this right now, and if we don’t move forward with legislation like [USICA], I fear that we are going to be in a very precarious position, particularly as it pertains to a potential conflict over Taiwan.”

Key Takeaway: The U.S. needs to invest in its domestic semiconductor industry and work with allies to diversify the allied supply chain away from East Asia.

• Rep. Khanna: “Ally shoring is a critical part of our strategy. We want our critical supply chains to be in the U.S., the parts that are most critical, but we ought to be working with allies.”
• Rep. Gallagher: “If there’s a conflict over Taiwan, Las Vegas rules do not apply. What happens in the Taiwan Strait will not stay there. It will inevitably impact sea lanes, trade throughout the region and disrupt the flow of semiconductors from Korea, in particular. Prudence demands we can’t afford this level of geographic concentration in the backyard of our primary adversary, and the only answer is to invest in dispersed semiconductor production, as well as to elevate this issue in a variety of international fora.”

Key Takeaway: As the U.S. works to resolve the ongoing shortage of semiconductors, it should use this opportunity to take an in-depth look at its current supply chain vulnerabilities. Now is an opportune moment for the U.S. government to identify key vulnerabilities and invest in addressing those vulnerabilities.

• Mark Montgomery: “[The U.S. should] work with allies to map supply chains and all the single points of failure; we don’t yet have that shared understanding of how fragile and vulnerable the supply chain is.”

Issue #2: Domestic Investment

Key Takeaway: U.S. The Innovation and Competition Act (USICA)—which includes $52 billion for investments in the U.S. semiconductor industry—is expected to pass the House in January.

• Rep. Khanna: “[USICA] has passed the Senate. Candidly it should have passed the House a while back. We finally have a commitment to get it out of the House in January, and then it will go to Conference. So, I’m confident that it will eventually pass.”

Key Takeaway: “Industrial strategy” shouldn’t always be a dirty term, and in the case of semiconductors, the U.S. needs some sort of industrial policy to compete with China’s unfair trade and industrial practices.

• Mark Montgomery: “The U.S. has done lots of our own brand of industrial policy in the past, especially when it implicates national security... Think of the Tennessee Valley Authority; you can think about how we fought and won World War II with the big automotive companies in Michigan, the radio corporation of America in World War I, and more recently, Semitech in the 1990s.”

Key Takeaway: The Commerce Department will need access to high-quality data to strategically and efficiently allocate resources from USICA and understand the most vulnerable aspects of the supply chain.

• Sarah Stewart: “On manpower and expertise, when we think about the enormous task of programming out over $50 billion over the coming years, it’s really important that the agencies responsible have the human and technical resources that they need to do it. … As Commerce determines which projects make the most sense, they have to have the most up-to-date data on various segments of the supply chain, ensuring the government and public have the data to determine where we are going.”

Key Takeaway: USICA needs robust guardrails to ensure that federal investments in the U.S. semiconductor industry don’t leak out its back door and give America’s competitors—especially China—an unfair advantage.

• Rep. Khanna: “I support strong guardrails. I don’t think U.S. taxpayer investment should be going to something that’s going to help strengthen China’s competitiveness or, frankly, any other nation’s competitiveness. That’s U.S. taxpayer-funded dollars that should be used for the development of technology in advanced manufacturing in the United States.”
• Rep Gallagher: “With the current lack of outbound controls, U.S. policy is now in the contradictory position of providing federal funding for semiconductor innovation at home, while then freely allowing Americans to contribute to semiconductor innovation in China. I think that is self-defeating.”

Issue #3: Competition with China

Key Takeaway: The U.S. currently outcompetes China in innovation, with the U.S. leading in I.P. and semiconductor design. But the U.S. would benefit from greater protection against I.P. and trade secret theft.

• Rep. Khanna: “We have a healthy relationship in our country between the private sector, government agencies, defense, and academia. I would argue China does not. For anyone that thinks China is going to outstrip the U.S. in competition on innovation, I have one question: Where is Jack Ma?”
• Rep. Khanna: “The president should announce a Manhattan Project on cybersecurity … I’m confident that our most sensitive technology is quite protected, but our biggest vulnerability is in our vast private sector and critical infrastructure.

Key Takeaway: The U.S. should coordinate closely with allies on export controls and foreign investment reviews for key semiconductor technology.

• Rep. Khanna: “We have export controls currently on a place where we lead, which is the actual tools that are necessary to make semiconductor tools … My understanding is we don’t currently have the sufficient export controls on software going to China . . . and I think the United States ought to make sure that any of the tools that we have that are indispensable for the chip production process [aren’t] going to China.”
• Sarah Stewart: “We need to be coordinating with our allies and strategic partners on nefarious, unfair, and often illegal practices like I.P. theft, forced technology transfer, and other matters because this is a long-term issue we have before us.”

Key Takeaway: Competition on rare earth minerals deserves more attention. China currently produces 10-time more silicon—a critical mineral in semiconductor manufacturing—than the U.S.

• Mark Montgomery: “Over the past two decades, [China has] mobilized state-owned and state-influenced companies to grab a dominant position in some markets for these technologies.”