By Al Shaffer and David Schild
In 2017, the Economist declared: “The world’s most valuable resource is no longer oil, but data.” The backbone of this digital economy is microelectronics. From simple switches to sensitive national security systems, today’s world runs on microelectronics. National security systems and every industry vertical making up our critical infrastructure depend on a technology stack comprised of semiconductors, integrated circuit substrates, and printed circuit boards (PCBs). Most of these components were invented and designed here in America but manufacturing was sent offshore chasing cheap labor and hefty government subsidies, primarily in Asia.
We now face the sobering consequences of decades of offshoring microelectronics manufacturing. The U.S. now makes only 13 percent of the world supply of semiconductors, 4 percent of the PCBs and a fraction of a percent of the Integrated circuit substrates. At the same time, while the United States’ ability to manufacture microelectronics contracted, America’s military and critical national infrastructure became more technologically sophisticated – integrating “smart weapons” and complex systems powered by cutting-edge microelectronics.
The $52B ”Chips for America” act was designed to address some of the domestic capacity in microelectronics. Unfortunately, the Act was written in such a way so as to exclude domestic PCB (and substrate) capacity. This puts the United States at a strategic disadvantage. 90 percent of the world’s PCBs are made in Asia: 56 percent in China. This means we rely on nations on the other side of the world for the supply of some components, particularly those designated dual use, and others that creep in undetected in the sometimes opaque layers of long and complicated supply chains. Simply—the Nation is spending $52B to build more semiconductors, only to have to mount these semiconductors on Asian-made PCBs.
Beyond the logistical challenges of shipping microelectronics back and forth across the Pacific, there are two questions of security: Do foreign made PCBs allow foreign entities to control or alter performance of our weapons and critical national infrastructure and can a potential adversary shut off supply. The answer to both question is yes. In July 2023, China imposed a “no export to the United States” policy for Gallium and Germanium. Further, even if available, the microelectronics that power our national security systems and critical infrastructure must be trusted absolutely. Relying on far-flung sources of supply – particularly from peer competitors — raises the risk of bad actors adding unwanted “phone home” and “kill-switch” capabilities that would allow them to interfere with our most sensitive national defense and infrastructure systems. The National Defense Authorization Act addressed the problem by requiring the Pentagon have a plan to eliminate content from China, Russia, Iran, and North Korea by 2027. Three years may sound like a long ways off, but accomplishing what Congress is mandating will be a heavy lift for the Pentagon and a significant pivot for many large Original Equipment Manufacturers (OEMs).
The urgency to act today to prevent an emergency tomorrow was underscored in the recent National Defense Industrial Strategy. The strategy named as a top priority the need to, “Achieve Resilient Supply Chains,” which includes the need to, “continue and expand support for domestic production.” The Pentagon has year after year identified microelectronics as a critical technology needed to outpace the threats facing our country and our allies around the world.
Not all microelectronics require rigorous vetting. Having a long supply chain is fine for the commoditized microelectronics found in dishwashers and thermostats, but it doesn’t work for national defense systems and critical infrastructure. Fortunately, most sensitive microelectronics for the defense industry are made here in America, but the vast majority of the second and third tier suppliers of commercial-off-the-shelf components come from Asia, and over half from China alone.
Our national defense and economic security are at risk because we rely so heavily on adversaries and geopolitical competitors for the technologies that power our military systems. There are ways to reverse the trend that created such a dangerous dependency on other nations.
First, the Department of Defense is taking action by making investments through the Defense Production Act. As a result, a number of companies have announced plans to invest in additional capacity. But more is needed. It will take years for the domestic microelectronics industry to scale up to decrease our reliance on other nations. The Pentagon needs to fully fund the Defense Production Act Investment account year over year to increase domestically sourced microelectronics.
Second, legislative action is needed to support the microelectronics industry. That is why Representatives Blake Moore and Anna Eshoo introduced H.R. 3249, the Protecting Circuit Boards and Substrates (PCBS) Act, which would provide $3 billion for research and development, facilities, and workforce development and a 25 percent tax incentive for companies buying American-made PCBs and substrates. Just as the CHIPS Act funding attracted private investment, the PCBS Act would likewise energize a domestic industry we cannot live without.
We cannot afford to wait any longer to address our dependency on foreign nations at the end of long and vulnerable supply chains. The U.S. needs reliable, secure, and trusted sources for the microelectronics that protect our national and economic security.
Al Shaffer is a former Deputy Under Secretary of Defense for Acquisition and Sustainment
David Schild is Executive Director of the Printed Circuit Board Association of America
The opinions expressed in this article are solely the author’s and do not reflect the opinions and beliefs of the Global Policy Institute.