The United States is engaged in a technological cold war with China because of our dependence on East Asian semiconductors. Semiconductors power almost everything we touch — cell phones, computers and cars depend on them. Congress has a bill at its fingertips that will spur American microchip manufacturing: the US Innovation and Competition Act. It must pass.
This new cold war revolves around the pursuit of technology that will define the 21st century — principally semiconductors, artificial intelligence and 5G. The United States is not just engaged in economic competition with China, but rather a digital battle to control these technologies. Semiconductors are at the frontline of the war.
Semiconductors are materials that have electrical conductivity between a conductor, such as silicon, and an insulator, such as glass. They are imperative for the production of integrated circuits, or microchips, that power most technology, from washing machines to F-15 fighter jets. As one U.S. senator put it, semiconductors are the “oil of the 21st century.”
The small island nation of Taiwan holds 53% of the globe’s semiconductor market through the Taiwan Semiconductor Manufacturing Company. Some of the world’s largest technology companies, including Apple, rely on the firm to build microchips for their products. The Chinese Communist Party and its leader Xi Jinping, however, believe that Taiwan has always been part of China: Beijing has promised to “reunify” Taiwan with China. Xi Jinping has also increased cross-strait military activity recently, flying a record number of fighter jets through Taiwan airspace last year.
If China takes control of Taiwan, it will weaponize Taiwan’s semiconductor manufacturing capacity for the advancement of authoritarianism around the world. China can use semiconductors to perfect dictatorial practices because of military-civil fusion — a section of the CCP constitution that encourages Chinese companies to share their technology with the government. This poses a grave national security threat to the United States and democracies around the world.
While the CCP has its eyes set on Taiwan, they are also rapidly expanding China's domestic semiconductor production capacity. In 2020, the Chinese semiconductor industry enjoyed a 30.6% annual growth rate, reaching $40 billion in annual sales. This helped China gain 9% of the world’s semiconductor market.
The CCP understands that semiconductors will power the 21st century. The United States needs to demonstrate the same urgency; this starts with the US Innovation and Competition Act.
The US Innovation and Competition Act — or the USICA — helps ensure that semiconductors are made in America. The bill — which passed the US Senate in 2021 by a 68-32 vote — invests more than $200 billion into U.S. technological innovation. At the center of the legislation is $52 billion of funding for the domestic semiconductor industry. Semiconductor plants across the country are already being built, such as the $20 billion Intel plant outside Columbus, Ohio. The USICA will spur more American semiconductor manufacturing — if Congress can settle its political differences regarding the bill.
In February, the House of Representatives passed the COMPETES Act — their own version of the bill. The legislation in both chambers provides incentives for domestic semiconductor manufacturing. House Democrats, however, do not support the harsh language that the USICA directs towards China and the CCP. Unlike its Senate counterpart, the COMPETES Act fails to include specified funding for AI and quantum computing. Both chambers — whose members will go home soon to seek re-election — will need to work out these legislative differences soon. American national security is at stake.
To be sure, the U.S. has gained much from its economic relationship with China. In 2001, China joined the World Trade Organization and became integrated in the global financial system. Ever since then, the United States has enjoyed significant economic growth: China is the U.S’s third-largest export market, supporting two million jobs. American companies earn hundreds of billions of dollars every year from Chinese sales. Decades of economic cooperation complicates efforts to minimize American dependence on Chinese manufacturing.
This technological cold war, therefore, requires fresh thinking. The strategy starts with USICA, which invests in our ability to win the digital war with China. Government investment in semiconductors will signal to the CCP that the United States will not be at the mercy of technology-powered authoritarianism.
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