U.S. Faces Security ‘Crisis’ on Chips, Commerce Secretary Says

(Bloomberg) --

The U.S. faces a national security “crisis” due to its lack of semiconductor production, Commerce Secretary Gina Raimondo told senators in a hearing on President Joe Biden’s infrastructure plan.

“It is not an exaggeration to say at the moment that we have a crisis in our supply chain,” Raimondo said Tuesday, calling the production deficiencies “a national security risk and an economic security risk.”

The U.S. is entirely reliant on China and Taiwan for semiconductors, Raimondo told members of the Senate Appropriations Committee.

Biden’s $2.25 trillion infrastructure proposal calls for $50 billion for the National Science Foundation to create a technology directorate that would focus on semiconductor manufacturing, among other things.

The global semiconductor shortage has hit industries from automakers to consumer electronics, and Taiwan’s largest company, Taiwan Semiconductor Manufacturing Co., warned last week that it may extend into next year.

The U.S. still leads the world in chip design, but manufacturing has largely been ceded to foreign firms. The U.S. share of semiconductor manufacturing has dropped to 12%, according to a September 2020 report by the Semiconductor Industry Association and the Boston Consulting Group, compared with 37% in 1990.

Semiconductor shortages in the automotive industry that have forced slowdowns at car manufacturing plants should make U.S. companies realize how vulnerable their supply chains are, Mike Orlando, acting director of the National Counterintelligence and Security Center, told a conference on Tuesday.

“The global semiconductor supply chain runs through many countries, including adversarial nations that can control or restrict access in critical times,” Orlando said at the event hosted by the Intelligence and National Security Alliance and the Semiconductor Industry Association. “Unless the U.S. maintains access to trusted, state-of-the-art microelectronics, China will likely surpass America in transformative technologies. We surely cannot let that happen.”

China and Russia pose the biggest threats when it comes to compromising supply chains through hacking attacks and other tactics, Orlando said. He said U.S. companies should prioritize security, diversity and transparency in their supply chains, and determine if critical components can be made in America.

“Companies need to have a counterintelligence mindset,” Orlando said.

“It is not about bringing everything back to the United States,” he said. “It’s really about diversity and having alternatives. Some of that is about having conversations with our trusted overseas partners so that if there’s an earthquake in Japan and we’re disrupted we can pivot to other areas.”

Addressing the supply chain issues affecting chip manufacturing has bipartisan support in Congress. Senate Majority Leader Chuck Schumer, a Democrat, and Republican Todd Young of Indiana plan to introduce legislation, called the Endless Frontier Act, on Tuesday that would provide $100 billion over five years to boost research and development in the U.S.

Measures in the infrastructure bill won’t simply be a subsidy to profitable companies, and will instead require them “to have skin in the game,” Raimondo said.

Senate Appropriations Vice Chairman Richard Shelby, an Alabama Republican, said he’s skeptical about “massive subsidies” to compete with China on semiconductor production at the expense of taxpayers.

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