Semiconductors and Modern Defense Spending (excerpt)
(Source: Center for Strategic and International Studies; issued Sept 08, 2020)
The United States must again confront authoritarian powers, but the nature of conflict has changed. Now, technological leadership is one of the most important areas for competition.

U.S. opponents learned from the United States that technological leadership provides countries with influence, power, and authority in the international environment and that it is crucial for military strength. They seek the leadership that we have held. The United States is in a new kind of conflict where technology and ideas will play as big a role as militaries in creating national power. We need to adjust to this new and different kind of conflict.

China is our chief competitor. It has one clear advantage over us in this conflict. It is willing to spend money. China spends on its military, but it is not just spending on weapons. It spends on research and on its companies. This is the new space for competition.

China, unfortunately, is not the sluggish Soviet Union with its turgid economic planning. It has found a way to introduce a degree of market dynamism into its state-controlled economy. But even if it was the Soviet Union, we would still be at a disadvantage. The United States no longer has the federal investments in technology needed for competition, having slashed technology budgets since the end of the Cold War.

China is investing heavily in semiconductor fabrication plants (fabs) and manufacturing equipment, hiring engineers away from companies like Taiwan Semiconductor Manufacturing Company and, of course, engaging in espionage to bolster its chip-making efforts. China’s goals are leadership in semiconductor production and ending its reliance on U.S. suppliers.

These efforts are supported by more than $58 billion in government semiconductor investment funds, accompanied by pledges of another $60 billion in semiconductor funds created by local governments and include a 10-year corporate tax exemption for chipmakers producing advanced chips.

Other policies aim to strengthen the chip workforce, expand R&D, and incentivize foreign chip companies to relocate to China. China has become the world’s largest purchaser of semiconductor manufacturing equipment (according to SEMI), and China plans to double its capacity in the next five years. Realistically, it will take China more than a decade for success in memory chips and wafers, and perhaps longer if China no longer has the same levels of access to foreign technology. The issue, however, is not only preventing China from catching up but keeping the United States in the lead. (end of excerpt)

Click here for the full story, on the CSIS website.


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