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The author is senior vice president of Beacon Global Strategies and a former National Security Council official.
The 2022 National Security Strategy sets out the strategic objectives of the United States to “outcompete China” and “maintain and improve competitiveness.” Spurred by the geopolitical shock of supply chain disruptions caused by the pandemic, the Biden administration has set semiconductors as a key battlefield of competition. However, despite expressing grandiose intentions, the U.S. government has so far failed to develop a convincing strategy to achieve these goals.
That effort is focused on two fronts: $52 billion in Chip Act incentives to build domestic manufacturing and research and development capacity, and export control policies aimed at denying China access to advanced computing and artificial intelligence capabilities.
This is unprecedented. But these measures do not take into account upstream or downstream considerations, such as the need to increase domestic demand to bring supply chains domestically. In an industry as complex and capital-intensive as semiconductors, the battlefield must be entirely redefined.
To compete successfully, we need a clear strategy that differentiates our company from our competitors. Unfortunately, our approach so far has failed to capitalize on America’s greatest competitive advantages: innovation and foreign partners.
The U.S. semiconductor industry’s greatest strengths are the companies and academic institutions that have delivered the innovations that have enabled both U.S. market dominance and the world’s incredible technological advances, and the foreign partners who play a key role in our collective ability to secure this supply chain. Leveraging these assets properly would provide an insurmountable competitive advantage. Instead, these partners are becoming more dispersed.
Policymakers are increasingly troubled by business activities in China that they see as contrary to U.S. interests. Businesses feel battered by export controls and unpredictable policies that hinder their ability to make long-term plans. Foreign partners are wary of having their vital industries caught up in volatile U.S. policies.
To be clear, export controls, foreign investment, and other restrictions are essential components of U.S.-China strategy. China’s unfair trade practices have contributed significantly to the disruption of critical U.S. supply chains. No one doing business in China, no matter how eager or well-intentioned, can prevent dual-use technologies from being transferred to China’s defense, intelligence, and security agencies.
It is not surprising, therefore, that the United States has been tightening its export controls to prevent its critical technologies from being used in ways that are contrary to its national interests, but it should also be noted that such measures can only function as part of an overall “competition” strategy.
We have implemented export controls that specifically harm American companies without achieving any strategic objectives; we have denied American companies access to key growth markets where Chinese competitors hold back; and we have implemented incentive programs that are so burdensome they discourage companies from participating.
So how do we create the urgency and collaboration between government and industry that these challenges require? The answer is leadership from the President and the White House.
The Executive Office of the President must oversee the strategic coordination of the various government agencies that is needed. It must lead a fundamental and comprehensive rethinking of how government and industry engage. Policymakers must adopt a long-term, business-oriented mindset, understand the calculations that guide business decisions, and identify policies that align business interests with national security interests. The government must prioritize dialogue with foreign partners to establish a common view of the threat landscape and align strategic objectives.
Meanwhile, industry is in the best position to tell the government how to “win” against China. Industry must bring constructive business solutions to the table that take into account national security and foreign policy objectives. Attempts by industry to distract policymakers from the pursuit of those objectives are counterproductive.
We must leverage America’s strengths to advance our competitive advantage. We must provide the leadership and strategic sophistication needed to engage industry and foreign governments as cooperative partners. The outcome of our strategic competition with China in semiconductors will define America’s national and economic security for the foreseeable future. We must do more.
