The changing composition of the semiconductor industry, combined with foreign government action that has leveraged market forces, has resulted in the shift of chip manufacturing from the United States to offshore locations, particularly China and East Asia. This migration has substantial national security ramifications, as the transformation of this nation’s military into a network-centric force requires high-end semiconductor chips to provide the processing power for numerous defense applications.
Sen. Joseph I. Lieberman (D-CT)
The past decade has seen much debate about the revolution in military affairs. Some see the recent growth in military capability as merely evolutionary, while others believe that the increase in capabilities has taken place within the context of a broader—and even revolutionary—change in how the United States prepares for and wages war. The military is undergoing a true revolution, and it is likely that order of magnitude advances will occur with increasing speed. These advances will change the United States’ way of fighting war in profound and fundamental ways.
Regardless of the dispute over the nomenclature of the transformation that is currently sweeping over the U.S. military, all observers agree that it has achieved a dramatic increase in capabilities over the past decade. The U.S. Army, Navy, Air Force, Marine Corps and Coast Guard are able to see through the so-called fog of war better now than ever before. They are able to decide on a course of action and act upon that decision with speed and precision never before attained.
These improved capabilities are, as Vice Adm. Arthur Cebrowski, USN (Ret.), believes, based on dramatic new theories of warfare. These theories in turn are made manifest by the relatively recent and extraordinary advances in information technology. The key to the new way of war is the ability to acquire, move, store, assess and use massive amounts of information in near-real-time in networks of ever-increasing scale. This network-centric warfare capability is the core of U.S. military dominance today, and it is the key to continued dominance in the 21st century.
As impressive as it is, this new capability is still in its infancy. Many current defense systems that are envisioned to be part of a future force utilizing network-centric warfare require performance levels beyond those currently available. As the military continues to transform to a network-centric force, the Defense Department’s Global Information Grid will demand extremely high-performance computation to overcome the technical barriers to a seamless communication network. Greater processing capability is required for very-high-performance missile guidance systems and signal processing, and radiation-hardened chips must be available to withstand extremely harsh tactical environments.
Intelligence agencies increasingly will need greater high-speed signal processing and data analysis for real-time data evaluation, sensor input and analysis, and encryption and decryption. In addition, more advanced onboard processing capabilities are urgently needed for unmanned aerial vehicles, cruise missiles, ballistic missile defense and the infrastructure that connects all of these systems within a “network of networks.” Yet, many of the integrated circuits and processing platforms that are in use or coming into use today are clearly pushing the limits of their capabilities. The military cannot achieve the performance it needs from chips that are one or two generations behind current state-of-the-art technology.
The next several generations of integrated circuits could meet these needs. However, having these new chips is not assured. The U.S. semiconductor industry is facing dramatic changes. Although the United States currently leads the world’s semiconductor industry with a 50 percent world market share, the U.S. high-technology industry has been in a recession during the past two years, with sharply reduced sales and severe losses. The number of state-of-the-art U.S. chip manufacturing facilities is expected to decrease sharply in the next three to five years to as few as one to three firms that have the revenue base to own a 300-millimeter wafer production fabrication plant.
The problem of losing assured Defense Department access to high-end chips is a serious one. To put it simply: no chips, no network; no network, no network-centric warfare.
East Asian countries, particularly China, are aggressively, and in some cases illegally, leveraging market forces through their national trade and industrial policies to accelerate the migration of semiconductor manufacturing to that region. The migration of research and design capabilities to China is of particular concern. Chinese policy has resulted in a sharp upsurge in construction of fabrication facilities in that country, with plans for a great many more.To ensure that they develop the ability to build the next-generation fabrication facilities, the Chinese central government, in cooperation with regional and local authorities, has undertaken a large array of direct and indirect subsidies to support their domestic semiconductor industry. China also has developed a number of partnerships with U.S. and European companies that are cost-advantageous to the companies in the short term.
The Chinese government is using tax subsidies successfully to attract foreign capital from semiconductor firms that are seeking access to what is expected to be one of the world’s largest markets. This strategy is a means of inducing substantial inflows of direct investment by private firms. The strategy does not rely on cheaper labor, as that is a small element in semiconductor production. The Chinese are, however, able to draw increasingly on substantially larger pools of technically trained workers as compared with the United States, from the large cohorts of domestic engineering graduates.
The immediate and most powerful incentives for a highly leveraged industry are the direct and indirect subsidies, including the infrastructure needed for state-of-the-art fabrication plants, offered by the government. China also systematically undervalues its currency, often by as much as 40 percent, which gives its goods a major price advantage.
The development of special government-funded industrial parks, the low costs of building construction in China as compared with the United States, and China’s apparent disinterest in the expensive pollution controls required of fabrication facilities in the United States all represent further hidden subsidies.
It is important to understand that the current shift in manufacturing capacity to China is not entirely the result of market forces. It is equally important to recognize that even if some residual U.S. manufacturing capacity remains after this large-scale migration, the shift of the bulk of semiconductor manufacturing will severely constrain the ability of the United States to maintain high-end research and development capabilities.
The threat to the United States is real, and the time for the country to react effectively is limited.
Actions must be taken to maintain domestic high-end semiconductor chip design and manufacturing capacities...
Sen. Joseph I. Lieberman (D-CT) is a U.S. senator from Connecticut and a 2004 presidential candidate. He was a vice-presidential nominee in 2000.
The full version of this article appears in the November 2003 issue of
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