By Thomas Sonderman

About the author: Thomas Sonderman is CEO of SkyWater Technology, a U.S.-based semiconductor foundry.

China is outspending the U.S. at an alarming rate to expand its infrastructure to produce the chips that are the backbone of defense systems and industry applications. If this trend continues, it will threaten to erode the advantages of U.S. military systems and weaken our ability to sustain domestic industrial firms in decades to come.

Fortunately, a new administration provides the opportunity to re-evaluate foreign supply chain dependence, and to invest in domestic production of critical semiconductors to strengthen national security and safeguard the economy.

Semiconductors are more than the brains of our smartphones and computers. They are critical infrastructure for national security. Specialty chips, also called legacy-node semiconductors, are used in applications from advanced weapon systems to battlefield communications. While advanced-node chips drive innovation in AI and mobile computing, legacy-node chips are the workhorses of modern infrastructure. They support mission-critical applications that cannot afford failure.

These mature technologies are produced mostly in 200 millimeter fabrication plants, or fabs. They drive sensor systems in fighter jets, smart-weapon targeting, and electronic warfare while also supplying the base for power management, industrial automation, communication, and sensor technologies. Furthermore, these fabs are innovation engines for emerging technologies key to national and economic security, notably quantum processor development and emerging biomedical technologies.

Recent breakthroughs, such as DeepSeek's advancements in AI large language models, should be a clarion call that the AI arms race can have an economic ripple effect on markets. That competition is dependent on specialty chips to enable advanced-node cores driving such applications. Without the mature-node semiconductors that provide the power management, memory integration, and input-output capabilities essential to these systems, even the most advanced AI cores cannot function. This dependency underscores the critical need for secure, domestic supply chains to support innovation in both commercial and defense sectors.

The U.S. Commerce Department is addressing concerns over China's oversupply of mature node semiconductors, as well as the lack of visibility U.S. companies have into their own supply chains. About half of companies the department surveyed were unable to determine whether their products contained any chips manufactured by China-based foundries. Supply chain vulnerabilities, which gained widespread recognition during the Covid-19 pandemic, persist and threaten this critical foundation.

Addressing these vulnerabilities isn't just about safeguarding technology; it's about preserving strategic advantage in a rapidly evolving geopolitical landscape. While U.S. restrictions have slowed China's access to advanced nodes, its focus on mature-node manufacturing threatens to flood global markets. Without action, this anticipated oversupply could erode legacy-node market prices to the point that domestic firms cannot be sustained. This scenario could jeopardize both economic resilience and U.S. defense readiness, as legacy technologies will remain central to many national security applications.

One might wonder why China would deliberately flood the global market with overcapacity. A better question is: How are they doing it? China considers semiconductors strategic assets and is backing this belief with nearly $200 billion in financial investments. Over the next several years, China is expected to account for almost half of all new capacity for the manufacture of mature-node semiconductors. This expansion has already begun to cause pricing pressure that may weaken U.S. chip suppliers' competitive positions. Without a firm resolution by the U.S. to match investment for specialty chips in the U.S., we risk a perilous situation driven by market forces. Vulnerabilities in the tech supply chain of Western economies will intensify, putting critical systems vital to warfighters and domestic enterprises at greater risk of disruptions and hostile influence.

That said, the U.S. government has made progress with initiatives, such as the CHIPS for America Act, that aim to bolster domestic semiconductor manufacturing. However, these efforts are heavily skewed toward advanced nodes. There is no question they are essential for high-performance computing. However, focusing mainly on advanced nodes -- without comparable investments in legacy nodes and strong support for emerging technologies -- could worsen vulnerabilities in areas foundational to both industry and national defense.

To date, of the $52.9 billion in the CHIPS Incentives Program, approximately $2 billion of direct funding has been allocated to mature-node wafer fabs.

The stakes are high. In recent years, nearly 850 defense-related start-ups have emerged, up from just 22 at the turn of the century. These innovators depend on access to secure, reliable semiconductors -- advanced and legacy. Strengthening the domestic supply chain will help these companies contribute to national security while driving economic growth and innovation.

Not only must we shore up domestic infrastructure, we must improve how defense innovators access critical technologies. The Department of Defense's DMEA Trusted Supplier program sets essential standards for domestic suppliers of sensitive technologies. Moving forward, we see opportunities to establish unified national priorities for key technologies and a qualified access model to foster a secure marketplace for defense chips. These enhancements would improve access to critical technologies, strengthen security, and support the growing demand in defense applications.

Although the CHIPS Act is a bipartisan acknowledgment of the importance of semiconductors to national and economic security -- and it has effectively stimulated private investment in domestic infrastructure -- it pales in comparison to China's support of semiconductors. Looking ahead, a vibrant and sustainable domestic microelectronics supply chain requires broadening the scope of investments and aligning stakeholders under a comprehensive strategy.

U.S. policymakers must go further. The new leaders of government should get ahead of the curve by prioritizing investment in specialty technologies and semiconductor workforce development. In addition, this effort should include funding to complement the Trusted Supplier Program, with a qualified access model to accelerate innovation for national security programs.

It is imperative for the U.S. to mitigate supply chain risks, strengthen its defense and commercial industrial base, and maintain its competitive edge. The time to act is now.

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January 28, 2025 12:55 ET (17:55 GMT)

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