Technical Independence Electronic Chip Production & National Security

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In 2021‭, ‬the microchip shortage crisis left a big global impact on economic conditions‭, ‬in addition to the tendency of United States to use economic sanctions against some countries‭, ‬particularly Chinese tech companies‭, ‬such as Huawei‭, ‬or Russia‭, ‬because of the recent Ukrainian crisis‭, ‬that have highlighted the importance of expanding the Countries capabilities to produce these chips‭.‬

Countries now consider it a necessity for maintaining their national security‭, ‬especially given the various civilian and military applications of these chips‭. ‬Due to the decline in the production of raw materials owing to the Corona pandemic and the following setback in demand‭, ‬there has been a shortage of semiconductors‭, ‬which prompted many companies in this field to suspend their‭ ‬production lines‭. ‬

Geopolitical factors also played a role in this crisis‭, ‬especially when the Trump administration began to place restrictions on‭ ‬the sale of semiconductors to ZTE‭, ‬Huawei‭, ‬and other Chinese companies‭. ‬In response to the restrictions‭, ‬these companies began stockpiling essential chips for 5G smartphones and other products‭.‬

Meanwhile‭, ‬the federal government blacklisted the China International Semiconductor Industry Corporation‭, ‬effectively cutting off US companies from chips made by the company‭.‬

This crisis highlighted the increasing dependence on Asia particularly Taiwan‭, ‬in the production of these chips‭, ‬which prompted‭ ‬various countries such as United States‭, ‬European Union‭, ‬and China to try developing strategies for manufacturing these important chips‭, ‬given their civilian and military applications‭.‬

Although Taiwan Semiconductor Manufacturing Corporation‭, ‬the world’s largest semiconductor manufacturer‭, ‬has raised its capital‭ ‬spending budget for 2021‭ ‬to‭ $‬28‭ ‬billion‭, ‬seeing returns on that investment takes a long time because financing and building a new semiconductor plant takes at least five years‭.‬

Importance of chips in the military industries

Although electronic components used in advanced military systems utilize similar chips to those used in consumer electronics‭, ‬there are special requirements for military industries‭, ‬including semiconductors with certain properties‭. ‬

While commercial chip production is largely driven by a combination of cost and large-scale production feasibility‭, ‬the defense‭ ‬industry’s demand for chips is focused primarily on performance‭. ‬Military chips must be more durable‭, ‬reliable‭, ‬have a higher heat tolerance‭, ‬and in some cases‭, ‬radiation tolerance as well‭.‬

Many military-grade chips contain composite semiconductors‭, ‬which have superior electronic properties‭, ‬such as higher electron mobility and a direct bandgap‭, ‬compared to silicon semiconductors‭. ‬

Military and Aerospace applications such as signal intelligence‭, ‬military communications‭, ‬space capabilities‭, ‬radars‭, ‬jamming devices‭, ‬and many more‭, ‬use chips based on Gallium arsenide‭ (‬GaAs‭) ‬and Gallium nitride‭ (‬GaN‭).‬

For its part‭, ‬Taiwan plays an essential role in global semiconductor manufacturing‭. ‬Taiwan’s WIN Semiconductors holds 9.1‭ ‬percent of the total market share of Gallium arsenide devices‭, ‬making it the third-largest manufacturer in the world after the US companies Skyworks and Qorvo‭, ‬owning 30.6%‭ ‬and 28.6%‭ ‬of the market‭, ‬respectively‭.‬

However‭, ‬in terms of revenue from the pure Gallium arsenide foundry‭, ‬Win Semiconductor has the largest share with 79.2%‭, ‬followed by Tainan-based AWSC‭ (‬8.6%‭), ‬California-based GCS‭ (‬4.2%‭), ‬and Hsinchu-based Wavetek‭ (‬3.4%‭).‬

More notably‭, ‬the three largest Taiwanese companies together own more than 90%‭ ‬of the Gallium arsenide foundry global market‭.‬

Close-up view of a modern GPU card with circuit and colorful lights and details 3D rendering

Although the United States has been able to manufacture defense-related semiconductors at home‭, ‬via companies such as Raytheon‭, ‬Northrop Grumman‭, ‬and other contractors‭, ‬other countries haven’t‭.‬

Given that advanced commercial chips still play an essential role in some weapon systems‭, ‬such as radars‭, ‬as well as computer processing units‭ (‬CPUs‭), ‬graphics processing units‭ (‬GPUs‭), ‬and memory chips‭, ‬many countries had to rely on Taiwan along with countries other than the U.S‭.‬

However‭, ‬Taiwan isn’t the only player in the semiconductor supply chain‭,  ‬the United States still holds some leading roles‭, ‬especially in chip design and electronic software tools‭. ‬The Dutch company ASML Holding NV monopolizes the market of manufacturing equipment needed to produce the best chips‭, ‬while Japan is considered the major supplier of equipment‭, ‬chemicals‭, ‬and chips‭. ‬Faster chips give a strategic advantage over an opponent in defense and military applications‭, ‬To this end‭, ‬semiconductors are used in a variety of applications including communications‭, ‬command and control systems‭, ‬targeting systems‭, ‬radar systems‭, ‬high-precision war games‭, ‬and‭ ‬autonomous systems such as drones‭.‬

The importance of the national security of semiconductor chips extends far beyond direct national security applications to the field of state economic security‭, ‬and geopolitically important technologies‭, ‬especially those related to critical infrastructure‭ ‬and services‭. ‬

In the case of Artificial intelligence‭, ‬semiconductors are considered a key driver for the development‭, ‬spread‭, ‬and functionality of current and future machine learning applications‭.‬

Artificial Intelligence is based on three interconnected pillars‭: ‬data‭, ‬algorithms‭, ‬and computing power‭, ‬and the latter is what‭ ‬brings data and algorithms to life‭. ‬Thus‭, ‬with the more complex artificial intelligence systems become‭, ‬the higher computing power required‭.‬

Therefore‭, ‬Artificial Intelligence drives the development of better electronic chips‭, ‬constantly spurring investments in its research and development‭.‬

Threat to national security‭ ‬

Electronic chips pose an increasing threat to the national security of countries‭, ‬not just from a military and security perspective‭, ‬but also threatens the countries‭’ ‬economies‭, ‬because of the role these chips play in many defense industries and the possibility of their employment as tools for sanctions by other countries‭, ‬which directly threaten the economic prosperity and security‭.‬

Examples of Electronic chips’‭ ‬threat to national security‭:‬‭ ‬

1‭- The threat to the Chinese economy‭:‬‭  ‬The administration of former US President Donald Trump took advantage of the weakness of some Chinese companies‭, ‬preventing them from accessing advanced technology‭, ‬depriving‭ ‬“Huawei Technologies”‭ ‬from acquiring semiconductors from‭ ‬“Taiwan Semiconductor”‭ ‬in 2018‭, ‬and other companies‭.‬

This has hindered the progress of the largest tech company in China‭, ‬leaving the company to suffer the largest quarterly decline‭ ‬in its sales‭, ‬by 38%‭ ‬annually to 168.2‭ ‬billion yuan‭ (‬26‭ ‬billion dollars‭), ‬in the second quarter of 2021‭, ‬according to Bloomberg‭.‬

2‭- Attempt to threaten Russian military industries‭:‬‭ ‬Due to its military attack on Ukraine‭, ‬because of the United States’‭ ‬refusal to ensure that Ukraine would not join NATO‭, ‬as well as Kyiv’s threat to Moscow to acquire nuclear weapons‭, ‬the United States sought to impose sanctions on Russia and attempted to prevent Moscow from buying some high-tech products‭, ‬in an effort to weaken Russia’s military industries‭.‬

For its part‭, ‬the world’s largest chipmaker‭, ‬Taiwan Semiconductor Manufacturing Company‭, ‬which controls more than half of the global market for custom-made chips‭, ‬has pledged to fully comply with US export sanctions‭.‬

3‭- Threat to the global industry‭:‬‭ ‬The repercussions of the shortage of electronic chips have included car sales decline around the world in 2021‭. ‬Given that chips are part of every modern car‭, ‬global car production suffers from a shortage of chips supply‭, ‬forcing many major companies to stop or reduce the number of working hours in many of their factories‭.‬

The South Korean-based carmaker‭, ‬Hyundai Motor Group‭, ‬announced that its sales in the United States declined last month by a rate of 13%‭ ‬annually‭, ‬due to the continuing shortage of electronic chips used in the auto industry‭ .‬Other companies have seen disruptions to their production line‭, ‬such as Germany-based‭ “‬Volkswagen‭”, ‬American-based‭ “‬Ford Motor‭”, ‬and Japan-based‭ “‬Toyota Motor‭”‬‭.‬

Apple’s stock fell by 1.45‭ % ‬in October 2021‭, ‬when the company announced its intention to reduce the production of phones by about 10‭ ‬million units after it was scheduled to produce 90‭ ‬million units in the last quarter of 2021‭, ‬as well as reducing the production‭ ‬of other company devices such as Mac and iPad‭.‬

NUREMBERG / GERMANY – APRIL 7, 2019: Hyundai logo on a Hyundai car at a car dealer. The Hyundai Motor Company is a South Korean multinational automotive manufacturer headquartered in Seoul.

Countermeasures‭ ‬

Most countries have adopted policies aimed at reducing dependence on imported electronic chips‭. ‬In this context‭, ‬the following countermeasures were the most prominent‭:‬

1‭- US investments in chips‭: ‬U.S current president Joe Biden’s administration has proposed a‭ $‬2‭ ‬trillion investments package in US infrastructure‭, $‬300‭ ‬billion in which to be used to boost‭ ‬the manufacturing sector in the United States‭, ‬including‭ $‬50‭ ‬billion for the production and research of electronic chips‭. ‬

2‭- Similar European plans‭: ‬The European Union aims to strengthen its technical sovereignty‭, ‬particularly in the field of manufacturing electronic chips‭, ‬through an alliance between both the public and private sectors‭, ‬as well as directing initial investments of up to 30‭ ‬billion euros‭ ($‬36‭ ‬billion‭), ‬to raise Europe’s share of the global chip market from the current 10%‭ ‬to 20%‭, ‬without setting a target timetable‭.‬

The block has also succeeded to some extent in encouraging Taiwan to increase investment in its 27‭ ‬countries‭, ‬as the Hsinchu-based Global Wafer’‭ ‬offer strengthened Germany Siltronic AG value to‭ ‬€4.4‭ ‬billion‭, ‬an acquisition that would create a silicon chip manufacturer with the highest revenue in the world‭ .‬

Semiconductor companies received more than‭ $‬50‭ ‬billion in government support between 2014‭ ‬and 2018‭, ‬according to the estimates of the Organization for Economic Co-operation and Development‭. ‬

This was due to the fact that different countries have begun prioritizing chip production‭, ‬offering incentives to attract semiconductor manufacturers‭, ‬including grants‭, ‬equity investments‭, ‬infrastructure support‭, ‬and tax credits‭..‬

3‭- Searching for alternatives‭:‬‭ ‬The United States use of electronic chip sanctions as a weapon pushes the affected countries‭, ‬such as China‭, ‬to enhance their capabilities in the field of manufacturing these chips‭; ‬it can also prompt these countries under sanctions to cooperate with other countries that are not subject to American pressure‭, ‬such as Russia‭.‬

Analysts speculated that some Chinese companies‭, ‬especially those targeted by US sanctions‭, ‬such as Huawei‭, ‬might help Russia circumvent US export controls‭, ‬becoming in the process a safer alternative to Russia‭ , ‬especially since there are indications that Western countries will no longer dominate advanced modern technology‭.‬

Other countries have managed to challenge and have exceeded the western countries in some areas‭, ‬such as the success of Russia and China in developing hypersonic missiles‭, ‬a type of missiles that no Western country has been able to develop yet‭.‬

Conclusion‭:  ‬It is now obvious that the crises of electronic chip production chains‭, ‬and the endeavors of some major powers‭, ‬such as the United States‭, ‬to employ their global influence on some of the leading companies in this field‭, ‬especially Taiwanese companies‭, ‬to push them to cut production from Chinese or Russian companies‭, ‬will eventually push countries to attempt to boost technical independence in chips’‭ ‬production‭.‬

Given that the dependence of many civil and military industries on those chips‭, ‬means that these electronic chips can be used to‭ ‬threaten the national security of these countries‭, ‬both economically and militarily‭. ‬

‮«‬‭ ‬By‭: ‬Dr.Shadi Abdel Wahab‭ ‬‭(‬military researcher and strategist‭)‬

Al Jundi

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