The US Chip Act and Global Security

Introduction

The 2022 Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act represent a major strategic effort by the U.S. government to boost its global competitiveness in advanced technologies and reduce their reliance on foreign-made microchips. The act was created to boost America’s semiconductor manufacturing and reduce reliance on foreign suppliers, especially in East Asia. It was done by providing over $52 billion in funding through subsidies and investments to encourage domestic production and innovation. This initiative aims to strengthen the U.S. supply chain and enhance national security, which is a priority given the ubiquitous use of chips in modern defence and technology. Control over the semiconductor industry has significant implications for global economic stability and national security because semiconductors are crucial components in a wide range of products from everyday consumer electronics to advanced military systems (Miller).

The COVID-19 pandemic and increasing geopolitical tensions revealed the sensitivity of global supply chains. It revealed about the U.S. relying significantly on Taiwan and South Korea for vital semiconductor components. The CHIPS Act emerged as both an economic and strategic response. It was an attempt to regain technological control, secure their defence infrastructure, and counter China’s growing technological influence (Varas & Corrado).

The act is reshaping international alliances and intensifying the U.S.-China tech rivalry. Hence the semiconductors have progressed from standard industrial goods into critical strategic assets. They are now fundamental to the 21st century balance of power. Therefore, the CHIPS Act is presented not merely as domestic industrial policy, but as an essential element of America’s wider national security strategy amid intense global technological competition (Tyson, 2023).

Background of the US CHIPS Act

The CHIPS and Science Act of 2022 is viewed as a foundational statute and a key turning point in recent American industrial policy. US President Joe Biden on August 9, 2022 signed into law a bill providing $52.7bn in subsidies for US semiconductor manufacturers and research to strengthen U.S. innovation ecosystems in advanced technologies such as quantum computing, AI, and nanotechnology. The US is taking revolutionary action to compete more effectively with China in science and technology.

The Act aims to achieve three primary goals: strengthening the domestic semiconductor industry, promoting innovation, and protecting national security interests. This act uses incentives to encourage domestic and foreign companies like Intel, TSMC, and Samsung to build advanced chip factories in the U.S. This strengthens American supply chains and reduces reliance on Asian manufacturing routes. It aims to boost the country’s semiconductor manufacturing capacity and secure a more stable supply of chips for key industries (Chan).

This policy was developed in response to two major events. The COVID-19 pandemic and the technological competition between the U.S. and China are those 2 reasons. The global chip shortage in 2020 and 2021 revealed significant weaknesses in the supply chain. Also, China’s extensive state-funded investments in semiconductors put America’s technological leadership at risk.  These tensions hence transformed U.S.’ semiconductor policy from an economic concern into a matter of strategic urgency (Estevez).

Politically, the CHIPS Act achieved unusual two-party backing in Congress. It revealed a shared understanding that how well a nation competes technologically has a direct impact on its national strength. It resulted from several years of legislative debate, incorporating insights gained from moving manufacturing overseas and not investing enough in basic scientific research. The CHIPS Act is more than just a financial measure. It is a strategic plan which had an intention to strengthen the American industry, safeguard its defence systems, and maintain its leading position in the 21st-century technology competition (Wang). 

Economic and Technological Impact

The U.S. CHIPS and Science Act is a major initiative to bring semiconductor manufacturing back to the United States. It will boost the economy, strengthen national security, and improve supply chain resilience. The Act is expected to create tens of thousands of high-skilled jobs and draw hundreds of billions of dollars in private investment, driven by the provision of $52.7 billion in incentives. Major chipmakers are making significant investments in the United States. It includes Intel’s $100 billion Ohio expansion, TSMC’s $40 billion Arizona plant, and Samsung’s $17 billion Texas facility. It signals a recovery in domestic industrial manufacturing. These substantial projects aim to strengthen the domestic semiconductor industry and reduce reliance on foreign supply chains (European Commission).

Also, the Act makes significant investments in R&D, allocating funds for advanced materials, microelectronics, AI, and quantum computing. It seeks to rebuild the academic–industrial ecosystem that once defined American tech leadership. The National Science Foundation, private industry, and academic institutions are forming partnerships to foster a skilled semiconductor workforce and expedite breakthroughs (White House). 

However, the current economic progress is tempered by various issues. Due to differences in labor and energy expenses, the cost of production in the United States typically remains 30% to 50% higher compared to East Asia (Varas & Corrado). The sector is struggling with a lack of qualified engineers and ongoing disruptions in the supply of essential raw materials and equipment.

Globally, the CHIPS Act has changed the competitive environment. It prompts other regions like Europe and Japan to introduce their own semiconductor initiatives—including the EU Chips Act and Japan’s semiconductor revitalization plan—to avoid losing investment to the U.S. The shift of global investment capital toward North America indicates an emerging industrial geography driven by technology. While the CHIPS Act might not instantly restore control, it provides the foundation for long-term resilience and a strong economy driven by innovation.

Geopolitical Dimensions

The CHIPS and Science Act stand at the centre of a new geopolitical contest that defines the twenty-first century: the struggle for technological dominance. Semiconductors have been turned as the instruments of power by the U.S.–China tech rivalry. Washington has implemented extensive export restrictions that limit China’s ability to acquire advanced chips and manufacturing equipment. Companies like Huawei and SMIC have encountered significant limitations. This reflects the United States’ resolve to hinder China’s advancements in artificial intelligence, quantum computing, and military technology (Kang).

At the same time, Taiwan’s leading position in semiconductors, specifically through TSMC was responsible for manufacturing over 90% of the world’s most advanced chips (Gross). It presents a strategic weakness as any disruption caused by conflict or a blockade could severely damage the global economy. Through the CHIPS Act, the U.S. is working to secure its semiconductor supply chain by expanding domestic manufacturing, hence reducing its reliance on Taipei, while still valuing Taiwan as a crucial technological partner.

A complete “Technology Cold War” has emerged. It positions semiconductors as the critical resource in the global power struggle. This competition goes beyond economic concerns. It influences military strength, cybersecurity, and digital sovereignty. Both nations are struggling to guarantee access to essential materials, expert talent, and production capabilities, recognizing these as the fundamental pillars of national power in the digital era.

Also, new alliances are forming. The U.S., Japan, South Korea, and Taiwan have strengthened cooperation in chip research and supply chain security (Meijer). But China and Russia deepen their technology and energy ties to resist Western sanctions. Europe is navigating a complex geopolitical landscape, aiming for strategic autonomy through the implementation of its own “EU Chips Act” as it works to maintain delicate economic relationships with both the United States and China.

Ultimately, the CHIPS Act represents the United States’ effort to protect its technological independence and regain its position as a global leader. It is more than just industrial policy. It establishes the foundation for a new national security framework centred on semiconductors rather than traditional hardware.

The Security Implications

Semiconductors are essential to the full scope of contemporary national security infrastructure. Integrated circuits are integral components in modern military technology, including aircraft like fighter jets, advanced weaponry such as missiles, unmanned aerial vehicles (drones), radar systems, secure encryption modules, and AI-driven autonomous weapons platforms (Kuehn). Any nation that controls advanced semiconductor technology controls the tempo and effectiveness of military power. A reliance on foreign supply chains, particularly those originating from geopolitically unstable regions, poses a strategic vulnerability for the United States that could be exploited by adversaries.

Strategic Deterrence and Defence Preparedness

The United States depends heavily on Taiwan and South Korea for advanced chips, making the semiconductor chain extremely exposed. A Taiwan Strait conflict, blockade, or cyberattack on Taiwanese fabs could cripple global military and economic systems within weeks. By boosting domestic production, the CHIPS Act reduces this single-point vulnerability. It ensures the U.S. military—particularly its next-generation missile defense systems, stealth aircraft, and AI-driven targeting algorithms—has a stable, trusted supply of components (Chan).

Cyber and Supply Chain Security

The CHIPS Act also strengthens cybersecurity. Semiconductor design chains are frequent targets of espionage, hardware backdoors, IP theft, and supply chain tampering. By reshoring manufacturing and tightening export controls, the U.S. can better safeguard sensitive defense chips from manipulation or hidden vulnerabilities that could sabotage critical systems. Securing fabrication plants on U.S. soil reduces the risk of compromised chips entering nuclear, intelligence, and communication platforms (Harrison).

China’s Response and Escalating Tech Competition

China views the CHIPS Act as a direct attempt to restrict its military modernization. Beijing has responded with massive subsidies, investment in domestic chip champions like SMIC, accelerated efforts toward tech self-sufficiency, and intensified cyber espionage campaigns targeting Western fabs and design firms. It is also building parallel supply chains with Russia and other partners.

Ultimately, semiconductors have become the new foundation of national defense. The CHIPS Act is not simply an economic policy — it is an essential component of U.S. security strategy, aimed at ensuring technological superiority, operational readiness, and resilience in the face of rising global instability (Wang).

Global Reactions and Challenges

Strong international reaction to the CHIPS Act changed how countries view economic independence, technology, and security. China’s response was the most severe, denouncing the Act as “tech containment.” (Wang) Beijing claimed that in order to prevent China from obtaining cutting-edge chips, the United States had weaponized supply chains. China responded by increasing subsidies for businesses such as SMIC, speeding up domestic research, and making a strong push for independence. Parallel supply chains and cyber-espionage activities also grew, indicating a more seasoned tech rivalry.

In pursuit of the goal to double its chip production by 2030, the European Union launched its own “EU Chips Act,” framing the initiative as a necessary step to achieve self-sufficiency from American and Asian suppliers, rather than an act of retaliation. Concurrently, Japan has made significant investments and forged partnerships with major firms such as TSMC and Rapidus to revitalize its domestic semiconductor industry. South Korea, home to industry giants Samsung and SK Hynix, has adopted a more measured strategy: while encouraging supply chain diversification, the nation remains cautious about being caught in the middle of market pressures from China and export restrictions imposed by the U.S. (European Commission)

The global fallout from the U.S. legislation has been significant, with many countries criticizing it as a form of “tech protectionism.” China is a leading enemy, arguing that restrictions on chip exports and pressure on allies to restrict Chinese companies violate international fair-trade principles. Even traditional U.S. allies have voiced concerns that these incentives could potentially divert investment away from their own economies (Kang).

Despite its goals, the implementation of the CHIPS Act faces substantial practical hurdles. The construction of advanced fabrication facilities (fabs) is extremely expensive, and there is a global shortage of the highly trained engineers and technicians needed to operate them. Furthermore, significant environmental concerns surround semiconductor manufacturing due to the massive amounts of water and energy consumed, which raises sustainability questions and challenges many U.S. regions’ ability to support such industrial expansion.

Developing nations view this global race with concern. As rich countries pour billions into semiconductor independence, the global tech gap widens, leaving poorer economies further behind and dependent. Nations in Africa, South Asia, and Latin America fear marginalization from high-tech value chains.

Overall, the CHIPS Act sparked a chip alliance race, pushing countries to create their own industrial policies. Instead of one nation leading, the world is now fragmenting into competing semiconductor blocs, reshaping global technology politics.

Future Outlook: The Road Ahead

The future impact of the CHIPS Act is contingent upon the United States’ ability to surmount significant structural hurdles, including high manufacturing costs, workforce deficiencies, and extended construction timelines. Should the U.S. successfully expand domestic chip production at scale, the legislation could substantially enhance national resilience and diminish reliance on foreign production, particularly from Taiwan and South Korea. However, success is far from assured; progress is threatened by delays in subsidy distribution and a scarcity of engineering talent. Ultimately, the true measure of the Act’s success will be whether these substantial investments can foster a competitive and sustainable domestic semiconductor ecosystem that endures beyond 2030 (Estevez).

In the broader geopolitical arena, the U.S.–China rivalry will define the next decade. While Washington is rebuilding fabrication capacity, Beijing is accelerating self-reliance under its “Made in China 2025” and “National Integrated Circuit Plan.” China’s resilience—fueled by state funding, talent concentration, and an enormous domestic market—means the global semiconductor race will not be one-sided. The U.S. may lead in advanced nodes, but China will dominate in mature chips, 5G equipment, and manufacturing scale (Wang).

Emerging technologies like AI, quantum computing, advanced lithography, and hypersonic systems will intensify competition. AI chips, in particular, will become the most contested asset, shaping military systems, intelligence capabilities, and economic power.

The global landscape might soon feature new strategic alignments. A deep “Chip Security Bloc” could emerge, potentially linking the U.S., Japan, Taiwan, South Korea, the Netherlands, and the EU through coordinated supply chains, shared export regulations, and collaborative research and development efforts (Meijer). Concurrently, China might establish parallel technology ecosystems with partners like Russia, Middle Eastern nations, and Southeast Asian countries, effectively creating two distinct and competing global technology spheres.

By 2030, the semiconductor industry will have a multipolar structure, with the U.S. leading in innovation, East Asia in manufacturing, and China in large-scale production, and technological sovereignty will drive a new global order. The CHIPS Act is central to this shift, representing more than just a U.S. industrial policy; it is a strategic framework that uses silicon technology, national strategy, and security to shape the new world order.

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