CHIPS Is a Missed Opportunity for Real Security

COMMENTARY Asia

CHIPS Is a Missed Opportunity for Real Security

Aug 2nd, 2022 14 min read
COMMENTARY BY
Dustin Carmack

Research Fellow, Border Security and Immigration Center

Dustin is a research fellow for cybersecurity, intelligence, and emerging technologies at The Heritage Foundation.
Speaker of the House Nancy Pelosi (D-CA) signs H. R. 4346, The CHIPS and Science Act of 2022 on Friday, July 29, 2022 in Washington, D.C. Kent Nishimura / Los Angeles Times / Getty Images

Key Takeaways

We do need to do something about the possible vulnerabilities in our reliance on advanced semiconductors from a singular geographic location.

What if the CHIPS+ “good” is more of an act to “just do something” and is missing the forest through the trees?

Tackling the intellectual property difficulties of the China challenge is an area also not explored within the bill.

“ … We have to be on guard against China at all times … For all technology, we have to do everything we can to make sure our leading edge technology, whether it’s in CHIPS, or artificial intelligence, or other areas, can’t get into the hands of the Chinese.”

That was Secretary of Commerce Gina Raimondo last Sunday on “Face the Nation.”

One can be in complete agreement with that statement and look at the underlying legislation—the Creating Helpful Incentives to Produce Semiconductors for America Act, or CHIPS—that passed both chambers of Congress last week and find it lacking.

Stakeholders that are in support of the measure are understandably throwing out every argument under the sun, while ignoring the basics of where the legislation missed opportunities up and down the board.

The fact that they powered through on this when a possible conservative majority could quickly pass and shape a bill six months from now that hits all the right spots is dumbfounding. The only place this makes sense is in the District of Columbia where “do something” trumps “doing things right.”

We do need to do something about the possible vulnerabilities in our reliance on advanced semiconductors from a singular geographic location. Geopolitical and military tensions that Americans are finally waking up to highlight those needs. So, let’s do it right.

Let’s walk through the repeated watering down and opposition to guardrails and further security requirements that led us to where we are today.

R&D Security

Sen. Rob Portman, R-Ohio, has worked consistently in a bipartisan fashion over the last few years to build better research security requirements in light of an investigation of Chinese influence on campuses he undertook while leading the Senate Select Committee on Investigations.

Portman was a broad supporter of both the CHIPS portion of the legislation, with Intel establishing a massive investment in Ohio for future fabrication facilities, as well as the research and development portions of the legislation.

He successfully included legislation, the Safeguarding American Innovation Act, in the original legislation from last summer. It included “expanded authority for the State Department to limit immigration, stiffer penalties for scientists who fail to disclose their foreign ties on grant applications, a lower threshold for individuals and institutions to report foreign gifts, and a new research oversight body led by the White House Office of Management and Budget.”

Portman and others who supported his underlying legislation had been under the “assumption” his provision was included in the new CHIPS+ last week only to find it had been left on the cutting room floor due to major pushback from groups claiming the measure could “lead to heightened discrimination against the AAPI community or Chinese nationals.”

Portman worked to water down the measure and was blocked by Senate Democrats in a now consistent pattern of walking back aggressive action against Chinese Communist Party espionage tactics. This began last February with the shuttering of the Justice Department’s China Initiative and has carried over to ongoing debates on providing proper protections in this bill.

Sen. Marco Rubio, R-Fla., the Senate Intelligence Committee ranking member, warned about this last year during the original United States Innovation and Competition Act debate and sought additional language to protect U.S. intellectual property, research, and technology coming out of research monies from the measure.

Rubio noted this area is the “No. 1 priority” of China’s intelligence services. He said that although you can “hope” the “safeguards” currently in place in the measure will work, looking back here in a few years to see that 25%-30% of it was stolen to advance Chinese stated goals of technological superiority will have us “feeling pretty stupid around here.”

Rubio’s attempts at an amendment to structure a process for the Office of the Director of National Intelligence and the FBI to “screen” funds coming out of the measure—to protect against possible known Chinese shell companies or scientists associated with the Chinese Communist Party and People’s Liberation Army—were shot down due to concerns about “slowing down” the funds flowing out the door to university systems around the country.

As Rubio stated at the time, one can acknowledge that guardrails processes could slow down funds going out the door just as cybersecurity slows down information coming from our servers or TSA slows us down at the airport, while supporting the desire that it’s better to go “slower and own it, then faster and steal it.”

But that’s not the stated goal of many of the supporters of the measure who seek to only see funds rolling out the door to the National Science Foundation and the Department of Energy as fast as possible with platitudes toward “safeguarding” developments from it.

Here is what was never seen in the measure if you wanted to actually take on China holistically.

Original United States Innovation and Competition Act measures to impose sanctions on China for theft of U.S. intellectual property and cyberattacks (see HAFNIUM) are noticeably missing from the measure.

In addition to Portman’s research security provision removal and no vote allowed on Rubio’s screening provision, the bill mealy mouths restrictions to primarily certain sanctions, Entity List, and Chinese military companies list when it could have strictly banned taxpayer research dollars within China or entities associated with the Chinese Communist Party.

It should be noted that it’s already difficult enough identifying the shell company games China plays to work around U.S. efforts.

Provisions exist to create an Office of Research Security and Policy with at least “four full time equivalents” at the National Science Foundation to oversee the explosion in funds going out their doors.

While these may be better than nothing, what the overall measure glaringly misses is a single additional resource for law enforcement and intelligence gathering efforts to understand and counter Chinese espionage tactics.

How many times does the director of the FBI have to note they are opening a Chinese counterintelligence investigation “every 12 hours” and that it dominates over half of their caseload before Congress wakes up to the fact that the additional flush of money from CHIPS+ will be immensely targeted by the Chinese Communist Party?

China is not the only espionage threat to the United States either.

Also noticeably missing is a further review of our varying export control programs and their effectiveness.

For all the rightful back-patting that goes on about U.S. export controls to block argon fluoride immersion lithography machine technologies from getting into China’s semiconductor factories, it has been revealed recently that China’s Semiconductor Manufacturing International Corp. is producing a seven-nanometer chip that was believed not to be possible. This is likely stretching technology capabilities acquired from the United States.

Additionally, further debate on prudent U.S. outbound investment screening was left to the wayside as well as part of this measure. This is not to say this subject is not immensely complex, but it is a warranted discussion and debate if stakeholders who honestly worry about Chinese technology actions and goals continue to watch Wall Street, Silicon Valley, and venture capital investments to prop up and advance multiple tech sectors in China.

Throughout this debate over safeguarding U.S. technology, the Biden administration has dithered on what policy it actually would like to implement in this space as well, may it be on executive branch scrutiny of certain outbound investments or a promised further follow-up on foreign software and apps policy to the Trump administration’s TikTok executive order.

Let’s get back to these so-called guardrails on the semiconductor portion of the measure.

As many conservatives and national security-minded members have discussed over the last couple of years, what was noticeably missing from previous versions of CHIPS were legitimate guardrails toward companies seeking U.S. taxpayer dollars to expand domestically, not taking fungible dollars to continue investments in China and advance their technologies in the field.

The CHIPS+ measure contains limitations on future “material expansions” and “significant transactions” in countries of concern unless they are for facilities producing 28 nanometer or higher chips or if the facility is for materially expanding advanced fabrication facilities for markets exclusive to the countries of concern.

The current provisions have the fingerprints of a massive lobbying effort to get them to an acceptable place for the semiconductor industry that has spent over $200 million lobbying to get this measure across the finish line.

Raimondo has stated that if the companies receiving funds don’t do what they’re “supposed to do, we’re gonna take the money back.”

That language has a hefty loophole in it, though, that allows the secretary of commerce, the director of national intelligence, and the secretary of defense to directly negotiate with the grantee to find acceptable conditions for violations and to forgive the company from having to repay.

Sen. Rick Scott, R-Fla., sought an amendment to more strictly define the clawback provision and expressly seek funds back from those that violated the agreements. However, there was no vote on this amendment.

Additional language allows vast flexibility for the secretary of commerce to define the threshold for material expansions and significant transactions in addition to defining the future of the 28-nanometer restriction as seen fit.

Rubio sought an amendment to tighten that language to allow for written and expressed feedback from congressional intelligence, commerce, and Armed Services committees. Again, zero debate was had on the floor of the U.S. Senate and no vote.

For all the bellyaching from Congress about the wide discretion administrations take with their intended prerogatives, it loads up every significant measure with a range of waiver authority and rule-making latitude by the bureaucracy.

This happens not only in this CHIPS+ debate but in a range of sanctions and foreign policy-related prescriptions. Future congressional notifications will be had on this language, with only Congress having the ability to complain and write a press release to protest.

What’s Not in This Bill?

“Don’t let the perfect be the enemy of the good.” This is humble advice, especially in the art of legislative sausage-making. But what if the CHIPS+ “good” is more of an act to “just do something” and is missing the forest through the trees?

One can understand the congressional frustration of those who have been advocating for this legislation for multiple years now, but it cannot remove obvious criticisms of not only its shortfalls, but what opportunities it missed.

While some of the monies related for basic research and development at the Department of Energy laboratories and particular areas of the National Science Foundation and National Institute for Standards and Technology can be necessary and proper, it cannot ignore the need for funds at places such as the Defense Advanced Research Projects Agency and the Intelligence Advanced Research Projects Activity.

These two national security-focused bodies gear into hard-hitting issues facing our warfighters and intelligence collection apparatuses going forward, yet see zero attention as part of this “China Bill.”

Another area of needed focus would be on reviewing the Defense Department’s Trusted Foundry program, which currently has 81 “trusted suppliers.”

While $2 billion of the underlying CHIPS monies are geared toward research and development in the Defense Department/intelligence community space, a review and oversight of existing agreements and frameworks for secure supply chains and manufacturing capabilities for needed advanced microelectronics for our national security community through Trusted Foundry is warranted.

Sen. Mike Lee, R-Utah, offered several amendments that weren’t considered for a vote.

These included amendments to steer back the measure to its original intent by clarifying funds should be dispersed in the “national security interest” of the United States.

Additionally, he offered an amendment to create a special depreciation allowance for qualified manufactured property that could be used more broadly than just semiconductor fabrication facilities to boost investments to capital intensive measures.

Another amendment by Lee aimed at critical mineral development capabilities in the United States would have had the administration account for all land subject to administrative withdrawal for critical mineral mining purposes.

As China looks to diversify and solidify its position at the top of many critical supply stacks, the United States cannot be kneecapping itself from future mineral development and processing capabilities.

Although there is some base language in the measure to further understand supply chain vulnerabilities through additional data inputs, further understanding of where the U.S. needs to see its weaknesses, such as in base pharmaceutical chemicals that American Enterprise Institute economic scholar Derek Scissors has pointed out, will be key to devising difficult strategies going forward.

Rubio sought an amendment to fully fund ripping and replacing Chinese telecommunication equipment that is still scattered throughout the United States. The fact that we are speaking to the tune of hundreds of billions of dollars through direct appropriations and authorizations in this bill yet cannot fund sufficiently the removal of a national security prerogative to remove Chinese-built telecommunication equipment from the United States is telling to where this bill ended in development.

Tackling the intellectual property difficulties of the China challenge is an area also not explored within the bill.

The Heritage Foundation’s Adam Mossoff and American Enterprise Institute’s Scissors have written extensively on the need for reforms of not only U.S. patent law to protect our innovation and counter Chinese adverse strategies in patents, but also offensive and defensive strategies geared toward legal and illegal intellectual property acquisition.

This includes building in government response mechanisms and sanctions for illegal cyber espionage actions that continue to happen every day by Chinese malicious cyber actors.

Taiwan’s Semiconductor Manufacturing Co. can roughly begin producing chips within two years of breaking ground.

Its efforts in Arizona are already being dampened for a variety of reasons. One of those reasons being the arduous U.S. permitting process.

An amendment by Sen. Bill Hagerty, R-Tenn., and the Senate passed a measure to include “semiconductor, artificial intelligence, and machine learning, high-performance computing and advanced computer hardware and software, quantum information science and technology, data storage and data management, cybersecurity” facilities in the FAST permitting process weren’t placed into the underlying bill. However, it passed the U.S. House separately this week.

While this measure should have been carried under regular order in the House and not used as a bargaining chip to get the bill across the finish line, it is a bright spot toward tackling a garden variety of regulatory issues to increase the competitiveness of U.S. national security technology sectors.

Finally, for all the funding this bill sends throughout elements of the U.S. government, university systems, and laboratories, additional resourcing for law enforcement to not only deter malicious espionage behaviors but more fully educate private, nonprofit, and broader federal, state, and local governments on seeing and countering cyber, intellectual property, and insider threats is wholeheartedly lacking.

Last week’s news from a Senate Homeland Security and Governmental Affairs Committee investigation about an attempt by a Chinese official to infiltrate the Federal Reserve for over a decade is just the tip of the iceberg of a wide range of threats our institutions face.

The CHIPS measure will be signed into law by President Joe Biden, but in the interest of doing something now and intensive lobbying efforts from K Street.

Senate Republicans have been hoodwinked by Senate Majority Leader Chuck Schumer and Sen. Joe Manchin, D-W.Va., into even more tax-and-spend reconciliation measures in the midst of record inflation and a recession. Congress has missed major opportunities to put lead on target to the current and ever-growing national security threats emanating from China and elsewhere around the globe.

Rubio hit the nail on the head upon passage of the legislation in the Senate, “No one should be surprised when we hear stories of Beijing stealing U.S. technology funded by this bill or companies producing more chips in China even as they receive money from the taxpayers.”

This piece originally appeared in The Daily Signal