The Economic and Security Risks of the U.S. CHIPS Act: Can It Counter China’s Semiconductor Dominance?

Taalya Khan

Close-up image of a semiconductor (Via: ATP Products)

In an era where economic security is national security, the U.S. has taken a bold step to reclaim leadership in semiconductor manufacturing. The CHIPS and Science Act, signed into law in 2022, directs $52 billion toward boosting domestic semiconductor production, aiming to reduce reliance on foreign supply chains—especially those tied to China. While this policy is a significant investment in America’s technological future, its effectiveness in countering China’s semiconductor dominance remains uncertain.

The global semiconductor supply chain is deeply interconnected, with Taiwan, South Korea, and China playing crucial roles. Taiwan’s TSMC alone produces over 90% of the world’s most advanced chips, and China is the largest market for these chips. This concentration creates a major economic and security vulnerability, especially as tensions between the U.S. and China continue to rise. By incentivizing domestic manufacturing, the CHIPS Act seeks to mitigate the risks of supply chain disruptions, a lesson made painfully clear by the supply chain issues caused during the COVID-19 pandemic.

However, despite its ambitious goals, the CHIPS Act faces several challenges. First, semiconductor manufacturing is extremely complex and expensive. The U.S. lacks the skilled workforce and supply chain infrastructure to immediately compete with established players like Taiwan. In addition, reports warn that building fabrication plants (fabs) in the U.S. will take years, if not decades, to reach meaningful production levels.

Second, the policy risks escalating trade tensions with China, which has already announced countermeasures in response. China has ramped up its own domestic semiconductor investments, spending over $143 billion to develop its chip industry. If China maintains dominance in semiconductor manufacturing, the U.S. could face severe security vulnerabilities beyond simple supply chain disruptions. Semiconductors power everything from consumer electronics to critical military and defense systems, including advanced fighter jets, missile defense systems, and cybersecurity infrastructure. A dependence on China for these components could expose the U.S. to supply restrictions or technological backdoors, compromising national security. The 2020 global chip shortage, which severely impacted the auto industry, illustrated how vital semiconductor access is to continued economic stability.

Lastly, the CHIPS Act raises concerns about long-term sustainability. While government subsidies can jumpstart domestic production, the policy's success depends on private sector commitment and global competitiveness. Without consistent funding and strategic partnerships, the U.S. risks falling behind once subsidies run out. Therefore, for the CHIPS Act to make the necessary impact, it must be further subsidized by investing in and reforming other sectors, such as education and immigration. 

The CHIPS Act aims to position the U.S. as a leader in semiconductor manufacturing, but whether it serves as a true long-term vision depends on sustained government investment and policy continuity. While the act has caused significant private sector commitment and the development of new fabrication plants, it primarily functions as a short-term intervention, providing funding and incentives that may not be sufficient to secure lasting dominance.

Two years in, progress has been mixed. While billions in funding have been allocated, delays in implementation and workforce shortages pose significant challenges to further progress. The new administration introduces further uncertainty, with the potential renegotiations of subsidies raising concerns about the program’s stability. 

To truly strengthen economic and national security, the U.S. must adopt a multi-faceted, multi-industry approach. This includes not only domestic investments but also securing strategic trade alliances, developing a skilled workforce, and fostering research and development in next-generation semiconductor technologies. If the CHIPS Act is to be more than just a temporary boost, it must evolve into a broader, long-term strategy that ensures sustained growth and competitiveness in an increasingly volatile global market.