Why America’s National Security Council Obsesses Over Microchips

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In the White House Situation Room, the President and senior cabinet officials convene to address the most pressing threats to the nation. This body, the National Security Council, coordinates America’s response to large-scale military conflicts, foreign policy crises, and intelligence matters.

In recent years, a significant portion of their attention has also focused on one small object: the semiconductor.

Also known as microchips or integrated circuits, these are the building blocks of our digital world. They are the invisible brains operating inside your smartphone, your car, your television, and the vast data centers that power the internet.

What Makes Microchips So Critical

To comprehend the national security implications of semiconductors, one must first appreciate their foundational role in technology. At its core, a semiconductor is a material, most commonly silicon, that possesses electrical conductivity somewhere between a true conductor like copper, which allows electricity to flow freely, and an insulator like rubber, which blocks it.

This unique intermediate property is the key to their power. Their conductivity can be precisely controlled and switched on or off.

This control is achieved by fabricating these materials into integrated circuits, or microchips. A chip is essentially a miniature city of billions of microscopic switches called transistors, all imprinted on a thin wafer of silicon. By turning these transistors on or off, the chip can manipulate the flow of electricity to represent the binary digits—the “zeros and ones”—that form the fundamental language of all modern computing.

Every email you send, every photo you take, every calculation a supercomputer makes is ultimately a complex sequence of these on-off electrical states managed by transistors on a chip.

The revolutionary impact of this technology stems from its exponential rate of improvement, an observation famously codified as Moore’s Law. Postulated in 1965 by Intel co-founder Gordon Moore, it states that the number of transistors that can be packed onto a chip doubles approximately every two years.

This relentless miniaturization has been the engine of technological progress for over half a century, making electronic devices exponentially smaller, faster, more powerful, and more energy-efficient. The result is a world saturated with computing power. A single modern smartphone possesses vastly more processing capability than the combined computers NASA used to land astronauts on the moon during the Apollo 11 mission.

The Foundation of Modern Life

This exponential growth means that semiconductors are not just another component—they are a foundational, “enabling” technology. They are essential to virtually every critical sector of a modern economy:

Communications and Computing: They power everything from personal computers and smartphones to the massive data centers and 5G networks that form the backbone of the digital economy.

Transportation: Modern vehicles, especially electric and autonomous cars, are essentially computers on wheels, relying on thousands of chips for engine control, safety systems, and infotainment.

Healthcare: Advanced medical equipment like MRI scanners, pacemakers, and diagnostic tools depend on semiconductors for their precision and reliability.

Clean Energy: Semiconductors are the basis of solar cells that convert sunlight into electricity and are critical for managing power grids and energy systems.

Military Systems: Every advanced defense platform, from jets and drones to satellites and missile guidance systems, is powered by sophisticated microchips.

The accelerating nature of Moore’s Law gives this technological foundation a unique strategic urgency. In past industrial eras, a nation’s dominance in a resource like steel or oil could be maintained for decades. However, in the semiconductor age, a technological lead is far more precarious.

Falling behind in chip technology doesn’t just mean having slower consumer gadgets. It means ceding leadership in the foundational technologies that will define future economic and military power, such as artificial intelligence, quantum computing, and autonomous systems.

For national security planners at the NSC, this creates a constant imperative to look ahead. Waiting for a technological deficit to become an obvious threat means it is already too late to catch up.

The World’s Most Complex Supply Chain

The journey of a single microchip from raw sand to a finished product is arguably the most complex and geographically dispersed manufacturing process in human history. It involves over a thousand distinct steps and relies on a fragile, intricate ecosystem of highly specialized companies and countries.

This specialization has driven down costs and spurred innovation, but it has also created a web of interdependencies that are now viewed as profound strategic vulnerabilities. The semiconductor supply chain is considered highly “upstream,” meaning a disruption at any single point can send massive shockwaves through countless downstream industries that depend on the final product.

The process can be broken down into three main stages, each dominated by different regions of the world:

Upstream: Design and Equipment

The life of a chip begins as a blueprint. This is the realm of chip design, a segment where the United States holds a commanding lead. “Fabless” companies like NVIDIA, Qualcomm, AMD, and Broadcom design the world’s most sophisticated processors but outsource the actual manufacturing.

These intricate designs, containing billions of transistors, are created using highly specialized software known as Electronic Design Automation (EDA) tools. This niche but absolutely critical software market is dominated by three firms, all U.S.-based: Cadence, Synopsys, and Mentor Graphics (a U.S. subsidiary of Germany’s Siemens), which together control over 70% of the market.

Once a chip is designed, it must be manufactured using some of the most complex machinery ever built. The market for this semiconductor manufacturing equipment is also highly concentrated. The Netherlands is home to ASML, which holds a monopoly on the extreme ultraviolet (EUV) lithography machines required to produce the most advanced chips.

Other key equipment suppliers are based in the United States (Applied Materials, Lam Research) and Japan (Tokyo Electron).

Midstream: Materials and Fabrication

The physical production process starts with hyper-pure raw materials. Japan is a dominant player in this segment, supplying a majority of the world’s silicon wafers (the raw substrate of a chip) and critical chemicals like photoresists (light-sensitive materials used in lithography).

The heart of the entire supply chain is wafer fabrication—the process of turning the design blueprint into physical circuits on silicon wafers inside massive, multi-billion-dollar factories called “fabs.” This stage is where the most critical geographic concentration—and vulnerability—lies.

While the U.S. leads in design, it has fallen far behind in manufacturing. Today, about 75% of global semiconductor manufacturing capacity is located in East Asia.

The concentration is even more extreme for the most advanced chips (those with features smaller than 10 nanometers). An astonishing 100% of this leading-edge manufacturing capacity is located in just two places: Taiwan (92%) and South Korea (8%).

Taiwan Semiconductor Manufacturing Company (TSMC) is the undisputed global leader, operating as a “pure-play foundry” that manufactures chips for fabless design firms like Apple, NVIDIA, and AMD. South Korea’s Samsung is the other major player in advanced fabrication.

Downstream: Assembly, Testing, and Packaging

After the intricate circuits are etched onto a silicon wafer, the wafer is cut into individual chips (or “dies”). In the final stage, these dies are enclosed in a protective casing (“packaging”), tested for defects, and prepared for assembly into electronic devices.

This process, known as Assembly, Testing, and Packaging (ATP) or Outsourced Assembly and Test (OSAT), is less technologically intensive but requires significant labor. Consequently, this part of the supply chain is heavily concentrated in China, Taiwan, and other Southeast Asian countries.

This globally distributed system has created a series of critical “choke points”—single points of failure that could be disrupted with catastrophic consequences. Analysis has identified more than 50 points across the value chain where a single region holds over 65% of the global market share.

The staggering cost of creating self-sufficient regional supply chains—estimated at over $1 trillion in upfront investment, which would raise chip prices by 35% to 65%—underscores the immense economic benefits of the current system that are now being weighed against its profound national security risks.

The National Security Council’s Role

The National Security Council was established by the National Security Act of 1947, a landmark piece of legislation passed in the wake of World War II. Policymakers at the time, facing the dawn of the Cold War with the Soviet Union, recognized that the challenges of the modern era required a more integrated approach to statecraft.

The NSC was created as a permanent interdepartmental body with a clear statutory mission: to advise the President on the integration of domestic, foreign, and military policies relating to national security and to facilitate cooperation among the various government agencies involved in these matters.

The NSC is chaired by the President. Its statutory members are the Vice President, the Secretary of State, the Secretary of Defense, the Secretary of Treasury, and the Secretary of Energy. Other key officials serve as statutory advisors, including the Chairman of the Joint Chiefs of Staff and the Director of National Intelligence.

The day-to-day work of the NSC is managed by the National Security Advisor and supported by a professional staff. Policy issues are typically vetted through a hierarchical committee system:

• The Principals Committee (PC): A cabinet-level forum convened by the National Security Advisor
• The Deputies Committee (DC): A sub-cabinet forum that handles the bulk of policy coordination
• Interagency Policy Committees (IPCs): Working-level groups that manage specific regional or topical issues

This structure ensures that when a decision reaches the President’s desk, it has been thoroughly analyzed from all relevant government agencies’ perspectives, and major disagreements have been identified and debated.

Crucially, the concept of what constitutes “national security” has expanded significantly since 1947. The Biden-Harris NSC operates under a mandate that acknowledges today’s challenges “demand a new and broader understanding of national security—one that facilitates coordination between domestic and foreign policy as well as among traditional national security, economic security, health security, and environmental security.”

The semiconductor issue sits at the precise intersection of these domains. It is an economic issue, as supply chain disruptions can cripple industries and fuel inflation. It is a technological issue, as leadership in chip technology underpins innovation across the entire economy. And it is a traditional military issue, as advanced weaponry is entirely dependent on these components.

Three Threat Vectors

From the perspective of the NSC, the vulnerabilities in the semiconductor supply chain create three primary and interconnected threat vectors that elevate semiconductors from a simple economic good to a matter of urgent national concern:

Economic Security

The risk that a supply chain disruption—caused by a natural disaster, pandemic, or political conflict—could trigger severe economic damage, halting production in key industries, costing billions in lost revenue, and fueling widespread inflation.

Military Security

The risk that the U.S. military’s dependence on foreign-made semiconductors could leave it unable to produce or maintain the advanced weapon systems essential for national defense, especially during a crisis.

Hardware and Cybersecurity

The most insidious risk—that a potential adversary could exploit access to the manufacturing process to embed malicious, undetectable “backdoors” or “kill switches” directly into the silicon of chips destined for critical U.S. military or infrastructure systems.

The Automotive Lesson: When Supply Chains Break

The abstract risk of supply chain disruption became painfully concrete during the recent global chip shortage, which offered a real-world stress test of the system’s vulnerabilities. The automotive industry provided a stark and costly lesson in the far-reaching consequences of semiconductor scarcity.

The crisis began in early 2020 with the onset of the COVID-19 pandemic. As global economies shut down, vehicle sales plummeted. In response, automakers, operating on a “just-in-time” inventory model designed to minimize costs, drastically cut their orders for semiconductor chips.

Simultaneously, with populations locked down at home, demand for consumer electronics like laptops, gaming consoles, and networking equipment skyrocketed. Semiconductor manufacturers, facing a collapse in orders from one sector and a massive surge from another, reallocated their finite production capacity away from automotive chips and toward consumer electronics.

When auto demand unexpectedly rebounded in late 2020, car companies found themselves at the back of a very long line. Chipmakers could not simply flip a switch to resume production. The manufacturing lead time for a chip is months long, and building new factory capacity takes years and billions of dollars.

The Economic Impact

The economic impact was staggering. The shortage is estimated to have cost the global automotive industry over $210 billion in lost revenue in 2021 alone. Millions of vehicles were removed from production schedules worldwide—over 35 million fewer vehicles were projected to be built globally between 2020 and 2022 compared to pre-pandemic levels.

For American consumers, this translated directly into empty dealer lots, months-long waiting lists for new cars, and soaring prices. With demand far outstripping the limited supply, the average sales price of a new vehicle in the U.S. hit a record of nearly $45,000 in the first half of 2022, a 17.5% increase from the previous year.

The situation became so extreme that by June 2022, nearly 13% of consumers who financed a new car had monthly payments of $1,000 or more.

The crisis demonstrated how a bottleneck in a single, inexpensive component can bring a multi-trillion-dollar industry to its knees and directly fuel broader economic inflation. The impact was not limited to cars—over 169 different industries felt the effects, with shortages and price hikes for everything from the PlayStation 5 to household appliances.

Perhaps the most crucial lesson was counterintuitive. The production halts were not primarily caused by a lack of the most advanced, cutting-edge chips. Instead, the critical shortage was in older, less glamorous “legacy” or “mature-node” semiconductors—the workhorse chips used for basic functions like power management, display drivers, and sensor controls.

A modern car can require between 1,400 and 3,000 individual chips, the vast majority of which are these mature-node types.

This exposed a fundamental market failure. Semiconductor companies have the greatest financial incentive to invest their capital in building new fabs for high-margin, leading-edge chips. There is far less incentive to invest in new capacity for the low-margin legacy chips that the broader industrial economy relies upon.

This creates a structural vulnerability where the components most essential for widespread industrial stability are the least attractive for private investment.

Military Vulnerability

While the economic fallout from the chip shortage was highly visible, the second threat vector—military security—is of even more direct concern to the National Security Council. Every major U.S. defense system and platform relies on semiconductors for its performance.

The erosion of America’s domestic microelectronics capabilities is therefore a direct threat to the nation’s ability to defend itself and its allies.

Modern warfare is data-driven. A single F-35 fighter jet processes more information in one mission than entire air fleets did during the Vietnam War. Hypersonic missiles rely on AI-powered chips to make millisecond course corrections. Satellite networks use advanced processors to autonomously reconfigure themselves to evade threats.

These capabilities represent a fundamental shift in military power, and they are all enabled by semiconductors.

The U.S. military’s deep dependence on this technology is colliding with the reality of a globalized and offshored supply chain. While the U.S. remains the world leader in chip design, its share of actual manufacturing has dwindled to around 12%, with no onshore capability to produce the most advanced chips at scale.

This forces the Department of Defense to rely on sources in Taiwan and South Korea for the fabrication of its most sophisticated designs. Furthermore, the U.S. has almost no onshore capability for the final assembly, testing, and packaging stages, with most of this work conducted in Taiwan and China.

Defense-Specific Requirements

The military’s needs also present a strategic paradox. While the public focus of the “chip war” is often on the race to the smallest and fastest nodes, many critical defense applications do not use this bleeding-edge technology. Military systems prioritize extreme reliability, durability, and the ability to operate in harsh environments—from the intense radiation of space to the extreme G-forces of a missile launch.

This often leads the DoD to use older, proven manufacturing processes, typically in the 28nm to 90nm range, which offer the optimal balance of performance and reliability.

These defense-grade chips include specialized categories such as:

Radiation-Hardened (Rad-Hard) Processors: Essential for satellites and spacecraft, these chips are designed to operate flawlessly for 15 years or more despite constant bombardment by cosmic radiation.

High-Power Wide Bandgap Semiconductors: Materials like Gallium Nitride (GaN) and Silicon Carbide (SiC) can operate at much higher temperatures, voltages, and frequencies than silicon. They are critical for advanced radar systems, like those on the F-35, and electronic warfare applications.

Secure Cryptochips: These chips are designed with physical anti-tamper features that can automatically erase sensitive encryption keys if a breach is detected.

This reliance on mature-node technology means the DoD faces the same structural market failure as the automotive industry. The commercial market is underinvesting in capacity for these older, less-profitable chips, creating a long-term supply risk.

A recent report from the data analytics firm Govini, commissioned by the DoD, concluded that over 40% of the semiconductors used in U.S. weapons systems and infrastructure are sourced from China.

The Hardware Backdoor Threat

The third threat vector is the most clandestine and, from a national security perspective, the most alarming. This is the threat of the hardware backdoor: the possibility that an adversary could deliberately alter a microchip’s physical circuitry during the manufacturing process to insert a hidden “kill switch” or espionage function.

Unlike software viruses or malware, which can be detected and removed by antivirus programs and other security measures, a hardware backdoor is etched into the very silicon of the chip. It is a physical part of the component’s design, making it virtually impossible to detect through conventional scanning and impossible to patch or remove.

Such a backdoor could be designed to remain dormant until activated by a remote signal, at which point it could be used to:

• Shut down critical systems: A kill switch embedded in chips used in a power grid, communications network, or military platform could disable that infrastructure at a critical moment
• Exfiltrate sensitive data: A backdoor could secretly copy and transmit classified information, intellectual property, or personal data to an adversary
• Degrade performance or provide false information: A compromised chip could be designed to subtly corrupt data or fail under specific conditions, undermining the reliability of a weapon system or intelligence-gathering tool

The highly globalized nature of the semiconductor supply chain provides multiple opportunities for a sophisticated state actor to insert such a backdoor. The compromise could happen at an untrusted design firm, a foreign fabrication plant, or a packaging facility.

While publicly confirmed instances of chip-based hardware backdoors are rare, the threat is taken extremely seriously within the intelligence and defense communities. The 2018 Bloomberg Businessweek report alleging that operatives from China’s People’s Liberation Army had inserted tiny malicious chips onto server motherboards manufactured by Supermicro brought the issue to public prominence.

While the companies involved and U.S. government agencies have strongly denied the report’s findings, the story highlighted the plausibility and potential impact of such a supply chain attack.

Moreover, the technical feasibility of such hardware implants is not in doubt. Documents released by Edward Snowden revealed that the U.S. National Security Agency’s Tailored Access Operations unit routinely intercepted computer hardware shipments to install its own covert surveillance implants, proving that intelligence agencies are both capable of and willing to execute such operations.

The hardware backdoor threat fundamentally alters the risk calculus for the NSC. An economic disruption can be managed, and a military parts shortage can be mitigated with stockpiles. A hardware backdoor, however, represents a persistent, latent vulnerability that turns a nation’s own technological assets into potential weapons for an adversary.

The U.S.-China Chip War

The economic, military, and cybersecurity risks posed by the semiconductor supply chain are unfolding within the broader context of a deepening strategic competition between the United States and China. In this rivalry, semiconductors have become a central battlefield.

Both Washington and Beijing recognize that leadership in the foundational technologies of the 21st century—particularly artificial intelligence, quantum computing, and advanced telecommunications—will confer a decisive strategic advantage. As all of these technologies are powered by advanced semiconductors, control over the chip supply chain has become a paramount objective for both countries.

The U.S. Strategy: Slow Down China’s Advance

The United States’ strategy is fundamentally defensive, leveraging its current technological superiority in key segments of the supply chain to slow China’s progress, particularly in areas with direct military applications.

This shifted dramatically in October 2022, when the Biden administration implemented a sweeping set of export controls designed to cut off China’s access to the world’s most advanced chips and the tools needed to make them.

These controls target several critical choke points where the U.S. and its allies have a dominant position:

Advanced Chips: U.S. companies are restricted from selling high-performance computing chips, such as those made by NVIDIA and AMD that are essential for training large AI models, to Chinese entities.

Manufacturing Equipment: The U.S. has restricted the export of advanced semiconductor manufacturing equipment. Crucially, it has also successfully pressured key allies, namely the Netherlands (home to ASML) and Japan, to implement similar controls, creating a multilateral blockade on the tools needed to produce chips with features smaller than 14 nanometers.

Design Software: Controls have also been placed on the export of advanced EDA software, targeting China’s ability to design its own cutting-edge chips.

The explicit goal of this policy is to “freeze Beijing’s tech capability” and slow the development of advanced AI that could be used to modernize the People’s Liberation Army and alter the military balance of power.

China’s Strategy: Achieve Self-Reliance

China’s strategy is driven by a desire to break its significant foreign dependency. In 2020, China imported a staggering $350 billion worth of semiconductors, an amount that exceeded its spending on oil imports, highlighting a massive strategic vulnerability.

U.S. export controls, while damaging in the short term, have only intensified Beijing’s resolve to achieve technological self-sufficiency.

Through state-led industrial policy initiatives like “Made in China 2025,” the Chinese government is pouring tens of billions of dollars into its domestic semiconductor industry, aiming to build a complete supply chain free from foreign choke points.

This intense competition is leading to a fragmentation, or “bifurcation,” of the global technology ecosystem. The once-integrated global market is fracturing into two spheres: a U.S.-led system and an emerging China-led system.

This dynamic presents U.S. policymakers with a difficult strategic dilemma. While the export controls are intended to slow China’s military modernization, they also serve as a powerful catalyst for China’s indigenous innovation. By denying China access to Western technology, the U.S. is inadvertently forcing it to develop its own, potentially creating a more formidable and self-reliant competitor in the long run.

America’s Response: The CHIPS Act

Faced with the interconnected threats of economic disruption, military vulnerability, and intense geopolitical competition, the United States has embarked on its most significant industrial policy initiative in generations: the CHIPS and Science Act.

Signed into law on August 9, 2022, the act is a comprehensive, bipartisan effort to reverse the decades-long decline in domestic semiconductor manufacturing and re-establish American leadership in this critical technology.

The primary goal of the legislation is to bolster America’s economic and national security by onshoring a larger portion of the semiconductor supply chain. The act aims to reverse a stark trend: the U.S. share of global semiconductor manufacturing capacity fell from 37% in 1990 to just 12% in 2020.

The Funding Structure

The law authorizes approximately $280 billion in spending, with $52.7 billion specifically appropriated for semiconductor-related initiatives to be distributed over five years.

A critical component of the CHIPS Act is its national security “guardrails.” To receive federal funding, companies must agree not to engage in any significant transaction involving the material expansion of semiconductor manufacturing capacity for advanced chips in a “foreign country of concern,” most notably China, for a period of 10 years.

Major Investments

Since the act’s passage, the Department of Commerce has announced a series of major awards to catalyze the construction of a new domestic semiconductor ecosystem, including multi-billion-dollar grants to:

• Intel: To expand facilities in Arizona and Ohio
• TSMC: To build advanced fabs in Arizona, bringing the world’s leading-edge manufacturing processes to U.S. soil
• Samsung: To construct a new advanced manufacturing cluster in Texas
• Micron: To build massive new memory chip fabs in New York and Idaho

These projects, totaling hundreds of billions of dollars in combined public and private investment, are expected to create tens of thousands of high-paying manufacturing jobs and tens of thousands more construction jobs across the country.

What This Means for Everyday Americans

The high-stakes geopolitical maneuvering and multi-billion-dollar industrial policies surrounding semiconductors have tangible consequences for the daily lives of all Americans.

Price and Availability of Goods

In the short term, the volatility of the global supply chain remains a significant factor. As the automotive crisis demonstrated, disruptions caused by geopolitical tensions, natural disasters, or pandemics can lead to immediate shortages and higher prices for a wide range of goods, including cars, smartphones, PCs, and gaming consoles.

The policy of onshoring manufacturing through the CHIPS Act is designed to mitigate this risk in the long run by creating a more resilient domestic supply. However, this resilience may come at a cost. Manufacturing in the U.S. is generally more expensive than in Asia, which could lead to higher component costs and potentially keep prices for some electronics elevated compared to a fully globalized market.

The trade-off, from the NSC’s perspective, is accepting potentially higher and more stable prices in exchange for avoiding the catastrophic economic shocks of a supply chain collapse.

Technological Innovation and Choice

The U.S.-China tech competition is accelerating a “bifurcation” of the global technology ecosystem. This could lead to a world with two parallel, and potentially incompatible, technological spheres—one aligned with the U.S. and one with China.

For consumers, this could mean that certain apps, devices, or services that work in one sphere may not work in the other. This fragmentation could slow the pace of global innovation by preventing seamless collaboration and forcing companies to duplicate R&D efforts for different markets, ultimately limiting consumer choice.

Jobs and the U.S. Economy

On the domestic front, the CHIPS Act represents a significant investment in the American economy and workforce. The construction and operation of new semiconductor fabs are projected to create tens of thousands of high-tech manufacturing jobs and over a hundred thousand construction jobs in states like Arizona, Ohio, Texas, and New York.

The act also includes substantial funding for workforce development and STEM education, aiming to build a pipeline of skilled technicians, engineers, and researchers to support the revitalized industry. The legislation is designed to foster new regional innovation hubs, spreading economic opportunity beyond traditional tech centers.

The intense focus of the National Security Council on the tiny microchip is a reflection of a changed world. The era of prioritizing pure economic efficiency above all else has given way to a new reality where technological resilience is inseparable from national and economic security.

The policies being enacted today represent a calculated trade-off: accepting some near-term costs and complexities for the long-term goal of building a more stable, secure, and prosperous technological foundation for the United States.

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