On Tuesday, Dr. Eric Schmidt testified before the Senate Armed Services Committee. The former Google CEO and current chair of the National Security Commission on Artificial Intelligence offered a sobering message to Congress about China’s technology strategy:
[R]ight now, the United States is not playing to win. It is the Chinese who are competing to become the world’s leading innovators. Never before in my lifetime have I been more worried that we will soon be displaced by a rival or more aware of what second place means for our economy, our security, and the future of our nation.
Schmidt urged Congress to take up a “bold, bipartisan initiative can extend our country’s technology advantage,” reasoning that “our technology and that of our closest allies and partners embodies our values, advancing individual liberty and strengthening free societies are also on the line.”
His testimony previewed the forthcoming recommendations of the Commission’s final report, which is expended on Monday. For example, Schmidt called for “a new White House-led Technology Competitiveness Council” and a more asserting federal government, including new investments in research and development and immigration reforms to attract new talent. He also called on the federal government to defend American technological innovation from foreign theft. “Protecting critical intellectual property and thwarting the systemic campaign of illicit knowledge transfer being conducted by competitors is a government obligation,” Schmidt explained.
Why Microelectronics Must Be a Government Priority
Schmidt’s testimony focused on the need to maintain a competitive advantage in the critical area of microelectronics. His explanation for why this is critical is worth reviewing in length:
“After decades leading the microelectronics industry, the United States is now almost entirely reliant on foreign sources for production of the cutting-edge semiconductors that power all of the AI algorithms that are critical for defense systems and everything else. The dependency on semiconductor imports, particularly from Taiwan, creates a strategic vulnerability from adverse foreign government action, natural disaster, and other events that can disrupt the supply chains for electronics—as we have seen in the auto industry recently. Although American universities and firms remain global leaders in the key areas of semiconductor R&D and chip design, the semiconductor industry is now highly globalized and competitive. Taiwan Semiconductor Manufacturing Corporation (TSMC) leads the world in semiconductor contract manufacturing and Samsung in South Korea is also producing state-of-the-art logic chips. Simultaneously, in a bid to catch up and achieve chip self-sufficiency, China is pursuing unprecedented state-funded efforts to forge a world-leading semiconductor industry by 2030. If a potential adversary bests the United States in semiconductors, it could gain the upper hand in every domain of warfare.”
How should the government respond? Schmidt recommended a national strategy to two maintain a 2-generation advantage in microelectronics, including: “a national microelectronics leadership strategy,” “a 40 percent refundable tax credit and grants for domestic fabrication investments by firms from the United States and its allies,” and “$12 billion over the next five years for microelectroncis” R&D and infrastructure.
His recommendations for a national semiconductor strategy are broadly consistent with my recommendations in Lincoln Network’s December report on “Answering the China Chip Challenge.”
There is reason for optimism that Congress will continue its bipartisan efforts to support the nation’s competitiveness in the semiconductor sector. In December, Congress passed the National Defense Authorization Act, which authorized new incentives and investments in semiconductor research and development.
A priority moving forward must be to fund these programs through the appropriations cycle. Fifteen Senators recently sent a bipartisan letter to the National Economic Council urging the Biden administration to “support efforts to secure the necessary funding to swiftly implement the semiconductor-related provisions in the most recent [NDAA].”
Schmidt closed his testimony by urging Congress to act swiftly on the AI Commission’s final recommendations due Monday. We will read the report with interest and offer our analysis here.