National Security

A reliable source of semiconductors and the stability of the associated supply chain is critical to the long-term national and economic security of the United States. As seen early in the COVID-19 pandemic, a shortage of semiconductors can send shockwaves across the economy. 

That shortage made it clear that we had a vulnerability: The United States made none of the world’s most advanced chips and was lacking legacy chip manufacturing, both of which are needed for defense, critical infrastructure, and emerging technologies like AI.

That’s why CHIPS for America is investing in our capacity here at home so the United States has resilient supply chains to provide the chips and technology we need for military modernization, intelligence efforts, and to support critical infrastructure. 

Strengthening the U.S. Defense Industrial Base

The United States Departments of Commerce and Defense are working to expand collaboration in strengthening the U.S. semiconductor defense industrial base. The collaboration facilitates the flow of information between the Departments to ensure that their respective investments position the U.S. to produce semiconductor chips essential to national security and defense programs.   

Today, many elements of the semiconductor ecosystem are geographically concentrated and produced outside of the United States. This endangers the global economy and U.S. national security. For example, many U.S. defense capabilities – including hypersonic weapons, drones, and satellites – are unduly vulnerable to supply chain disruptions.  To strengthen U.S. national security, the CHIPS Program Office (CPO) seeks projects that expand or modernize the production of chips that serve U.S. national security missions while also serving commercial markets. Consistent with the Notice of Funding Opportunities (NOFOs), CPO evaluates projects according to specific criteria, which include economic and national security, commercial viability, and financial strength. Projects that propose to support both national security missions and commercial markets are more likely to satisfy CPO objectives when evaluated against these criteria.

National Security in Applications Evaluation

Towards this end, CPO evaluates applications with an eye towards how projects: 

• Produce a secure, reliable supply of semiconductors, especially for the defense industrial base and critical infrastructure sectors;
• Maintain sufficient operational security of proposed projects; and
• Remain informed of and adopt best practices for supply chain security and risk management.   

CPO will also review applications for involvement of “foreign entities of concern” and will not approve any applications where a foreign entity of concern—through control, access to information, or other mechanisms—poses an undue risk to a project or to U.S. national security interests. Additionally, CPO will implement guardrails mandated by Congress that prevent CHIPS Incentives Program funds from supporting the semiconductor industries of foreign countries of concern. These guardrails will prohibit any company that receives funding from engaging in significant transactions involving the material expansion of semiconductor manufacturing capacity in countries of concern for 10 years after the date of the award, subject to limited exceptions authorized in law. Further, the guardrails will prohibit certain joint research and technology licensing initiatives that raise national security concerns. 

National Security Guardrails

In March 2023, the Department of Commerce issued a proposed rule and sought public comment period on the CHIPS and Science Act’s The Department carefully reviewed and incorporated suggestions from stakeholders, including representatives of the domestic and foreign semiconductor industry, academia, labor organizations, trade associations, and others in developing the final national security guardrails.

The funding provided by the CHIPS and Science Act included clear guardrails to strengthen national security. The statute:

• Prohibits recipients of CHIPS incentives funds from using the funds to construct, modify, or improve a facility outside of the United States;
• Restricts recipients of CHIPS incentives funds from investing in most semiconductor manufacturing in foreign countries of concern for 10 years after the date of award; and,
• Limits recipients of CHIPS incentives funds from engaging in certain joint research or technology licensing efforts with a foreign entity of concern that relates to a technology or product that raises national security concerns.

If these guardrails are violated, the Department can claw back the entire federal financial assistance award.

The final guardrails rule also provides details on and definitions for these national security requirements. In particular, the rule:

• Establishes standards to restrict expansion of advanced facilities in foreign countries of concern
• Limits the expansion of legacy facilities in foreign countries of concern
• Classifies categories of semiconductors as critical to national security
• Details restrictions on joint research and technology licensing efforts with foreign entities of concern