National Security

President Biden, Secretary Raimondo, and leaders in Congress passed the CHIPS and Science Act with strong bipartisan support because 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 we saw early in the COVID-19 pandemic, a shortage of semiconductors can send shockwaves across the economy.  

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

U.S. Commerce Secretary Gina Raimondo outlined in her speech at Georgetown University’s School of Foreign Service in February 2023 how protecting national security is a centerpiece of the CHIPS for America program. 

Strengthening the U.S. Defense Industrial Base

The United States Departments of Commerce and Defense  signed a Memorandum of Agreement (MOA) to expand collaboration in strengthening the U.S. semiconductor defense industrial base. The agreement 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, 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 NOFO, 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, the CHIPS Program Office (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 bipartisan 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 also provide details on and definitions for these national security guardrails. 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 semiconductors as critical to national security 
• Details restrictions on joint research and technology licensing efforts with foreign entities of concern 

Read more about the final CHIPS and Science Act national security guardrails.