Chris Miller of the American Enterprise Institute explains why China’s increased focus on chips deserves American policymakers’ attention.

Toys and tractors; planes and pacemakers; coffeemakers and construction equipment; microwaves and medical devices—inside almost every device with an on-off switch is a foundational semiconductor. These chips don’t require the most advanced manufacturing processes, but modern economies can’t work without them. …

… Today most foundational chips are manufactured either in the U.S. or in close partner countries like Japan, Europe, Taiwan, Korea, or Singapore. Yet China is pouring billions of dollars into several dozen major new chipmaking facilities, known as fabs. Though China’s efforts to reach cutting edge capabilities have attracted the most attention, most of China’s new chipmaking facilities will produce foundational chips. …

… Chinese firms receiving vast state funding or benefiting from state ownership don’t operate according to market principles. If they produce uneconomic volumes and sell below market prices, they will put pressure on Western semiconductor firms’ profitability. Most problematic, they will deter new chipmaking investments in the West. This is already impacting the calculus of Western chipmakers and their investors.

If U.S. or Western manufacturers—of autos, airplanes, medical devices, tractors, or any other important sector—become more reliant on Chinese-made chips, Beijing gains new opportunities for economic coercion. …

… China’s growing role in foundational chip production will likely serve as a beachhead for increased reliance on Chinese electronics in Western manufacturing supply chains, raising data security concerns. One cyber security researcher recently found that 90% of the data collected by a Chinese electric vehicle—including geolocation data, camera data, voice data, and other types of data—was transmitted to servers in China. Greater reliance on Chinese chips will likely lead to greater reliance on Chinese electronics systems more generally—and thus intensified data security issues.