The Threat of Electronic Consumer Goods to National Cybersecurity
Executive Summary
Given rising tensions with China, growing national security concerns, and the potential for domestic job creation, Congress should allocate additional subsidies for domestic research and manufacturing of semiconductors. China’s semiconductor chip designs are poised to surpass the U.S.’, presenting cybersecurity risks to domestic military and consumer tech. The U.S. should protect the intellectual property of its semiconductor manufacturers and prevent China from appropriating semiconductor chip designs, thereby widening the technological gap. U.S. consumers’ adoption of Chinese devices has inadvertently created opportunities for China to conduct espionage operations on civilian and military targets, further exacerbating the national cybersecurity risk.
Background on Chinese Semiconductor Development
Chinese investments in semiconductor technology now surpass those of the United States by a significant margin. Over the past decade, China has invested over $290.8 billion in its domestic semiconductor industry, four times more than the corresponding U.S. investment during the same period. The Chinese government launched the China Integrated Circuit Industry Investment Fund (CICIIF) in 2014 to fortify the nation’s position in the global semiconductor landscape. Intended to reduce dependence on foreign-made integrated circuits (ICs) and foster self-sufficiency in chip manufacturing, the fund operates under the purview of the National Integrated Circuit Industry Investment Fund Co., Ltd., commonly known as the “Big Fund.” Endowed with substantial state financial backing, the CICIIF supports research and development and facilitates innovation across various semiconductor industry segments.
Despite bipartisan attempts by both the Trump and Biden administrations to expand the technological gap between the U.S. and China, the latter has outpaced the U.S. in annual growth of transistor density. All major U.S. defense systems rely on semiconductor components produced in Taiwan for their operation. An erosion of the U.S. semiconductor supply chain directly threatens the U.S.’ defensive capabilities. In 2018, the Trump administration cut off Chinese chipmaker Fujian Integrated Circuit from U.S. suppliers following investigations that revealed that the state-owned firm misappropriated trade secrets from U.S. chip manufacturers. In 2022, the Biden administration expanded the policy through the CHIPS and Science Act, which established a set of export controls restricting China from importing semiconductors made anywhere with U.S. intellectual property or equipment. However, these current advanced semiconductor export restrictions are ineffective at curbing Chinese advanced semiconductor development.
U.S. consumer adoption of Chinese semiconductor technology paved the way for foreign cyber espionage, heightening vulnerabilities within the domestic chip market. Increasing reliance on Chinese semiconductor technology in U.S. consumer electronics, as highlighted by the mass production of Huawei phones, ZTE phones, and Lenovo computers, poses national cybersecurity concerns attributable to the surveillance capabilities embedded in Chinese hardware. These concerns led to bans on the sales of Huawei and ZTE devices within the U.S., due to “unacceptable risk” to national security.
Figure 1. Semiconductor Investment ($ Billion) vs. Source of Funding.,
Consumer Adoption of Chinese Semiconductor Technology Poses National Security and Espionage Concerns
China leads the global consumer electronics market with a revenue of $251.4 billion, surpassing the U.S., which holds $150.2 billion in market share revenue. This market influence has resulted in the widespread adoption of Chinese technology in U.S. consumer electronics. Control of the consumer electronics market has allowed China to influence U.S. consumers through proprietary software applications and by conducting cyber espionage on U.S. broadband networks and misappropriating intellectual property from U.S. telecommunication companies. The Biden administration took a significant step in curbing China’s influence by adding China’s top consumer semiconductor manufacturer, Semiconductor Manufacturing International Corporation (SMIC), to a trade blacklist that prevented the company from acquiring advanced semiconductor technology after the company misappropriated U.S. intellectual property for military applications.
Reliance on Foreign Semiconductor Supply Undermines Domestic Cyberwarfare Capabilities
The United States depends on China for over $1 billion of legacy semiconductors annually, including over $110 million for national defense purposes. China surpassed the U.S. in the volume of semiconductor manufacturing despite the U.S.’s $280 billion investment in its domestic semiconductor industry in 2022. Current domestic production of legacy semiconductors cannot support military and civilian consumption. A legacy semiconductor ban from China will compromise U.S. electronics equipment manufacturing capabilities, undermining national cyberwarfare capabilities and diminishing U.S. military technological superiority. In August 2023, Chinese state-sponsored hackers placed modifying software inside routers targeting government military reconnaissance systems by accessing hardware backdoors injected during production in China. Committees of jurisdiction within the U.S. Congress and enforcement agencies within the Executive Branch affected implemented network defenders that monitored unauthorized downloads of bootloaders, firmware images, and reboots.
The Narrowing Technological Gap
Despite trade restrictions and heavy U.S. investment in the domestic semiconductor industry, China is projected to surpass U.S. die density (the number of transistors packed onto a computer die) by 2031. Current U.S. policy prohibits exporting to China advanced (10nm and below) semiconductors produced using U.S. technology or intellectual property to China. Advanced U.S. chipmakers NVIDIA, Intel, and AMD have ceased exporting their flagship dies to China. However, China continues to source advanced semiconductor technology for research and development by illegally importing through its trade partners unaffected by United States trade restrictions. If a potential adversary outpaces the United States in semiconductors over time or abruptly blocks U.S. access to advanced chips, it could secure a strategic advantage across all areas of warfare.
Anti-Outsourcing Provisions
Anti-outsourcing measures should be implemented to ensure that taxpayer-funded subsidies lead to domestic job creation rather than benefiting companies that move operations overseas. These measures would address concerns about unchecked corporate welfare and lack of accountability in subsidy programs like the CHIPS Act, ensuring that financial support is tied to building manufacturing plants in the U.S. and keeping jobs at home.
A Final Assessment of the Expanded Funding Bill
Escalating threats posed by China’s semiconductor advancements demand investments in domestic semiconductor production. China’s substantial investments in semiconductor technology highlight the need to widen the technological gap to mitigate potential cybersecurity threats. Failure to maintain technological supremacy will result in dependence on foreign technology for national security applications and Chinese control over U.S. consumer technology.
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Biography of Author
Terry is a senior with a strong interest in public policy and technology. Currently, he works as a Research Assistant at the Gerald R. Ford School of Public Policy’s Science, Technology, and Public Policy Program, where he researches surveillance technology and risk assessment algorithms.
Edited By: Francisco Brady, MPP 2025 // J’Mauri Jackson, PhD 2028
