China Has Leapfrogged the U.S. in Key Technologies. Can a New Law Help?

In the weeks before the House and the Senate ended 13 months of arguments and passed the $280 billion CHIPS and Science Act, China’s main, state-supported chip maker cleared a major technological hurdle that delivered a bit of a shock to the world.

Experts are still assessing how China apparently leapfrogged ahead in its effort to manufacture a semiconductor whose circuits are of such tiny dimensions — about 10,000 times thinner than a human hair — that they rival those made in Taiwan, which supplies both China and the West. The Biden administration has gone to extraordinary lengths to keep the highly specialized equipment to make those chips out of Chinese hands, because progress in chip manufacturing is now scrutinized as a way to define national power — much the same way nuclear tests or precision-guided missiles were during a previous cold war.

No one yet knows whether China can exploit the breakthrough on a large scale; that may take years. But one lesson seemed clear: While Congress debated and amended and argued over whether and how to support American chip makers and a broad range of research in other technologies — from advanced batteries to robotics and quantum computing — China was surging ahead, betting it would take Washington years to get its act together.

“Our Congress is working at political speed,” said Eric Schmidt, the former Google chief executive who went on to lead the National Security Commission on Artificial Intelligence, which warned last year of the huge dangers of falling far behind in a “foundational” technology like advanced semiconductor manufacturing in a world of vulnerable supply chains. “The Chinese government is working at commercial speed.”

In China, the drive to catch up and manufacture the most advanced chips is part of the “Made in China 2025” program. That effort began in 2015. While few in Congress want to concede the point, the technologies that the United States will be funding when President Biden signs the bill, as he promised to do on Thursday, largely replicate the Chinese list.

It is classic industrial policy, though leaders in both parties are avoiding the term. The words convey a sense of state-controlled planning that is antithetical to most Republicans and showers direct support and tax credits on some of America’s largest companies, which makes some Democrats shake with anger.

But 2025 isn’t very far away, meaning the money will just get flowing while Chinese and other competitors move on to their next set of goals. Meanwhile, the American semiconductor industry has withered, to the point where none of the most advanced chips are made in the United States, even though the fundamental technology was born here and gave Silicon Valley its name.

None of this means American competitiveness is doomed. Just as Japan once seemed as if it was the 10-foot-tall technological giant in the late 1980s and early 1990s, but then missed some of the biggest breakthroughs in mobile computing and Windows operating systems and even chip-making, China is discovering that money alone does not guarantee technological dominance. But it helps.

It has taken Congress far longer to come to the same conclusion. Still, China has turned out to be one of the few issues on which Republicans and Democrats can come together — the bill passed the House 243 to 187, with one abstention, on Thursday. Twenty-four Republicans voted in favor, notable because G.O.P. leaders were urging their members to oppose the bill after the Senate majority leader, Chuck Schumer of New York, and Senator Joe Manchin III of West Virginia announced a surprise deal on climate, energy and taxes on Wednesday.

China immediately denounced the bill as an isolationist move by Americans intent on freeing themselves from dependence on foreign technology — a strategy called “decoupling” that China itself is trying to replicate.

The Chinese Foreign Ministry spokesman, Zhao Lijian, told reporters in Beijing that “no restriction or suppression will hold back” Chinese progress, a clear reference to the American and European efforts to deny China the technology that would speed its technological independence.

But the big question is whether Congress’s slowness to wake up to America’s competitive shortcomings has doomed the effort. While Mr. Biden and lawmakers tried to build support for the bill by describing the chips found in everything from refrigerators to thermostats to cars as the “oil” of the 21st century, the phrase was already hackneyed three decades ago.

In the late 1980s, Andrew S. Grove, one of the pioneers of Silicon Valley and an early leader of Intel Corporation, warned of the danger of the United States becoming a “techno-colony” of Japan.

The Taiwan Semiconductor Manufacturing Company produces roughly 90 percent of the most advanced semiconductors. It sells them to both China and the United States.

And while Taiwan Semiconductor and Samsung are building new manufacturing facilities in the United States, responding to political pressure to address American supply-chain worries, the net result will be that only a single-digit percentage of its production will be on American soil.

“Our dependence on Taiwan for the sophisticated chips is untenable and unsafe,” the commerce secretary, Gina Raimondo, noted last week at the Aspen Security Forum. With demand for more sophisticated chips growing — every new generation of cars requires more and more semiconductors — “we don’t have enough domestic supply.”

The bill’s $52 billion in federal subsidies, she argued, would be bolstered by private money and turn into “hundreds of billions” in investments. She was essentially using the argument that the federal government has long used to justify incentives to defense contractors. Politicians knew that underwriting risky new spy satellite technology, or stealthy drones, was an easier sell in Congress if described as critical defense spending instead of industrial policy.

But now the logic is turned on its head. What the defense contractors need is the most advanced commercial chips — not only for F-35s, but for artificial intelligence systems that one day may change the nature of the battlefield. The old distinctions between military and commercial technology have largely eroded. That is why, to get the bill through, the administration even brought Defense Secretary Lloyd J. Austin III into the pressure campaign, arguing that he couldn’t rely on foreign suppliers for the weapons of the future.

The bill’s authors say that while they are late to the task of rebuilding the industry, starting today is better than continuing to watch the American lead erode. Senator Todd Young said that while China’s recent advance was “sobering,” he didn’t think there was “anyone that can out-innovate the United States of America if we mobilize our many resources.”

America’s other advantage is “our relationships, economic and geopolitical, with other countries,” said Mr. Young, an Indiana Republican. “China has no friends; they have vassal states.”

Innovation has been an American strong suit; the microprocessor was invented here. But time and again, the American vulnerability is in manufacturing. And China isn’t the only competitor. To extract cash out of Congress, Intel and others noted that Germany and other allies were trying to lure it to build “fabs” — the airtight, spotless manufacturing centers for chips — on their own territory.

But in the end it was China that drove the votes.

One of the first assessments of the new Chinese chip, made by Semiconductor Manufacturing International Corporation, came from researchers at a firm called TechInsights.

After reverse-engineering the Chinese-made chip, they concluded that it used circuitry that was only seven nanometers wide. As recently as 2020, Chinese manufacturers had struggled to get below 40 nanometers.

Experts say the chip, made for mining cryptocurrency, may have been based on, or stolen from, Taiwan Semiconductor. For now, Taiwan Semiconductor remains the most important single manufacturer in the world, and its sprawling facilities near Taipei may be the island’s greatest protection against invasion. China can’t afford to risk its destruction. And the United States can’t afford for it to be destroyed.

But that delicate balance won’t last forever. So China has both a commercial and a geopolitical motive to make the world’s fastest chips, and the United States has a competitive motive to keep Beijing from getting the technology to do so. It is the ultimate 21st-century arms race.

In the old Cold War, the one against the Soviet Union a generation ago, “the government could afford to sit on the sidelines” and hope private industry would invest, Mr. Schumer said on Wednesday. Now, he said, “we can’t afford to sit on the sidelines.”

Catie Edmondson contributed reporting.