This month,  The State Department “unveiled details of its plans to use $100 million of funding provided under the 2022 CHIPS Act to improve semiconductor supply chain security and international information and communications technology security.   The law provides the agency with $100 million of funding per year for those purposes for the five-year period beginning in fiscal year 2023.

To improve ICT security, the State Department is budgeting $40.7 million in FY2023 toward the following aims:

• Providing capacity-building training and technical advisory support to raise risk awareness and support the adoption of “policy and regulatory frameworks that ensure trust and security are central decision-making factors across the ICT ecosystem.” Efforts under that umbrella will include the promotion of telecom supplier diversity, development and adoption of “open and interoperable network architectures,” and the creation new relationships between overseas ICT leaders and U.S. universities, research institutions, and businesses;
• Working with the U.S. Agency for International Development, U.S. Trade and Development Agency, and the Export-Import Bank to “provide financing, project preparation support, and other investment de-risking support to catalyze private sector investments in secure ICT networks”;
• Promoting pilot deployments of Open RAN networks to help demonstrate commercial viability; and
• Engaging with industry partners to “provide cybersecurity tools and services to better manage cybersecurity threats.”

The law provides the agency with $100 million of funding per year for those purposes for the five-year period beginning in fiscal year 2023.”  (1)

 

Scenario Planning Analysis:  The State Department taking a well funded, assertive leadership role in the coordination of allied partners and collaboration vis a vis Global Computer Chip Supply Chain Disruption maps into the Purple Rain and Party Like It’s 1999 and Let’s Go Crazy scenario quadrants. 

Revisiting the Results of an OODA Stratigame:  “Scenario Planning for Global Computer Chip Supply Chain Disruption”

With this five-year, $500 million dollar commitment by the State Department to use its CHIPS funding to” foster relations with allies, strengthen supply chains and build a robust semiconductor ecosystem”, the massive, global diplomacy operation of the USG swings into action – and puts a critical chess piece on the board in our sense-making and tracking efforts in service of our 2021 An OODA Stratigame:  Scenario Planning for Global Computer Chip Supply Chain Disruption.   

A global focus, with a substantial financial commitment, by the State Department keeps these scenarios from slipping into a worst-case scenario due to a lack of commitment: Scenarios #1, #3, and #4 can all revert very quickly to Scenario #2–as they all require a long-term strategic plan as part of their strategic logics. All three scenarios explore a sustained commitment to stability, innovation, and security based on various levels and areas of focus by the United States government, with or without a strong collaboration with industry.  The Chips Act and the State Department’s leverage globally to support it are firm ground  – and a tangible sustained commitment from the USG.  

Scenario #1: Purple Rain
US National & Economic Security Vulnerabilities are low.
The Global Supply Chain is unstable.

Core Realities:

• Consumers steer behavior toward austerity
• Funding to increase U.S. supply chain capabilities
• Less modernization spending; keeping old things working longer.

Purple Rain is an imagined future where the dynamics of great power competition and international trade have resulted in continued strength for open democracies and free enterprise systems, which results in a strong national security and economic environment. However, significant challenges in the supply chains still endure. The strong national security and economic security of the US enables many mitigations to many supply chain risk issues, but issues around chip supply will be limiting factors that provide serious headwinds to almost every business.

To be clear, strong national economic security will likely not translate to strong economic security for most businesses and the workforce since there is not enough dependability and predictability in the chip supply chain. This makes it hard for business planners to predict future market demands with fidelity. In this scenario, the likelihood of recessions and relatively higher unemployment is a fact of life, with flat growth in most industries.

The unstable chip supply means consumers and businesses alike will postpone modernization efforts for as long as possible. Less innovation spending has forced the Fortune 500 to survive by keeping old things working longer. The amount of CapEx investment for supply chain innovation remains prohibitive for the private sector and the USG strategic framework for semiconductor supply chain independence remains mired in political instability and dysfunction. It is reasonable to conclude that U.S. political extremists and domestic terrorists continue to weaponize this instability and uncertainty.

Scenario #2: When Doves Cry
US National & Economic Security Vulnerabilities are high.
The Global Supply Chain is unstable.

Core Realities:

• Impact on U.S innovation in multiple industries is mixed: extreme hardship will lead to innovation. But the unstable economy and unstable IT supply may moderate this a bit. 
• Economic impact as consumer demand exceeds product supply
• China’s aggressive supply chain strategy

When Doves Cry is a future scenario where national security tensions increase to include significantly enhanced great power competition between the U.S. and China/Russia. Although years of planning may have shifted a small amount of production to the U.S. and other nations, the lead time required to build fabs based on truly innovative chip architectures means that production does not come close to meeting demand. The U.S. domestic political system remains fraught with instability and growing violence is likely in this scenario. Innovation in this scenario does not get momentum or evolve substantially in the high technology sector – but provides evolutionary and disruptive trends in other industry verticals. It can be expected that the chip supply chain disruption is coupled with an overall traditional supply chain crisis. Supply chain and ransomware cybersecurity risks are not only prevalent but pandemic-level in their spread and frequency worldwide– and not even remotely contained. Fraud and cybercrime are still a threat and uncontained.  China, Iran, and Russia exploit every cybersecurity vulnerability along the supply chain. The inability to replace key equipment impacts overall cyber resiliency.

Scenario #3: Party Like It’s 1999
US National & Economic Security Vulnerabilities are high.
The Global Supply Chain is stable.

Core Realities:

• Continuous supply chain cybersecurity risks (including backdoors)
• Perhaps reduced vulnerability profile for critical infrastructure and defense industrial base
• Companies concerned about the ability to maintain uninterrupted operations

In this future, Party Like It’s 1999, the rapid action of the US and other open societies to reduce dependence on Chinese chip assembly/manufacturing and to build new capabilities in locations other than Taiwan has enabled a stronger supply of computer chips, even though tensions with China are at a very high level. Even though this scenario posits a stable supply chain, companies will be concerned about the ability of geopolitical tension to change that in short order. Innovation is focused on solving immediate problems–with a priority on returning the U.S. domestic supply chain dynamics and consumer culture to pre-pandemic modes of operation.

Scenario #4: Let’s Go Crazy
US National & Economic Security Vulnerabilities are low.
The Global Supply Chain is stable.

Core Realities:

• Increased economic interdependence drives fair trade and access to cheaper chip supplies
• Advancements in U.S. innovation drive GDP
• Advancements in supply chain integrity checking (e.g., prevent backdoors).
• This is a scenario where many good things happen, but historically times like this do not fuel dramatic innovation. Expect innovation to be more evolutionary than revolutionary

 In Let’s Go Crazy, this speculative future sees the rapid action of the U.S. and other open societies to reduce dependence on Chinese chip assembly/manufacturing and to build new capabilities in locations other than Taiwan has enabled a stronger supply of computer chips. And the US and other open societies see economic, military, and diplomatic strength. A strong chip supply enables continued tech-based innovation in multiple sectors of the economy and contributes to national and economic security – especially in areas such as cybersecurity (i.e., IT global supply chain trust, integrity, authenticity, and transparency). OODA network members underscored in discussions of this scenario that innovation in a world of peace and stability is often very incremental. A key concern in this scenario is leaders letting their guard down leading to other harsher scenarios (like the one outlined in Scenario Two above).

Dynamics To Watch For

A Return to the Old Normal or a Transformative New Normal?   The world in which we have been living is based on an interdependent global supply chain with a just-in-time manufacturing and distribution system, which is clearly faltering due to the stressors brought on by the Covid-19 pandemic. Only one of the scenarios described here commits to reestablishing this 2019 ‘old normal’ – with mixed results. The other scenarios drive headlong (by strategic necessity) into formulating what the new normal is going to look like. There is much debate over whether this pandemic is going to be impactful but recoverable or fundamentally transformational (like many of the pandemics over the course of history).  The informal tally based on this OODA Loop Stratigame? 75% odds of a new normal, with distinct types of transformative activities as depicted in three scenarios (#1, #2, and #4); And a 25% chance of reestablishing the 2019 old normal of just-in-time manufacturing and distribution on which the economy is built, as depicted in scenario #3 (again, with mixed results).

About Scenario #2 (When Doves Cry): An OODA Loop Network member said it best – “This quadrant feels like walking into WWIII. The U S economy and the dollar collapsed on the world stage. China does not survive without the United States economy – its economy has been growing faster than it can handle. They need us just as much as we need them right now – on a lot of things. This is a realistic scenario. This scenario terrifies me – and I do not have a good solution. I also assume we are not so far in the bottom left of scenario quadrant #2. If we are in the top or middle part of scenario quadrant #2, then we can swing into scenario quadrant #3 with a bunch of investment in a stable supply chain. But if the chip supply chain falls apart and we end up deep in scenario #2, that is not the only problem that we have. We have much bigger problems at that point.”

Know Thy Enemy/Play the Game: When spending time with these scenarios, ask the question: What scenario does our competition live in? What scenario does our competition want us living in and why? What activities are they going to engage in to keep us there? What mitigation strategies can we put in place to take us out of a state of high vulnerability? How can we play offense? Or is the best offense a great defense? How do we avoid unforced errors?

Design Innovation for the Long View: Regardless of what quadrant you are operating in and based on the insights provided by all four scenarios, it is highly recommended that your organization’s design process for innovation include a long-term plan and commitment to issues surrounding trust, integrity, authenticity, and transparency in the global IT supply chain (including semiconductor availability and foreign sourcing) and in the traditional intermodal supply chain. The need for cybersecurity innovation efforts running parallel to chip supply chain resilience and chip value chain innovation figures prominently in all four scenarios. Concluding Comment Scenario planning is not about predicting the future, it is about preparing for a range of realistic potential futures and assessing the potential impact of those futures on the business. The four scenarios and contextualization presented above provide realistic futures that can now be tailored to inform your actions.

Reorientating Futures Scenarios Towards Global Cooperation and Collaboration

Our Stratigame was, admittedly, focused on the long-term impacts of global computer chip supply chains on:

• The Role of the U.S. Government in semiconductor innovation and Manufacturing; 
• The impacts of the scenarios on corporate strategy; and
• A focus on Corporate IT Operations and Cybersecurity Strategy. 

The news coverage and the quotes of State Department officials during the announcement of the specifics and timeline of the $500 million Sate Department commitment  – add vital international cooperation and collaboration element to each of the four scenario quadrants in our matrix. According to Nextgov: :

• While the United States is working to strengthen and secure semiconductor manufacturing, it cannot do it alone, and international cooperation is integral to the semiconductor supply chain, according to a senior State Department official.
• Ramin Toloui, assistant secretary for the Bureau of Economic and Business Affairs at the Department of State, noted that fostering relationships with allies and partners abroad will help build a robust and secure semiconductor ecosystem while the United States is also strengthening its own semiconductor manufacturing capabilities.
• “Achieving that objective requires international partnerships because we need to have reliable and secure access to the critical materials that are used in the semiconductor fabrication process,” Toloui told Nextgov.
• Toloui added that it is important to cooperate with partners on the global fab—or semiconductor fabrication facility—and semiconductor ecosystem “because the semiconductor industry is an incredibly complex industry and one that relies upon global connections.”
• “There will still be components of that downstream supply chain—assembly, testing and packaging—that will be done in other countries, and we want to forge strong partnerships in order to do that,” Toloui said.
• As part of the CHIPS Act, the State Department was allocated $500 million…it can leverage to help with these endeavors. 
• For the national security component, he added that “there are some very sensitive elements of these technologies that we want to protect and ensure that they don’t end up advancing military uses in other countries and potential adversaries.”
• Partnerships are important because of the “intense pressure to reduce costs” and the complex intellectual property that goes into a modern semiconductor, which can be distributed over several entities around the world—necessitating additional collaboration with industry. For example, the U.S. has worked with the public and private sectors of Belgium, the Netherlands, Germany, Japan, and India on semiconductors.
• “I meet not only with government officials, but representatives of private sector in those countries that are working on semiconductor supply chains, in addition to having lots of discussions with companies here in the United States,” Toloui said. (2)

What Next?

Questions remain:

1. Relative to some of the price tags on China’s initiatives for technology supremacy, is the $500 million enough or a drop in the bucket?  Based on internal OODA Network conversations, we have been encouraged to look at inputs and incomes and not frame these “Great Power” technology initiatives on a relative dollar-to-yuan basis.   We continue to track these issues with that advice in mind, so we consider the $500 million a solid commitment out of the gate for the State Department. 
2. Our America’s allied partners and international companies on board with this American-led effort?  See  De-Dollarization: New Fronts in the Global War Being Waged Against the U.S. Dollar. 

In addition:

“The State Department’s Toloui added that there are also some challenges because of the new landscape this creates:

“The key thing is that through the CHIPS Act, we are making these historic investments in America’s technological leadership and manufacturing. But this is a new area for government involvement, and so, similarly, it’s a new area for many of our partners,” he said. “One of the challenges is basically trying to navigate this new area effectively, use [taxpayer] money well and try to coordinate with our partners such that our efforts are supporting one another in terms of the objectives, and not working across purposes. And so because of the novelty, that is a key challenge. And that’s why we think that it was far-sighted of Congress to allocate $500 million of the CHIPS Act back to the State Department because there’s a recognition that diplomatic coordination with other countries in an industry with such globalized supply chains is critical to achieving the CHIPS Act’s goals.”

Toloui explained that during the COVID-19 pandemic, the State Department helped to sustain semiconductor supply chains. Specifically, the Delta wave of COVID-19 in Southeast Asia  “threatened to shut down some parts of that semiconductor manufacturing supply chain that were critical to serving the U.S. automotive sector. And the State Department helped engage, for example, the government of Malaysia, on public health interventions that could be used to help make sure that those facilities can stay open while also protecting public health. That demonstrated how important diplomacy could be in keeping these supply chains that are vital to our economy going.”

According to Toloui, the funding ‘is a recognition that we have the opportunity to do that kind of coordination and cooperation in advance to try to build strong supply chains and strong diplomatic connections that will mean that those supply chains are more robust going forward.’”  (2)

Department of State Allocating $100 Million in FY 2023 for CHIPS Act Projects

The International Technology Security and Innovation Fund (ITSI Fund) appropriated under the CHIPS Act of 2022 provides the Department of State with $500 million ($100 million per year over five years, starting in Fiscal Year 2023).  This funding is available to the Secretary of State to provide for semiconductor supply chain security and international information and communications technology (ICT) security. 

In partnership with U.S. interagency stakeholders, the Department has developed a strategic framework for utilizing these funds to advance U.S. national and economic security policy priorities in these sectors.  This funding supports the following programs under these two sectors.

Semiconductors

The U.S. government recognizes that U.S. leadership and strong international cooperation are critical to maintaining a stable, reliable supply chain for semiconductors.  To ensure a more diverse, resilient, and secure global semiconductor supply chain, ITSI funding will support the following efforts:

• Securing Critical Material Inputs. Semiconductor fabricators require access to critical minerals such as aluminum, arsenic, cobalt, copper, and rare earth elements.  Several nations around the world have relevant mineral resources, and the Department will lead an effort to bring new, more diverse and resilient mining, refining/processing, and recycling capacity online to support global chip production, including in the United States.

• Strengthening International Policy Coordination. In conjunction with the Department of Commerce, the State Department will coordinate with partner economies to support a more resilient and diverse semiconductor supply chain.  These activities include developing common or complementary approaches to industry incentives, as well as improving coordination during supply disruptions.

• Expanding and Diversifying Downstream Capacity in the Indo-Pacific and the Americas. The ITSI funding will be deployed to promote the expansion of the international assembly, testing, and packaging capacity needed to diversify the global semiconductor supply chain.  The United States will engage with like-minded partners to identify key regulatory and policy levers to attract semiconductor supply chain investments, identify workforce and infrastructure development needs, and engage in targeted capacity-building to help fill those gaps.  This will also include ensuring countries have the necessary measures in place to safeguard leading-edge chips and technology from diversion and misuse.

• Protecting National Security. Some uses of advanced semiconductors can pose national security risks.  The mechanisms to mitigate those risks – including collaboration with international partners on export controls and licensing policies – require strengthening.  The Department will facilitate the development and close coordination of such policies and practices with supply chain allies and partners.

Secure Information and Communications Technology (ICT)

Under the Digital Connectivity and Cybersecurity Partnership (DCCP) (link: https://www.state.gov/digital-connectivity-and-cybersecurity-partnership/), the U.S. government works with partners and allies around the world help countries harness the benefits of a vibrant digital ecosystem underpinned by secure and trustworthy ICT infrastructure and services.  To advance these efforts, $40.7 million in Fiscal Year 2023 ITSI funding will support the following efforts:

• Developing Enabling Environments for Secure ICT Ecosystems. The Department will provide capacity building training and technical advisory support to raise risk awareness and support the adoption of policy and regulatory frameworks that ensure trust and security are central decision-making factors across the ICT ecosystem.  Programs will also advance policies that promote telecommunications supplier diversity, including through the development and adoption of open and interoperable network architectures.  In addition, funding will train and incubate the next generation of ICT and innovation leaders by connecting partners with U.S. universities and U.S. research institutions to build medium- to long-term capacity and create linkages with U.S. industry.

• Deploying Secure ICT Infrastructure. Meaningful connectivity is critical to enabling countries to take advantage of the incredible economic and social opportunities afforded by a vibrant digital ecosystem.  However, to realize these benefits it is critical that trustworthy vendors build and maintain connectivity infrastructure.  The Department, in collaboration with USAID, the U.S. Trade and Development Agency, the Export-Import Bank and U.S. International Development Finance Corporation, will provide financing, project preparation support, and other investment de-risking support to catalyze private sector investments in secure ICT networks.  In addition, this program will complement the Department of Commerce’s Public Wireless Innovation Fund (link: https://ntia.gov/page/public-wireless-supply-chain-innovation-fund) by engaging with governments and the private sector to support pilot deployments of Open RAN networks to help demonstrate commercial viability.
• Defending Against Malicious Cyber Activity. To maintain healthy and thriving ICT ecosystems, nations need cybersecurity tools, technologies and national incident management capabilities to defend against, manage, respond to, and recover from cybersecurity threats to ICT infrastructure.  The United States will engage with select partners to provide cybersecurity tools and services to better manage cybersecurity threats.

Salaries, Oversight, and Related Expenses

The ITSI fund also includes support for salaries and related expenses for program management staff, including strategic monitoring and evaluation (MEL), and for the Office of the Inspector General to execute audits, inspections, and other projects that focus on oversight of programs related to the CHIPS Act.

For further information, please contact the Bureau of Economic and Business Affairs at [email protected] or visit the ITSI website at:  https://www.state.gov/the-u-s-department-of-state-international-technology-security-and-innovation-fund  (3)

https://oodaloop.com/archive/2021/11/22/scenario-planning-for-global-computer-chip-supply-chain-disruption-results-of-an-ooda-stratigame/

https://oodaloop.com/archive/2022/08/02/with-the-u-s-delegation-in-asia-we-revisit-our-ooda-stratigame-insights-about-taiwan/

https://oodaloop.com/archive/2021/10/07/chinas-formal-bid-for-global-dominance-of-the-semiconductor-supply-chain/

Global Supply Chain Sensemaking

https://oodaloop.com/archive/2022/09/19/nate-fick-confirmed-to-lead-state-department-bureau-of-cyberspace-and-digital-policy/

https://oodaloop.com/archive/2023/03/13/secure-global-and-domestic-it-supply-chains-and-the-future-of-emerging-technology-innovation/