David Fulghum, Bill Sweetman and Jen Dimascio/Washington

The potential for specialized microchips from China to find their way into U.S. computers and networks, or even into conventional Western weapons systems, isn't just a frightening prospect—it's a chilling reality.

The defense industry supply chain is rife with counterfeit parts, and efforts to police it are failing. The potential that these parts could compromise the quality of U.S.-made defense systems is bad enough, but on top of that Chinese components could offer a back door to cybersnoops, escalating the threat of cyberspying and intellectual theft.

The U.S. knows about the potential of such capabilities because it is conducting its own research in that rarified arena of cybercombat. Draper Laboratory, for example, has a long-running project to design ways of planting hostile circuitry inside what appear to be standard microchips. This could easily become—or may already be—a two-way street, since many avionics and military systems now include generic and commercial off-the-shelf chips built into custom processor boards.

A counterfeit chip might be a copy of a U.S.-designed chip, made in China and sold for commercial applications. It could find its way into U.S. aerospace and defense components because those industries' demands are tiny compared to commercial applications. Therefore, the only economical way to provide computing power is to use commercial chips.

The unknown is whether malicious hardware could be inserted in defense applications. Given the market in counterfeit chips described in the recently released Senate report, this is not likely. The report paints a picture of an aftermarket supplier base, comprising thousands of dealers in the U.S. alone, that has grown up because system manufacturers—aerospace, defense and others—need out-of-production chips to produce or repair systems designed years ago.

Some Chinese suppliers to U.S. distributors have responded to this demand by harvesting chips from scrapped devices. Counterfeiting can take the form of selling those devices as new, or re-labeling them with a higher performance grade. However, no mechanism is described by which specific batches of chips could be steered into crucial military applications.

A potential problem with demanding tighter standards and pedigrees for defense-related chips is that distributors could be forced to exit the defense market, eliminating what has been at least a partial solution to obsolescence issues.