The Chip War: A Global Power Struggle
China and the US in a Tech War: Over the past century, control over oil and energy sources has fueled world wars, forced countries into unlikely alliances, and sparked numerous diplomatic disputes. Nevertheless, at present, the globe’s primary economic powerhouses are embroiled in an intense contest concerning an extraordinary and irreplaceable innovation: Semiconductors.
These diminutive microchips have intricately embedded themselves within the very essence of our daily existence. This sector, flaunting a monumental valuation of $500 billion, is forecasted to undergo unparalleled expansion, foreseeably augmenting its dimensions twofold by 2030.
Eminent experts affirm that the nation that successfully controls the intricate supply chain of these microchips will ascend as the global superpower.
China has expressed a fervent desire to obtain the technology required for manufacturing these microchips, thereby prompting the United States, which already possesses this technological prowess, to endeavor in isolating China from the international community.
Christopher Miller, an esteemed professor affiliated with Tufts University in the United States and the acclaimed author of “Chip Wars,” illuminates the situation by describing an ongoing arms race between these two nations within the Asia-Pacific region.
Furthermore, he elucidates that this contest encompasses multifaceted dynamics, extending beyond the conventional escalation of naval vessels and ballistic missiles. It now encompasses the quality and superiority of artificial intelligence algorithms, which bear tremendous significance in military systems.
But at this time America is winning this war, but this microchip war imposed against China is changing the world economy.
Microchip Manufacturing
The semiconductor manufacturing process is complex, specific, and integrated. In the realm of smartphones, behold the iPhone, adorned with a microchip, carefully crafted in the prosperous United States, and artfully manufactured across the exotic lands of Taiwan, Japan, and South Korea. It is then assembled in China. India, a country investing significantly in this industry, holds the potential for an important role in the future.
Semiconductors were invented in America, but over time, East Asia became the center of their production due to government incentives and subsidies for the industry. It has helped Washington develop business ties and strategic alliances in a region threatened by Russian influence during the Cold War. China’s growing influence in the Asia-Pacific region continues to make them beneficial even today.
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Nanometers
The competition is now to make the best and most efficient microchip on a large scale, and the smaller the chip the better. In its manufacture, there is also the challenge of how many current-passing and blocking transistors can be fitted on such a small piece of silicon.
“It’s called Moore’s Law in the semiconductor industry to double the number of transistors on a microchip over time,” says Jiu Wang of Bain & Co., based in California’s Silicon Valley.
It’s what makes our mobile phones faster, our photo galleries populate and our smart devices improve over time and make social media content better. But achieving this is not easy for any major microchip manufacturing company.
In the middle of 2022, Samsung achieved a groundbreaking milestone as they embarked on large-scale production of microchips with a three-nanometer architecture, thus claiming the title of the pioneering company.
Shortly thereafter, by the conclusion of the year, Taiwan Semiconductor Manufacturing Co. (TSMC), a globally acclaimed microchip manufacturer and a prominent provider for Apple, accomplished the successful fabrication of the same advanced microchips.
To elaborate, we are referring to exceedingly delicate wires that surpass the thinness of human hair. The range of quantities they can encompass spans from 50 up to 100,000. These minuscule microchips possess remarkable power and find application in various valuable devices, including supercomputers and other artificial intelligence-driven technologies.
While microchips currently utilized in our daily appliances like microwaves, refrigerators, or washing machines enjoy a market presence, these antiquated microchips are anticipated to fade away in the future.
Taiwan takes pride in being the predominant hub for microchip manufacturing, earning it the moniker “Silicon Shield” as coined by its president. “In the realm of everyday language, this expression emphasizes the distinctive capacity of Taiwan to safeguard its sovereignty against China’s territorial assertions.
Likewise, China has designated microchip production as a paramount objective on a national scale and is allocating substantial resources to the advancement of supercomputers and artificial intelligence sectors. Nevertheless, it notably trails behind in the pursuit of attaining preeminence as the worldwide frontrunner in this realm.”
But over the past decade, he has come much closer in the race, says Professor Miller. He further said that ‘if you look historically, every time powerful countries develop information technology and make it part of their military and intelligence systems.’ And it is precisely China’s dependence on Taiwan and other Asian countries to meet its demand for microchips that knock the United States.
How is America stopping China?
US President Biden’s administration is trying to block China’s access to microchip technology. In October last year, Washington announced a wide range of tougher powers or controls that would make it nearly impossible for companies to export microchips, the machines that make them, or programs involving American technology to China.
The US also prohibited its citizens or US residents from supporting the production and manufacture of microchips in specific factories in China. The US policy has hurt Asian powerhouse China as its booming chip industry depends on imported hardware and human capital. “Talent is very important in this sector,” says Linghao Bao, policy research analyst at Trivem China.
In observing the executives of Chinese semiconductor companies, there is a significant presence of individuals possessing American passports, individuals who have pursued their education in the United States, or individuals holding green cards.
The US also wants to produce more microchips in its own country. Under the Chips and Science Act, $53,000 in grants and subsidies have been given to chip manufacturing companies in the United States. Big companies such as TMSC are taking advantage, which is investing $40 billion in two plants for the first time outside of Taiwan.
Micron, the premier American producer of Crucial memory chips for supercomputers, military machinery, and any gadget featuring a processor, has unveiled its distinctive blueprint to augment the chip count by roughly 100 within the forthcoming two decades at its facility in the state of New York. This strategic decision entails a billion-dollar investment.
“The law allows us to reduce the manufacturing cost gap that exists in the US versus Asia,” says Sanjay Mehrotra, CEO of Micron Technology. He said that ‘Micron will continue to invest in its plants in Asia. Because the important thing is that it will equalize the industry globally.’
The Role of China
US sanctions are causing serious damage to China in this regard. There are reports that Apple has abandoned its contract to buy memory chips from one of China’s most successful manufacturers, Yangtze Memory Technologies Corporation (YMTC), due to sanctions. And analyst Linghao Bao warns that this experience will likely be repeated with Huawei.
In a remarkable twist, Huawei, once celebrated as the world’s second-largest smartphone maker, now finds itself traversing the desolate realms of virtual obsolescence, mirroring the path forged by the telecommunications giant, Samsung.
According to Bao, the absence of a well-defined strategy from Beijing in response to the straightforward assault by Washington on a Chinese technology enterprise facilitated the downfall of Huawei.
Previously, the United States would focus on singling out specific companies, but this instance witnessed a broad-spectrum approach that affected numerous entities throughout the country.
So What Can China Do?
Withdrawing your products and services or imposing your export controls can do you more harm than good, especially when your economy is slowing down rapidly. Beijing’s objection has been formally registered with the World Trade Organization (WTO) concerning this matter, but the resolution process within the organization may extend over several years.
Nevertheless, analysts suggest that China might intensify its investment efforts to fortify its microchip sector.During a Communist Party assembly in October of the previous year, President Xi Jinping of China affirmed our dedication to prioritize national strategic requirements and vigorously pursue scientific and technological research, aiming to achieve victory in crucial domains of technology.
What will Happen Next?
At present, the economic turmoil in Ukraine, escalating inflation, and the resurgence of the Chinese market have converged to create a unique predicament for the Chinese microchip industry. Beijing will certainly proceed with caution due to the economic impact of the Corona epidemic.
Miller commented on the fierce competition that lies ahead among American, Taiwanese, Chinese, and various foreign firms in the realm of manufacturing cutting-edge memory and logic microchips. As a result, the United States will actively strive to prevent China’s involvement in these companies and impede their attempts to establish a supply chain devoid of American influence.
In his conviction, he envisions the emergence of a fragmented landscape within the industry, wherein distinct sectors operate in splendid isolation from one another, thus giving rise to a Balkanized paradigm.
This would change the global economy, and ask everyone to decide between China or the US. He also wonders if many people would be blocked from the Chinese market.