In recent years a cold war of sorts between the U.S. and China has been ramping up over the one thing that makes modern life possible, chips. Also known as integrated circuits, IC’s, and microchips, chips serve as the foundation for our modern way of life. You can find them in cars, phones, and even toasters. With the rise of artificial intelligence, chips only grow more important in the global struggle for computing power. It is not an understatement to say that chips are THE most important commodity in the world right now.
Before we get back to the U.S. and China, we need to quickly understand the world’s chip ecosystem. Advanced chips are unsurprisingly incredibly complicated to design, manufacture, and assemble which has left only a few big companies able to compete and return a profit. The ecosystem is incredibly complicated but for the sake of simplicity we will focus on the major players:
ASML(Advanced Semiconductor Materials Lithography): ASML, a Dutch company, is the only company in the world capable of manufacturing extreme ultraviolet lithography (EUV) photolithography machines. EUV’s are required to fabricate the most advanced chips, making ASML an indispensable part of the chip supply chain.
Fun fact: ASML is currently Europe’s most valuable tech company with a valuation of $281 billion.
TSMC(Taiwan Semiconductor Manufacturing Company): TSMC is the world’s most powerful semiconductor company, with around 90% of the global market share of advanced chip manufacturing.
Nvidia/AMD: Gamers and PC enthusiasts will be the most familiar with these two GPU companies. In addition to their gaming enterprises, they are the two leading players in the AI hardware acceleration market (Nvidia is currently miles ahead of AMD though).
As the world’s premier economic heavyweights, both the U.S. and China recognize the importance of computing power and are accordingly investing heavily in chip advancements.
Due to purported national security concerns the U.S. has repeatedly attempted to stifle China’s burgeoning chip industry and cut it off from key suppliers like ASML, Nvidia, and TSMC. To sum up America’s approach we can look to U.S. Secretary of Commerce Gina Ramoindo who said at the Reagan Defense Forum: “We cannot let China get these chips. Period”. Whether or not you agree with America’s protectionist approach, its sanctions on China have prevented China from importing Nvidia chips and ASML EUV machines. This may keep China’s chip industry lagging behind the US's. It’s also possible that by restricting access to the world’s largest technological market (China), the U.S. may hurt its own interests. Only time can tell.
The U.S. also recently passed its CHIPS and Science act, which incentivizes domestic chip production and goes as far as partnering with companies like TSMC to create chip plants within the U.S, making the U.S. an even bigger part of the chip ecosystem.
Sanctions have caused a flurry of innovation in China, with Chinese companies like SMIC and Huawei now focused on catching up to western (and western-adjacent) rivals. If the U.S. continues its sanctions and enacts sanctions on TSMC, China may finally follow through on invading Taiwan. China has poured trillions into its domestic chip industry as well.
There’s a LOT more to this. Way more than I can fit here (or in a few books), but this was a brief overview. Try out the following sources to learn more.
Further reading on Nvidia’s AI ventures
Financial Times Documentary (very detailed)
- Vishal
10 comments:
As the importance of technology and these chips in our lives increases, the US and China will continue competing to create better chips. However, I don't believe that the US should prevent China from importing chips. Not only would this be kinda pointless because China can create its own chips, but it might also cause conflict as you mentioned, such as China invading Taiwan, which could drag the US into the fight. In addition, with the rise of AI and the use of chips in AI, I think that the US and China should work together temporarily to resolve many of the ethical issues of AI instead of fighting over chips. A lot of the biases in AI are caused by the training of the model, which uses semiconductors. There are also other issues like deep fakes or security concerns. Working together to resolve these issues, which could harm many people, is way more important than creating better chips. Finally, many global problems can be solved by better AI and chips. Things like global warming, poverty, health care, and education, could all be improved if the US and China were to share some of its technology instead of restricting it.
Sources:https://www.reuters.com/world/biden-says-us-forces-would-defend-taiwan-event-chinese-invasion-2022-09-18/#:~:text=WASHINGTON%2C%20Sept%2018%20(Reuters),those%20seeking%20an%20independent%20Taiwan.
https://sgp.fas.org/crs/misc/IF12497.pdf
I find China's position in this race to be extremely intriguing. China has only recently been able to manufacture 7nm chips in their most recent Huawei phone, while TSMC and Samsung are the only companies in the world able to produce 3nm chips. This 4nm difference may seem relatively small, but the gap between China and the smallest chip manufacturers is extremely large, as Intel has been stuck at 7nm chips for years. Ultimately, China is still far behind the rest of the world regarding advanced semiconductors, and even with their significant increase in spending over the past few years, advancements will be much harder with practically every non-Chinese semiconductor company no longer in China amidst the threat of US sanctions.
In addition, I also believe that fears of a Chinese invasion of Taiwan is overblown. TSM is arguably the most important semiconductor company in the world, and they have strengthened their ties with the US and the Western world. The sanctions that crippled the Russian economy after their invasion of Ukraine made an example of what happens when someone attacks an ally. Taiwan is also considered strategically more important than Ukraine by many, so they resulting sanctions against the Chinese economy would likely be even more harsh than those imposed on Russia, especially because China isn't a major exporter of oil or natural gas to nations that could potentially impose sanctions.
The arguably largest reason that China would not want to make an enemy of the West is their reliance on Western businesses exposed by foreign businesses that have recently left or stopped new investments in China. This decrease in Foreign Direct Investment(FDI) amidst recent US-China tensions has scared China, as they realized the importance of it after recent economic struggles. This was made extremely clear during the APEC summit, where Xi and the Chinese did their best to try and improve relations with the US, and more importantly, US businesses as they met with numerous execs, trying to restimulate foreign investment. China also shrugged off Biden's comments after APEC about how Xi is a dictator, despite making a big scene about a similar comment a couple months prior, signaling a desire to improve relations.
All in all, China looks to remain years behind their competitors for the near future when it comes to Semiconductor manufacturing, and the likelihood of an invasion of Taiwan as a result of losing this race is extremely low.
While I agree that, in an ideal world, it'd be awesome if the US and China could actually work together to move further with technology like another commenter mentioned, in our imperfect world today I do think that some reasons provided for sanctions to exist also hold some weight. "National security," as Vishal mentions, could be a bit less about actual security and more about maintaining American dominance. However, many of these restrictions have been placed on Chinese companies or organizations thought to be aiding the Chinese military, Russia's war effort, or human rights abuses. Given the complicated nature of this topic, I don't think it can really be distilled down to just whether or not the US wants to limit China (which definitely is a big reason), but also what that technology, once it has made its way to China, will go on to be used for.
In regards to the invasion of Taiwan, I'm still unclear as to how invading Taiwan will be beneficial to China's chip industry, as the resulting conflict could very well destroy the manufacturing plants. Due to this, I'm more inclined to think that this is a bit of an empty threat in relation to the chips industry, as there are many other reasons that China has been using (not to say that they're logical or that I agree). I would also like to point out that if the US kept shipping technology to China, this technology would almost certainly be used if China did decide to try and take Taiwan by force.
Side note, I do think it's pretty great how much the US is investing into the development and production of chips, especially domestically (I believe CHIPS included around $35 billion?).
Adding on to what Ethan said, I do not see China making any big moves towards capturing Taiwan anytime soon. The fear of a Chinese takeover of Taiwan stemmed from a single government official's comments about a year ago, and the recent APEC summit seemed to suggest that China and the US are looking for more peaceful relations as of late, despite the spy balloon fiasco and other events. Additionally, invading Taiwan wouldn't necessary secure the chip technologies being manufactured on the island as the process of producing semiconductors is extremely precise and requires expertise that the Chinese government may not yet have. Also, a hostile takeover could potentially disrupt the delicate calibration of the fabrication plants and further prevent China from being able to create the semiconductors they yearn.
However, your point that this is similar to the Cold War is very interesting, as I see a similar race in electric vehicle production and adaptation between China and the US, albeit with fewer/smaller implications. In general, the centralized nature of the Chinese government seems to allow for newer technologies to be adopted and incentivized much quicker (and no, I'm not advocating for a one party system in the US). If China were to begin production, perhaps we would see a metaphorical explosion in AI systems incorporating these more powerful chips just as the Soviets did with the concept of the atomic bomb.
I agree a lot with Rachel's response about how the US is trying to get ahead to have dominance, rather than just simply "National Security". Especially with the rising technology advancements, the competitive nature is rising and everyone wants to be creating the very best. I also thought the chart added to the blog was a nice addition as it highlights how while the US has been very steady in their spending GDP, China is gradually catching up, causing all this stress for the US about wanting to remain on top. I agree with others as well that it could be pointless for the US to prevent the importation of chips from China as they could just create their own, and they are also still behind anyway.
After reading more about the semiconductor industry in China, I found some reasons as to why they are quite far behind in successful progression. China lacks the ability to properly allocate funds efficiently and strategically. This has led to large investments of hundreds of billions but the final quantity of the capital has been smaller than advertised. Another issue with the funding is that it has not been distributed efficiently. Without the sustained sources of funding, technological breakthroughs have been minimized. And as Vishal mentioned, another reason towards their slow progression is the control on exports the US has on China. At the end of the day, I think it will be interesting to see how China and US relations will be in the future as the successful APEC summit has provided many people with positive hopes. Especially focusing around the topic of chips, I wonder if and how the US will change their rules towards exports to China.
https://saisreview.sais.jhu.edu/us-china-semiconductor-production-capacities/#_ftn12
I agree with Ethan's comment about China not wanting to make an enemy of the US because of its reliance on Western markets, but I feel the same could be said about the US on China’s markets. Have you ever noticed just how many of your household products have the words “Made in China” upon it? There’s been this tentative relationship with China for DECADES now especially once China became communist. This fight for the better, more advanced chips and technology feels strangely reminiscent of stockpiling nuclear weapons. Who knows how soon chips will become just as powerful and dangerous? China does seem to be trying to mend relationships as they’re shipping giant pandas to the US, one of their most prized animals they’ve been holding onto for years. I see this as their version of an olive branch. However, from what I see Biden doesn’t seem to be doing the same. Yes, he hosts APEC and invites Xi, but come on, calling someone a dictator on national television doesn’t come off as wanting to mend international relationships. I’m not saying America should immediately hand over all of its chips, that would be naive of me to think. But, maybe our own version of a giant panda would be a good start.
If anyone wants to see Biden call Xi and dictator as Ethan brought up:
https://www.youtube.com/watch?v=8E2261IUaTk
Like other commenters have noted, to me the possibility of a Chinese invasion of Taiwan solely to take control of semiconductor manufacturing plants seems very unlikely to me. However, placing sanctions on China could still have unintended consequences— maybe even forcing them to be completely self-reliant and eat the cost of developing manufacturing plants for their own semiconductors. While this poses no threat in the short term, this could increase China's economic power greatly in the long run (like the U.S. is currently attempting to do with CHIPS).
According to the Council on Foreign Relations, if China were to successfully invade Taiwan the US would consider destroying TSMC fabrication centers across the country to prevent China from accessing technology and production. With the threat of not being able to access Taiwan’s semiconductor industry, I don’t think China would invade the island (unless the invasion is solely on an ideological basis of reclaiming a "lost province" and not a economic one). With the passing of the CHIPS and Science Act, domestic research and development and production of semiconductors will likely expand. This would result in job creation (both for the construction and maintenance of these fabrication centers) and more sophisticated chips that would compete or even outperform ones produced in China, Taiwan, and South Korea. Just as the space race with the Soviet Union resulted in new technological discoveries and innovations for the US, a semiconductor race with China could result in technological breakthroughs that could have a positive economic and scientific impact.
https://www.cfr.org/blog/threatening-destroy-tsmc-unnecessary-and-counterproductive
I think you raise a fair point about the risks of America's heavy-handed, sanctions-based approach. Restricting China's access to cutting-edge chip technology may slow their progress but also cut off valuable revenue streams for American companies. And backing China into a corner could have unpredictable consequences, like spurring more aggressive actions toward Taiwan.
Both countries have reasonable economic and national security interests regarding leading in semiconductors and computing power. Perhaps the outcome will be determined less by strategic policies and more by the innovation and ingenuity of technologists on both sides racing to advance this field.
Is there room for more collaboration and co-existence across industries, even as strategic tensions persist between governments?
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