Chip War: The Fight for the World's Most Critical Technology

by Chris Miller

Previously, the Entity List had primarily been used to prevent sales of military systems like missile parts or nuclear materials. Now, though, the U.S. government was dramatically tightening the rules governing computer chips, which had become ubiquitous in both military systems and consumer goods.

Huawei discovered that, like all other Chinese companies, it was fatally dependent on foreigners to make the chips upon which all modern electronics depend.

China now spends more money each year importing chips than it spends on oil.

Around a quarter of the chip industry’s revenue comes from phones; much of the price of a new phone pays for the semiconductors inside. For the past decade, each generation of iPhone has been powered by one of the world’s most advanced processor chips. In total, it takes over a dozen semiconductors to make a smartphone work, with different chips managing the battery, Bluetooth, Wi-Fi, cellular network connections, audio, the camera, and more.

Today, Apple’s most advanced processors—which are arguably the world’s most advanced semiconductors—can only be produced by a single company in a single building, the most expensive factory in human history, which on the morning of August 18, 2020, was only a couple dozen miles off the USS Mustin’s port bow.

Today, no firm fabricates chips with more precision than the Taiwan Semiconductor Manufacturing Company, better known as TSMC.

It was only sixty years ago that the number of transistors on a cutting-edge chip wasn’t 11.8 billion, but 4.

Fairchild cofounder Gordon Moore noticed in 1965 that the number of components that could be fit on each chip was doubling annually as engineers learned to fabricate ever smaller transistors.

When we think of Silicon Valley today, our minds conjure social networks and software companies rather than the material after which the valley was named. Yet the internet, the cloud, social media, and the entire digital world only exist because engineers have learned to control the most minute movement of electrons as they race across slabs of silicon.

In the age of AI, it’s often said that data is the new oil. Yet the real limitation we face isn’t the availability of data but of processing power.

Unlike oil, which can be bought from many countries, our production of computing power depends fundamentally on a series of choke points: tools, chemicals, and software that often are produced by a handful of companies—and sometimes only by one. No other facet of the economy is so dependent on so few firms.

Chips from Taiwan provide 37 percent of the world’s new computing power each year. Two Korean companies produce 44 percent of the world’s memory chips. The Dutch company ASML builds 100 percent of the world’s extreme ultraviolet lithography machines, without which cutting-edge chips are simply impossible to make. OPEC’s 40 percent share of world oil production looks unimpressive by comparison.

Washington’s foreign policy strategists embraced complex semiconductor supply chains as a tool to bind Asia to an American-led world. Capitalism’s inexorable demand for economic efficiency drove a constant push for cost cuts and corporate consolidation.

This was a leap forward in computing—or it would have been, if not for the moths. Because vacuum tubes glowed like lightbulbs, they attracted insects, requiring regular “debugging” by their engineers.

Replicating Sony’s product innovation and marketing expertise, however, proved just as hard as replicating America’s semiconductor expertise.

The early bombing campaigns in Vietnam, like Operation Rolling Thunder, which stretched from 1965 to 1968, dropped over eight hundred thousand tons of bombs, more than was dropped in the Pacific Theater during all of World War II. This firepower had only a marginal impact on North Vietnam’s military, however, because most of the bombs missed their targets.

He was on the lookout for a device that was simple and easy to use, enabling it to be quickly deployed on every type of airplane, embraced by each military service, and quickly adopted by U.S. allies, too.

A simple laser sensor and a couple of transistors had turned a weapon with a zero-for-638 hit ratio into a tool of precision destruction.

Outside a small number of military theorists and electrical engineers, therefore, hardly anyone realized Vietnam had been a successful testing ground for weapons that married microelectronics and explosives in ways that would revolutionize warfare and transform American military power.

Americans who weren’t interested in defending Taiwan might be willing to defend Texas Instruments. The more semiconductor plants on the island, and the more economic ties with the United States, the safer Taiwan would be.

By the end of the 1970s, American semiconductor firms employed tens of thousands of workers internationally, mostly in Korea, Taiwan, and Southeast Asia.

By the end of the 1970s, rather than dominoes falling to Communism, America’s allies in Asia were even more deeply integrated with the U.S.

Noyce and Moore abandoned Fairchild as quickly as they’d left Shockley’s startup a decade earlier, and founded Intel, which stood for Integrated Electronics.

Humans would be empowered by semiconductors while becoming fundamentally dependent on them.

The strategy of empowering Japanese businesses seemed to be undermining America’s economic and technological edge.

In 1987, Nobel Prize−winning MIT economist Robert Solow, who pioneered the study of productivity and economic growth, argued that the chip industry suffered from an “unstable structure,” with employees job hopping between firms and companies declining to invest in their workers.

However, because Japan didn’t spend heavily on arms, it had more funds to invest elsewhere. The U.S. spent five to ten times more on defense relative to the size of its economy. Japan focused on growing its economy, while America shouldered the burden of defending it.

“The United States has been busy creating lawyers,” Morita lectured, while Japan has “been busier creating engineers.”

Today, every chip company uses tools from each of three chip design software companies that were founded and built by alumni of these DARPA- and SRC-funded programs.

Government efforts were effective not when they tried to resuscitate failing firms, but when they capitalized on pre-existing American strengths, providing funding to let researchers turn smart ideas into prototype products.

In his routine of rendezvousing with French agents Vetrov had found a new activity, but he hadn’t found fulfillment. The French provided him with gifts from abroad, to keep Vetrov’s mistress happy, yet what Vetrov really wanted was for his wife to love him.

The USSR’s “copy it” strategy had actually benefitted the United States, guaranteeing the Soviets faced a continued technological lag.

Bardeen told his wife that despite claims of equality he found Chinese society regimented and hierarchical. The political minders who watched over China’s semiconductor scientists certainly had no parallel in Silicon Valley.

The DRAM market was like a game of chicken, one Samsung executive explained. In good times, the world’s DRAM companies would pour money into new factories, pushing the market toward overcapacity, driving down prices. Carrying on spending was ruinously expensive, but stopping investments, even for a single year, risked ceding market share to rivals. No one wanted to blink first.

The company even had a slogan, “one old staffer brings along two new ones,” emphasizing the need for experienced foreign-trained employees to help local engineers learn.

Management gurus promised a future “borderless world” in which profits not power would shape the global business landscape.

The dominant belief in the U.S. government was that expanding trade and supply chain connections would promote peace by encouraging powers like Russia or China to focus on acquiring wealth rather than geopolitical power.

With the Cold War over, the Bush administration, which had just taken power, wanted to loosen technology export controls on all goods except those with direct military applications. The administration described the strategy as “building high walls around technologies of the highest sensitivity.” EUV didn’t make the list.

The scientific networks that produced EUV spanned the world, bringing together scientists from countries as diverse as America, Japan, Slovenia, and Greece. However, the manufacturing of EUV wasn’t globalized, it was monopolized. A single supply chain managed by a single company would control the future of lithography.

Otellini’s background was not in engineering or physics, but in economics. He’d graduated with an MBA, not a PhD. His time as CEO saw influence shift from chemists and physicists toward managers and accountants. This was barely perceptible at first, though employees noted that executives’ shirts became steadily whiter and they wore ties more often.

RISC was more efficient, but the cost of change was high, and the threat to Intel’s de facto monopoly was too serious. The computer industry was designed around x86 and Intel dominated the ecosystem. So x86 defines most PC architectures to this day.

His solution: “Levy an extra tax on the product of offshored labor. If the result is a trade war, treat it like other wars—fight to win.”

“Run faster” was an elegant strategy with only a single problem: by some key metrics, the U.S. wasn’t running faster, it was losing ground.

However, the Pentagon had to think about worst-case scenarios. Van Atta reported that the Defense Department’s access to cutting-edge chips would soon depend on foreign countries because so much advanced fabrication was moving abroad.

Van Atta saw few reasons for confidence and none for complacency. “The U.S. leadership position,” he warned in 2007, “will likely erode seriously over the next decade.” No one was listening.

it was common to split the semiconductor industry into three categories. “Logic” refers to the processors that run smartphones, computers, and servers. “Memory” refers to DRAM, which provides the short-term memory computers need to operate, and flash, also called NAND, which remembers data over time. The third category of chips is more diffuse, including analog chips like sensors that convert visual or audio signals into digital data, radio frequency chips that communicate with cell phone networks, and semiconductors that manage how devices use electricity.

Rather than a diffuse set of suppliers centered in advanced economies, the two main types of memory chip—DRAM and NAND—are produced by only a couple of firms.

This let fabless companies focus on their strength—chip design—without requiring simultaneous expertise in fabricating semiconductors.

Since the late 1980s, there’s been explosive growth in the number of fabless chip firms, which design semiconductors in-house but outsource their manufacturing, commonly relying on TSMC for this service.

Nvidia not only designed chips called graphics processor units (GPUs) capable of handling 3D graphics, it also devised a software ecosystem around them.