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

by Chris Miller

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

China is devoting its best minds and billions of dollars to developing its own semiconductor technology in a bid to free itself from America’s chip choke. If Beijing succeeds, it will remake the global economy and reset the balance of military power. World War II was decided by steel and aluminum, and followed shortly thereafter by the Cold War, which was defined by atomic weapons. The rivalry between the United States and China may well be determined by computing power.

Around a quarter of the chip industry’s revenue comes from phones;

Taiwan, which fabricates the chips that produce a third of the new computing power we use each year.

Chips from Taiwan provide around a third of the world’s new computing power each year. Two Korean companies produce 52 percent of the world’s DRAM 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 33 percent market share of world oil production looks unimpressive by comparison.

A state-of-the-art computer called ENIAC, built for the U.S. Army at the University of Pennsylvania in 1945 to calculate artillery trajectories, had eighteen thousand vacuum tubes. On average, one tube malfunctioned every two days, bringing the entire machine to a halt and sending technicians scrambling to find and replace the broken part.

Kilby called his invention an “integrated circuit,” but it became known colloquially as a “chip,” because each integrated circuit was made from a piece of silicon “chipped” off a circular silicon wafer.

Soviet leaders never comprehended how the “copy it” strategy condemned them to backwardness.

It was vastly easier to hit Moscow from Montana than it was to hit a truck with a bomb dropped by an F-4 flying at a couple thousand feet.

Americans who weren’t interested in defending Taiwan might be willing to defend Texas Instruments.

Morita knew that replication was a recipe for second-class status and second-rate profits.

Tracking and emulating rivals was key to Silicon Valley’s business model.

Silicon Valley’s biggest disadvantage as its high cost of capital. The Japanese “pay 6 percent, maybe 7 percent, for capital. I pay 18 percent on a good day,” he complained. Building advanced manufacturing facilities was brutally expensive, so the cost of credit was hugely important. A next-generation chip emerged roughly once every two years, requiring new facilities and new machinery. In the 1980s, U.S. interest rates reached 21.5 percent as the Federal Reserve sought to fight inflation.

When America said that oil was a “strategic” commodity, it backed the claim with military force.

Being “ahead of your time” is good for scientists but not necessarily for manufacturing firms seeking sales.

America had faced crisis after crisis. The disastrous war in Vietnam, racial tension, urban unrest, the humiliation of Watergate, a decade of stagflation, a gaping trade deficit, and now industrial malaise. After each new shock, America’s allure dimmed.

“The United States has been busy creating lawyers,” Morita lectured, while Japan has “been busier creating engineers.” Moreover, American executives were too focused on “this year’s profit,” in contrast to Japanese management, which was “long range.”

“High Tech Is Foreign Policy,”

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.

One popular Soviet joke from the 1980s recounted a Kremlin official who declared proudly, “Comrade, we have built the world’s biggest microprocessor!”

“What’s making all this work is weapons based on information instead of the volume of fire power,” one military analyst explained to the media.

From day one, TSMC wasn’t really a private business: it was a project of the Taiwanese state.

the democratization of authorship coincided with a monopolization of the digital printing press. The economics of chip manufacturing required relentless consolidation. Whichever company produced the most chips had a built-in advantage, improving its yield and spreading capital investment costs over more customers.

U.S. fabs made 37 percent of the world’s chips in 1990, but this number fell to 19 percent by 2000 and 13 percent by 2010.

Intel knew that the researchers at Lawrence Livermore and Sandia National Labs had the expertise to build a prototype EUV system, but their focus was on the science, not on mass production.

Claims that the decline of America’s lithography industry would imperil security were seen as out of touch with this new era of globalization and interconnection.

A fixation on profit margins seeped deep into the firm—its hiring decisions, its product road maps, and its R&D processes. The company’s leaders were simply more focused on engineering the company’s balance sheet than its transistors.

Amid the hubris of America’s unipolar moment, hardly anyone was willing to listen. Most people in Washington simply concluded the U.S. was “running faster” without even glancing at the evidence.

Chang thought the real risk was accepting the status quo.

So the text etched onto the back of each iPhone—“Designed by Apple in California. Assembled in China”—is highly misleading. The iPhone’s most irreplaceable components are indeed designed in California and assembled in China. But they can only be made in Taiwan.

If the mirrors in an EUV system were scaled to the size of Germany, the company said, their biggest irregularities would be a tenth of a millimeter.

“Without cybersecurity there is no national security,” declared Xi Jinping, general secretary of the Chinese Communist Party, in 2014, “and without informatization, there is no modernization.”

During most years of the 2000s and 2010s, China spent more money importing semiconductors than oil.

No product is more central to international trade than semiconductors.

Chipmakers jealously guard their critical technologies, of course. But almost every chip firm has non-core technology, in subsectors that they don’t lead, that they’d be happy to share for a price.

Tesla’s cult following and soaring stock price have attracted plenty of attention, but what’s less noticed is that Tesla is also a leading chip designer.

2018, researchers discovered two fundamental errors in Intel’s widely used microprocessor architecture called Spectre and Meltdown, which enabled the copying of data such as passwords—a huge security flaw. According to the Wall Street Journal, Intel first disclosed the flaw to customers, including Chinese tech companies, before notifying the U.S. government, a fact that only intensified Pentagon officials’ concern about their declining influence over the chip industry.

Announcing tariffs via tweet was never a tactic that would impress CEOs.

One U.S. semiconductor executive wryly summed things up to a White House official: “Our fundamental problem is that our number one customer is our number one competitor.”

Efforts by the Obama administration to cut a deal with China’s spy agencies whereby they agreed to stop providing stolen secrets to Chinese companies lasted only long enough for Americans to forget about the issue, at which point the hacking promptly restarted.

international political and economic relations were increasingly impacted by what they called “weaponized interdependence.” Countries were more intwined than ever, they pointed out, but rather than defusing conflicts and encouraging cooperation, interdependence was creating new venues for competition.

TSMC’s chairman is certainly right that no one wants to “disrupt” the semiconductor supply chains that crisscross the Taiwan Strait. But both Washington and Beijing would like more control over them.

A blockade is an act of war, but no one would want to shoot first.

China’s ruling party has no higher goal than asserting control over Taiwan.

The stronger the PLA gets, the less likely the U.S. is to risk war to defend Taiwan.

Every company that’s invested on either side of the Taiwan Strait, from Apple to Huawei to TSMC, is implicitly betting on peace.

Taiwan produces 11 percent of the world’s memory chips. More important, it fabricates 37 percent of the world’s logic chips. Computers, phones, data centers, and most other electronic devices simply can’t work without them, so if Taiwan’s fabs were knocked offline, we’d produce 37 percent less computing power during the following year.

The idea that the semiconductor industry would eventually produce more transistors each day than there are cells in the human body was something the founders of Silicon Valley would have found inconceivable.

Today, even the Pentagon’s $850 billion budget isn’t big enough to afford facilities for building cutting-edge chips for defense purposes on U.S. soil.

A facility to fabricate the most advanced logic chips costs twice as much as an aircraft carrier but will only be cutting-edge for a couple of years.