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

by Chris Miller

Like Apple’s products, Tesla’s finely tuned user experience and its seemingly effortless integration of advanced computing into a twentieth-century product—a car—are only possible because of custom-designed chips. Cars have incorporated simple chips since the 1970s. However, the spread of electric vehicles, which require specialized semiconductors to manage the power supply, coupled with increased demand for autonomous driving features foretells that the number and cost of chips in a typical car will increase substantially.

One study of Huawei’s radio units, by the Japanese newspaper Nikkei Asia, found a heavy reliance on U.S.-made chips, like field-programmable gate arrays from Lattice Semiconductor, the Oregon company that Tsinghua Unigroup had bought and then sold a minority stake in several years earlier. Texas Instruments, Analog Devices, Broadcom, and Cypress Semiconductor also designed and built chips that Huawei’s radio gear relied on. According to this analysis, American chips and other components constitute nearly 30 percent of the cost of each Huawei system. However, the main processor chip was designed domestically by Huawei’s HiSilicon chip design arm and fabricated at TSMC. Huawei hadn’t reached technological self-sufficiency. It relied on multiple foreign chip firms to produce specialized semiconductors and on TSMC to fabricate the chips it designed in-house. Yet Huawei produced some of the most complex electronics in each radio system and understood the details of how to integrate all the components.

Beijing’s aim isn’t simply to match the U.S. system-by-system, but to develop capabilities that could “offset” American advantages, taking the Pentagon’s concept from the 1970s and turning it against the United States. China has fielded an array of weapons that systematically undermine U.S. advantages. China’s precision anti-ship missiles make it extremely dangerous for U.S. surface ships to transit the Taiwan Strait in a time of war, holding American naval power at bay.

The Soviet Union could match the U.S. missile-for-missile but not byte-for-byte. China thinks it can do both. The fate of China’s semiconductor industry isn’t simply a question of commerce. Whichever country can produce more 1s and 0s will have a serious military advantage, too.

a “triad” of data, algorithms, and computing power are needed to harness AI.

One Chinese study has estimated that as many as 95 percent of GPUs in Chinese servers running artificial intelligence workloads are designed by Nvidia, for example. Chips

DARPA developed the technology that made the 1970s offset possible; now it’s devising systems that promise new computing-enabled transformations in warfare. DARPA leaders envision “computers distributed across the battlespace that can all communicate and coordinate with one another,” from the largest naval ship to the tiniest drone. The challenge isn’t simply to embed computing power in a single device, like a guided missile, but to network thousands of devices across a battlefield, letting them share data and putting machines in a position to make more decisions. DARPA has funded research programs on “human-machine teaming,” envisioning, for example, a piloted fighter jet flying alongside several autonomous drones that are an additional set of eyes and ears for the human pilot.

For example, Russia has used a variety of radar and signals jammers in its war against Ukraine. The Russian government also reportedly obstructs GPS signals around President Vladimir Putin’s official travel, perhaps as a security measure. Not coincidentally, DARPA is researching alternative navigation systems that aren’t reliant on GPS signals or satellites, to enable American missiles to hit their targets even if GPS systems are down.

Yet DARPA and the U.S. government have found it harder than ever to shape the future of the chip industry. DARPA’s budget is a couple billion dollars per year, less than the R&D budgets of most of the industry’s biggest firms. Of course, DARPA spends a lot more on far-out research ideas, whereas companies like Intel and Qualcomm spend most of their money on projects that are only a couple years from fruition. However, the U.S. government in general buys a smaller share of the world’s chips than ever before. The U.S. government bought almost all the early integrated circuits that Fairchild and Texas Instruments produced in the early 1960s. By the 1970s, that number had fallen to 10−15 percent. Now it’s around 2 percent of the U.S. chip market. As a buyer of chips, Apple CEO Tim Cook has more influence on the industry than any Pentagon official today. Making semiconductors is so expensive that even the Pentagon can’t afford to do it in-house. The National Security Agency used to have a chip fab at its headquarters in Maryland’s Fort Meade. In the 2000s, however, the government decided it was too expensive to keep upgrading per the cadence dictated by Moore’s Law. Today even designing a leading-edge chip—which can cost several hundred million dollars—is too expensive for all but the most important projects. Both the U.S. military and the government’s spy agencies outsource the production of their chips to “trusted foundries.”

The military worries that chips fabricated or assembled abroad are more susceptible to tampering, with back doors added or errors written in. However, even chips designed and produced domestically can have unintended vulnerabilities. In 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.

China had driven U.S. solar panel manufacturing out of business.

The intelligence agencies and Justice Department unearthed more evidence of collusion between China’s government and its industries to push out American chip firms. Yet the twin pillars of American tech policy—embracing globalization and “running faster”—were deeply ingrained, not only by the industry’s lobbying, but also by Washington’s intellectual consensus.

“make clear to China’s leaders at every opportunity that we will not accept a $150 billion industrial policy designed to appropriate this industry.” But it was easy to condemn China’s subsidies. It was far harder to make them stop.

Technology hadn’t diffused. It was monopolized by a handful of irreplaceable companies. American tech policy was held hostage to banalities about globalization that were easily seen to be false.

America’s technological lead in fabrication, lithography, and other fields had dissipated because Washington convinced itself that companies should compete but that governments should simply provide a level playing field. A laissez-faire system works if every country agrees to it. Many governments, especially in Asia, were deeply involved in supporting their chip industries. However, U.S. officials found it easier to ignore other countries’ efforts to grab valuable chunks of the chip industry, instead choosing to parrot platitudes about free trade and open competition. Meanwhile, America’s position was eroding.

Trump repeatedly attacked China for “ripping us off,” but he had little interest in policy details and none in technology. His focus was on trade and tariffs, where his officials like Peter Navarro and Robert Lighthizer tried and mostly failed to reduce the bilateral trade deficit and slow offshoring.

“Our fundamental problem is that our number one customer is our number one competitor.”