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China certainly faced a Sputnik-scale shock after the U.S. banned sales of chips to firms like Huawei. Dan Wang, one of the smartest analysts of China’s tech policy, has argued that American restrictions have “boosted Beijing’s quest for tech dominance” by catalyzing new government policies to support the chip industry.
EUV machines are just one of many tools that are produced via multinational supply chains. Domesticating every part of the supply chain would be impossibly expensive. The global chip industry spends over $100 billion annually on capital expenditures. China would have to replicate this spending in addition to building a base of expertise and facilities that it currently lacks. Establishing a cutting-edge, all-domestic supply chain would take over a decade and cost well over a trillion dollars in that period.
This is why, despite the rhetoric, China’s not actually pursuing an all-domestic supply chain. Beijing recognizes this is simply impossible. China would like a non-U.S. supply chain, but because of America’s heft in the chip industry and the extraterritorial power of its export regulations, a non-American supply chain is also unrealistic, except perhaps in the distant future. What is plausible is for China to reduce its reliance on the United States in certain spheres and to increase its overall weight in the chip industry, weaning itself off as many choke-point technologies as possible.
Barring severe new restrictions on access to foreign software and machinery, China looks likely to play a much bigger role in producing non-cutting-edge logic chips. In addition, it’s pouring money into the materials needed to develop power management chips for electric vehicles. China’s YMTC, meanwhile, has a real chance to win a chunk of the NAND memory market. Across the chip industry, estimates suggest that China’s share of fabrication will increase from 15 percent at the start of the decade to 24 percent of global capacity by 2030, overtaking Taiwan and South Korea in terms of volume.
a second chip choke began asphyxiating parts of the world economy. Certain types of chips became difficult to acquire, especially the types of basic logic chips that are widely used in automobiles.
Carmakers spent much of 2021 struggling and often failing to acquire semiconductors. These firms are estimated to have produced 7.7 million fewer cars in 2021 than would have been possible
The semiconductor shortage is mostly a story of demand growth rather than supply issues. It’s driven by new PCs, 5G phones, AI-enabled data centers—and, ultimately, our insatiable demand for computing power. Politicians around the world have therefore misdiagnosed the semiconductor supply chain dilemma.
The real supply chain lesson of the past few years is not about fragility but about profits and power. Taiwan’s extraordinary ascent shows how one company—with a vision and with government financial support—can remake an entire industry. Meanwhile, U.S. restrictions on China’s access to chip technology demonstrate just how powerful the chip industry’s choke points are. The rise of China’s semiconductor industry over the past decade, however, is a reminder that these choke points are not infinitely durable. Countries and governments can often find ways around choke points, though doing so is
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But for now, Washington is unwilling to exert the pressure that would be required. The entire world’s dependence on Taiwan, therefore, continues to grow.
investors who for years chose to ignore the severity of the U.S.-China antagonism began looking nervously at the map of TSMC’s chip fabs, arrayed along the western coast of the Taiwan Strait. TSMC’s chairman insisted that there was no reason for concern.
There are many ways a war over Taiwan could begin, but some defense planners think a ramped-up dispute over isolated Pratas Island is the most likely.
The Pentagon’s public reports on Chinese military power have identified multiple ways China could use force against Taiwan. The most straightforward—but most unlikely—is a D-Day style invasion,
Other options would be easier for the PLA to implement, in the Pentagon’s judgment. A partial air and maritime blockade would be impossible for Taiwan to defeat on its own.
Chinese air and missile campaign alone could defang Taiwan’s military and shut down the country’s economy without placing a single pair of Chinese boots on the ground.
Beijing knows that Taiwan’s defense strategy is to fight long enough for the U.S. and Japan to arrive and help. The island is so small relative to the cross-strait superpower that there’s no realistic option besides counting on friends.
If the U.S. did nothing, the impact on Taiwan’s will to fight could be devastating. If China then demanded that TSMC restart chip fabrication for Huawei and other Chinese companies, or even to transfer critical personnel and know-how to the mainland, would Taiwan be able to say no?
Analysts uniformly agree that the military balance in the Strait has shifted decisively in China’s direction. Long gone are the days, as during the 1996 Taiwan Strait crisis, that the U.S. could simply sail an entire aircraft carrier battlegroup through the Strait to force Beijing to stand down.
Trillions of dollars are invested in firms and facilities within easy missile shot of the Taiwan Strait, from Hong Kong to Hsinchu. The world’s chip industry, as well as the assembly of all the electronic goods chips enable, depends more on the Taiwan Strait and the South China coast than on any other chunk of the world’s territory except Silicon Valley.
Taiwan produces 11 percent of the world’s memory chips. More important, it fabricates 37 percent of the world’s logic chips.
These days, when we look five years out we hope to be building 5G networks and metaverses, but if Taiwan were taken offline we might find ourselves struggling to acquire dishwashers.
Taiwan’s president Tsai Ing-wen recently argued in Foreign Affairs that the island’s chip industry is a “ ‘silicon shield’ that allows Taiwan to protect itself and others from aggressive attempts by authoritarian regimes to disrupt global supply chains.” That’s a highly optimistic way of looking at the situation.
The Russian invasion of Ukraine, however, is a reminder that just because the Taiwan Strait has been mostly peaceful for the past few decades, a war of conquest is far from unthinkable. The Russia-Ukraine War also illustrates the extent to which any large conflict will be determined in part by a country’s position in the semiconductor supply chain, which will shape its ability to wield military and economic power.
Russia’s military continues to rely extensively on non-precision-guided munitions. A recent analysis of Russia’s war in Syria found that up to 95 percent of munitions dropped were unguided.
It would be naïve to assume that what happened in Ukraine couldn’t happen in East Asia. Looking at the role of semiconductors in the Russia-Ukraine War, Chinese government analysts have publicly argued that if tensions between the U.S. and China intensify, “we must seize TSMC.”
A new Taiwan Strait crisis would be far more dangerous than the crises of the 1950s. There’d still be the risk of nuclear war, especially given China’s growing atomic arsenal. But rather than a standoff over an impoverished island, this time the battleground would be the beating heart of the digital world. What’s worse is that unlike in the 1950s, it’s not clear the People’s Liberation Army would eventually back down. This time, Beijing might wager that it could well win.
The staggering complexity of producing computing power shows that Silicon Valley isn’t simply a story of science or engineering. Technology only advances when it finds a market. The history of the semiconductor is also a story of sales, marketing, supply chain management, and cost reduction. Silicon Valley wouldn’t exist without the entrepreneurs who built it.
Industry luminaries from Nvidia CEO Jensen Huang to former Stanford president and Alphabet chairman John Hennessy have declared Moore’s Law dead. At some point, the laws of physics will make it impossible to shrink transistors further.
Jim Keller, the star semiconductor designer who’s widely credited for transformative work on chips at Apple, Tesla, AMD, and Intel, has said he sees a clear path toward a fifty times increase in the density with which transistors can be packed on chips.
It’s undeniable that the microprocessor, the workhorse of modern computing, is being partially displaced by chips made for specific purposes. What’s less clear is whether this is a problem.
So the important question isn’t whether we’re finally reaching the limits of Moore’s Law as Gordon Moore initially defined it—exponential increase in the number of transistors per chip—but whether we’ve reached a peak in the amount of computing power a chip can cost-effectively produce. Many thousands of engineers and many billions of dollars are betting not.
In what proved to be a colossally bad decision, Intel turned down Steve Jobs’s proposal to build chips for Apple’s mobile phones. “I couldn’t see it,” Intel CEO Paul Otellini would later say.
