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

by Chris Miller

When Micron sued UMC and Jinhua for violating its patents, they countersued in China’s Fujian Province. A Fujian court ruled that Micron was responsible for violating UMC and Jinhua’s patents—patents that had been filed using material stolen from Micron. To “remedy” the situation, Fuzhou Intermediate People’s Court banned Micron from selling twenty-six products in China, the company’s biggest market. This was a perfect case study of the state-backed intellectual property theft foreign companies operating in China had long complained of.

China would need to acquire cutting-edge design software, design capabilities, advanced materials, and fabrication know-how, among other steps. China will no doubt make progress in some of these spheres, yet some are simply too expensive and too difficult for China to replicate at home. Consider, for example, what it would take to replicate one of ASML’s EUV machines, which have taken nearly three decades to develop and commercialize. EUV machines have multiple components that, on their own, constitute epically complex engineering challenges. Replicating just the laser in an EUV system requires perfectly identifying and assembling 457,329 parts. A single defect could cause debilitating delays or reliability problems.

However, Chinese stockpiling explains only part of the COVID-era chip choke. The bigger cause is vast swings in orders for chips after the pandemic began, as companies and consumers adjusted their demand for different goods. PC demand spiked in 2020, as millions of people upgraded their computers to work from home. Data centers’ demand for servers grew, too, as more of life shifted online. Car companies at first cut chip orders, expecting car sales to slump. When demand quickly recovered, they found that chipmakers had already reallocated capacity to other customers. According to the American Automotive Policy Council, an industry group, the world’s biggest auto companies can use over a thousand chips in each car. If even one chip is missing, the car can’t be shipped.

The Biden administration and most of the media interpreted the chip shortage as a supply chain problem. The White House commissioned a 250-page report on supply chain vulnerabilities that focused on semiconductors. However, the semiconductor shortage wasn’t primarily caused by issues in the chip supply chain. There were some supply disruptions, like COVID lockdowns in Malaysia, which impacted semiconductor packaging operations there. But the world produced more chips in 2021 than ever before—over 1.1 trillion semiconductor devices, according to research firm IC Insights. This was a 13 percent increase compared to 2020. The semiconductor shortage is mostly a story of demand growth rather than supply issues.

Politicians around the world have therefore misdiagnosed the semiconductor supply chain dilemma. The problem isn’t that the chip industry’s far-flung production processes dealt poorly with COVID and the resulting lockdowns. There are few industries that sailed through the pandemic with so little disruption. Such problems that emerged, notably the shortage of auto chips, are mostly the fault of carmakers’ frantic and ill-advised cancelation of chip orders in the early days of the pandemic coupled with their just-in-time manufacturing practices that provide little margin of error.

The substantial increase in chip production during both 2020 and 2021 is not a sign that multinational supply chains are broken. It’s a sign that they’ve worked.

U.S. pressure to restrict the transfer of EUV tools to SK Hynix’s facility in Wuxi, China, is reportedly delaying its modernization—and presumably imposing a substantial cost on the company.

Intel’s foundry pivot comes as its market share in data center chips continues to decline, both because of competition from AMD and Nvidia and because cloud computing companies like Amazon Web Services and Google are designing their own chips.

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. One recent war game organized by American defense experts envisioned Chinese troops landing on the island and seizing the small Taiwanese garrison there without firing a shot. Taiwan and the U.S. would face the difficult choice of starting a war over an irrelevant atoll or establishing a precedent that China can slice off chunks of Taiwanese territory like pieces of soft salami.

The idea that China would simply destroy TSMC’s fabs out of spite doesn’t make sense, because China would suffer as much as anyone, especially since the U.S. and its friends would still have access to Intel’s and Samsung’s chip fabs. Nor has it ever been realistic that Chinese forces could invade and straightforwardly seize TSMC’s facilities. They’d soon discover that crucial materials and software updates for irreplaceable tools must be acquired from the U.S., Japan, and other countries.

security guarantee and fatally demoralize Taiwan. 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. Imagine if Beijing were to use its navy to impose customs checks on a fraction of the ships sailing in and out of Taipei. How would the U.S. respond? A blockade is an act of war, but no one would want to shoot first. If the U.S. did nothing, the impact on Taiwan’s will to fight could be devastating.

After a disaster in Taiwan, in other words, the total costs would be measured in the trillions. Losing 37 percent of our production of computing power each year could well be more costly than the COVID pandemic and its economically disastrous lockdowns. It would take at least half a decade to rebuild the lost chipmaking capacity. 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.

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.

Two of the “traitorous eight” engineers who founded Fairchild Semiconductor with Bob Noyce were born outside the United States.

proven right far beyond their wildest dreams. Visionaries like Gordon Moore and Caltech professor Carver Mead saw decades ahead, but Moore’s prediction from 1965 of “home computers” and “personal portable communications equipment” barely begins to describe the centrality of chips in our lives today. 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.

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.

Transistors today cost far less than a millionth of their 1958 price thanks to the spirit expressed by the now-forgotten Fairchild employee who wrote on his exit survey when leaving the company: “I… WANT… TO… GET… RICH.”

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. First, he argues, existing fin-shaped transistors can be printed thinner to allow three times as many to be packed together. Next, fin-shaped transistors will be replaced by new tube-shaped transistors, often called “gate-all-around.” These are wire-shaped tubes that let an electric field be applied from all directions—top, sides, and bottom—providing better control of the “switch” to cope with challenges as transistors shrink. These tiny wires will double the density at which transistors can be packed, Keller argues. Stacking these wires on top of each other can increase density eight times further, he predicts. This adds up to a roughly fifty times increase in the number of transistors that can fit on a chip. “We’re not running out of atoms,” Keller has

Nvidia and other companies offering chips that are optimized for AI have made artificial intelligence far cheaper to implement, and therefore more widely accessible. AI has become a lot more “general purpose” today than was conceivable a decade ago, largely thanks to new, more powerful chips.

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.