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

by Chris Miller

We rarely think about chips, yet they’ve created the modern world. The fate of nations has turned on their ability to harness computing power. Globalization as we know it wouldn’t exist without the trade in semiconductors and the electronic products they make possible. America’s military primacy stems largely from its ability to apply chips to military uses. Asia’s tremendous rise over the past half century has been built on a foundation of silicon as its growing economies have come to specialize in fabricating chips and assembling the computers and smartphones that these integrated circuits make possible. At the core of computing is the need for many millions of 1s and 0s.

In 2020, as the world lurched between lockdowns driven by a virus whose diameter measured around one hundred nanometers—billionths of a meter—TSMC’s most advanced facility, Fab 18, was carving microscopic mazes of tiny transistors, etching shapes smaller than half the size of a coronavirus, a hundredth the size of a mitochondria.

Semiconductors spread across society because companies devised new techniques to manufacture them by the millions, because hard-charging managers relentlessly drove down their cost, and because creative entrepreneurs imagined new ways to use them. The making of Moore’s Law is as much a story of manufacturing experts, supply chain specialists, and marketing managers as it is about physicists or electrical engineers.

The towns to the south of San Francisco—which weren’t called Silicon Valley until the 1970s—were the epicenter of this revolution because they combined scientific expertise, manufacturing know-how, and visionary business thinking. California had plenty of engineers trained in aviation or radio industries who’d graduated from Stanford or Berkeley, each of which was flush with defense dollars as the U.S. military sought to solidify its technological advantage. California’s culture mattered just as much as any economic structure, however. The people who left America’s East Coast, Europe, and Asia to build the chip industry often cited a sense of boundless opportunity in their decision to move to Silicon Valley. For the world’s smartest engineers and most creative entrepreneurs, there was simply no more exciting place to be.

A typical chip might be designed with blueprints from the Japanese-owned, UK-based company called ARM, by a team of engineers in California and Israel, using design software from the United States. When a design is complete, it’s sent to a facility in Taiwan, which buys ultra-pure silicon wafers and specialized gases from Japan. The design is carved into silicon using some of the world’s most precise machinery, which can etch, deposit, and measure layers of materials a few atoms thick. These tools are produced primarily by five companies, one Dutch, one Japanese, and three Californian, without which advanced chips are basically impossible to make. Then the chip is packaged and tested, often in Southeast Asia, before being sent to China for assembly into a phone or computer.

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.

The computers that guided the Apollo spacecraft and the Minuteman II missile provided the initial liftoff for America’s integrated circuit industry. By the mid-1960s, the U.S. military was deploying chips in weaponry of all types, from satellites to sonar, torpedoes to telemetry systems.

The key to scaling production was reliability, a challenge that American chipmakers like Morris Chang and Andy Grove fixated on during the 1960s. Unlike their Soviet counterparts, they could draw on the expertise of other companies making advanced optics, chemicals, purified materials, and other production machinery. If no American companies could help, Fairchild and TI could turn to Germany, France, or Britain, each of which had advanced industries of their own.

Young Soviet students didn’t pursue electrical engineering degrees, wanting to be like Osokin, because no one knew that he existed. Career advancement required becoming a better bureaucrat, not devising new products or identifying new markets. Civilian products were always an afterthought amid an overwhelming focus on military production.

In bombed-out Tokyo, it was easy to feel isolated from the world’s leading physicists, but U.S. occupation headquarters in Tokyo provided Japan’s scientists access to journals like Bell System Technical Journal, Journal of Applied Physics, and Physical Review, which published the papers of Bardeen, Brattain, and Shockley. These journals were otherwise impossible to obtain in postwar Japan. “I’d flick through the contents and whenever I saw the word ‘semiconductor’ or ‘transistor,’ ” Kikuchi recounted, “my heart would start to pound.”

“Our plan is to lead the public with new products rather than ask them what kind of products they want,” Morita declared. “The public does not know what is possible, but we do.”

Foreign policy strategists in Washington saw ethnic Chinese workers in cities like Hong Kong, Singapore, and Penang as ripe for Mao Zedong’s Communist subversion. Sporck saw them as a capitalist’s dream. “We had union problems in Silicon Valley,” Sporck noted. “We never had any union problems in the Orient.”

A small silicon wafer was divided into four quadrants and placed behind a lens. The laser reflecting off the target would shine through the lens onto the silicon. If the bomb veered off course, one quadrant would receive more of the laser’s energy than the others, and circuitry would move the wings to reorient the bomb’s trajectory so that the laser was shining straight through the lens.

From South Korea to Taiwan, Malaysia to Singapore, anti-Communist governments were seeking assurance that America’s retreat from Vietnam wouldn’t leave them standing alone. They were also seeking jobs and investment that could address the economic dissatisfaction that drove some of their populations toward Communism. Minister Li realized that Texas Instruments could help Taiwan solve both problems at once.

From South Korea to Taiwan, Singapore to the Philippines a map of semiconductor assembly facilities looked much like a map of American military bases across Asia. Yet even after the U.S. finally admitted defeat in Vietnam and drew down its military presence in the region, these trans-Pacific supply chains endured. 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.

Sony’s research director, the famed physicist Makoto Kikuchi, told an American journalist that Japan had fewer geniuses than America, a country with “outstanding elites.” But America also had “a long tail” of people “with less than normal intelligence,” Kikuchi argued, explaining why Japan was better at mass manufacturing.

The number of documented cases of illegal Japanese industrial espionage was low. But was this a sign that stealing secrets played only a small role in Japan’s success, or evidence that Japanese firms were skilled at spycraft?

Tracking and emulating rivals was key to Silicon Valley’s business model. Was Japan’s strategy any different?

Academics devised elaborate theories to explain how Japan’s huge conglomerates were better at manufacturing than America’s small startups. But the mundane reality was that GCA didn’t listen to its customers, while Nikon did. Chip firms that interacted with GCA found it “arrogant” and “not responsive.” No one said that about its Japanese rivals.

Morita’s wife Yoshiko even wrote a book explaining American dinner party customs to unfamiliar Japanese readers, titled My Thoughts on Home Entertaining. (Kimonos were discouraged; “whenever everyone wears the same kind of outfit, harmony is enhanced.”)

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

U.S. chipmakers built facilities from Taiwan to South Korea to Singapore. These territories were defended from Communist incursions not only by military force but also by economic integration, as the electronics industry sucked the region’s peasants off farms—where rural poverty often inspired guerilla opposition—into good jobs assembling electronic devices for American consumption.

Silicon Valley’s resurgence was driven by scrappy startups and by wrenching corporate transformations. The U.S. overtook Japan’s DRAM behemoths not by replicating them but by innovating around them. Rather than cutting itself off from trade, Silicon Valley offshored even more production to Taiwan and South Korea to regain its competitive advantage. Meanwhile, as America’s chip industry recovered, the Pentagon’s bet on microelectronics began to pay off as it fielded new weapons systems that no other country could match. America’s unrivaled power during the 1990s and 2000s stemmed from its resurgent dominance in computer chips, the core technology of the era.

As in Japan, therefore, Korea’s tech companies emerged not from garages, but from massive conglomerates with access to cheap bank loans and government support.

The rebirth of America’s chip industry after Japan’s DRAM onslaught was only possible thanks to Andy Grove’s paranoia, Jerry Sanders’s bare-knuckle brawling, and Jack Simplot’s cowboy competitiveness. Silicon Valley’s testosterone and stock option−fueled competition often felt less like the sterile economics described in textbooks and more like a Darwinian struggle for the survival of the fittest.

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.

The USSR’s “copy it” strategy had actually benefitted the United States, guaranteeing the Soviets faced a continued technological lag. In 1985, the CIA conducted a study of Soviet microprocessors and found that the USSR produced replicas of Intel and Motorola chips like clockwork. They were always half a decade behind.

One issue was political meddling. In the late 1980s, Yuri Osokin was removed from his job at the Riga semiconductor plant. The KGB had demanded that he fire several of his employees, one of whom had mailed letters to a woman in Czechoslovakia, a second who refused to work as an informant for the KGB, and a third who was a Jew. When Osokin refused to punish these workers for their “crimes,” the KGB ousted him and tried to have his wife fired, too. It was hard enough to design chips in normal times. Doing so while battling the KGB was impossible.

A second issue was overreliance on military customers. The U.S., Europe, and Japan had booming consumer markets that drove chip demand. Civilian semiconductor markets helped fund the specialization of the semiconductor supply chain, creating companies with expertise in everything from ultra-pure silicon wafers to the advanced optics in lithography equipment. The Soviet Union barely had a consumer market, so it produced only a fraction of the chips built in the West.

the start of the Persian Gulf War, the Paveway had become the military’s weapon of choice for the same reason Intel’s microprocessors were used across the computer industry: they were widely understood, easy to use, and cost-effective.

Japan’s seeming dominance had been built on an unsustainable foundation of government-backed overinvestment. Cheap capital had underwritten the construction of new semiconductor fabs, but also encouraged chipmakers to think less about profit and more about output. Japan’s biggest semiconductor firms doubled down on DRAM production even as lower cost producers like Micron and South Korea’s Samsung undercut Japanese rivals.

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

Mao wasn’t simply skeptical of foreign chips; at times he worried that all electronic goods were intrinsically anti-socialist.

“You mean to tell me you’re going to spend money on something that we don’t even know if it’s gonna work?” Grove asked skeptically. “Yeah, Andy, that’s called research,” Carruthers retorted.

The problem wasn’t that no one realized Intel ought to consider new products, but that the status quo was simply too profitable. If Intel did nothing at all, it would still own two of the world’s most valuable castles—PC and server chips—surrounded by a deep x86 moat.

Chang fired his successor and retook direct control of TSMC. The company’s stock price fell that day, as investors worried he’d launch a risky spending program with uncertain returns. Chang thought the real risk was accepting the status quo.

Today, no company besides TSMC has the skill or the production capacity to build the chips Apple needs. 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.

The company’s engineers realized the best approach was to shoot a tiny ball of tin measuring thirty-millionths of a meter wide moving through a vacuum at a speed of around two hundred miles per hour. The tin is then struck twice with a laser, the first pulse to warm it up, the second to blast it into a plasma with a temperature around half a million degrees, many times hotter than the surface of the sun. This process of blasting tin is then repeated fifty thousand times per second to produce EUV light in the quantities necessary to fabricate chips. Jay Lathrop’s lithography process had relied on a simple bulb for a light source. The increase in complexity since then was mind-boggling.

For Frits van Houts, who took over leadership of ASML’s EUV business in 2013, the most crucial input into an EUV lithography system wasn’t any individual component, but the company’s own skill in supply chain management. ASML engineered this network of business relationships “like a machine,” van Houts explained, producing a finely tuned system of several thousand companies capable of meeting ASML’s exacting requirements. ASML itself only produced 15 percent of an EUV tool’s components, he estimated, buying the rest from other firms. This let it access the world’s most finely engineered goods, but it also required constant surveillance.

ASML ended up buying several suppliers, including Cymer, after concluding it could better manage them itself.

The final product—chips—work so reliably because they only have a single component: a block of silicon topped with other metals. There are no moving parts in a chip, unless you count the electrons zipping around inside. Producing advanced semiconductors, however, has relied on some of the most complex machinery ever made. ASML’s EUV lithography tool is the most expensive mass-produced machine tool in history, so complex it’s impossible to use without extensive training from ASML personnel, who remain on-site for the tool’s entire life span. Each EUV scanner has an ASML logo on its side. But ASML’s expertise, the company readily admits, was its ability to orchestrate a far-flung network of optics experts, software designers, laser companies, and many others whose capabilities were needed to make the dream of EUV a reality.

The point is that, rather than a single country being able to claim pride of ownership regarding these miraculous tools, they are the product of many countries. A tool with hundreds of thousands of parts has many fathers.

“The internet has turned the world into a global village,” Xi declared, sidestepping the fact that many of the world’s most popular websites, like Google and Facebook, were banned in China. He had a different type of global network in mind than the utopians of the early internet age—a network that China’s government could use to project power. “We must march out, deepen international internet exchange and collaboration, and vigorously participate in the construction of ‘One Belt, One Road,’ ” he declared on a different occasion, referring to his plan to enmesh the world in Chinese-built infrastructure that included not only roads and bridges but network equipment and censorship tools. No country has been more successful than China at harnessing the digital world for authoritarian purposes.

But even the surveillance systems that track China’s dissidents and its ethnic minorities rely on chips from American companies like Intel and Nvidia. All of China’s most important technology rests on a fragile foundation of imported silicon.

Though Xi had jailed his rivals and become China’s most powerful leader since Mao Zedong, his control over China was far from absolute. He could lock up dissidents and censor even the most veiled criticism online. But many facets of Xi’s economic agenda, from industrial restructuring to financial market reform, remained stillborn, obstructed by Communist Party bureaucrats and local government officials who preferred the status quo. Officials often dragged their feet when faced with instructions from Beijing that they disliked.

“When a Chinese firm said, ‘Let’s open a joint venture,’ ” one European semiconductor executive explained. “I heard, ‘Let’s lose money.’ ” The joint ventures that did emerge were generally addicted to government subsidies and rarely produced meaningful new technology.

Integrated circuits made up 15 percent of South Korea’s exports in 2017; 17 percent of Singapore’s; 19 percent of Malaysia’s; 21 percent of the Philippines’; and 36 percent of Taiwan’s. Made in China 2025 called all this into question. At stake was the world’s most dense network of supply chains and trade flows, the electronics industries that had undergirded Asia’s economic growth and political stability over the past half century.