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

by Chris Miller

Integrated circuits didn’t only connect electronic components in innovative ways, they also knit together nations in a network, with the United States at its center.

But letting Japan build an electronics industry was part of U.S. Cold War strategy, so, during the 1960s, Washington never put much pressure on Tokyo over the issue. Trade publications like Electronics magazine—which might have been expected to take the side of U.S. companies—instead noted that “Japan is a keystone in America’s Pacific policy…. If she cannot enter into healthy commercial intercourse with the Western hemisphere and Europe, she will seek economic sustenance elsewhere,” like Communist China or the Soviet Union.

As Americans grew skeptical of military commitments in Asia, Taiwan desperately needed to diversify its connections with the United States. Americans who weren’t interested in defending Taiwan might be willing to defend Texas Instruments. The more semiconductor plants on the island, and the more economic ties with the United States, the safer Taiwan would be.

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.

Some analysts saw evidence of a broader manufacturing decay that started in steel, then afflicted cars, and was now spreading to high-tech industries.

The Americans were told that Chinese scientists didn’t publish their research because they opposed “self-glorification.” Bardeen knew something about scientists obsessed with self-glorification from his work with Shockley, who unfairly claimed all the credit for inventing the transistor. The example of Shockley—a brilliant scientist but a failed businessman—demonstrated that the link between capitalism and self-glorification wasn’t as straightforward as Maoist doctrine suggested. Bardeen told his wife that despite claims of equality he found Chinese society regimented and hierarchical. The political minders who watched over China’s semiconductor scientists certainly had no parallel in Silicon Valley.

Instead, Arm adopted a business model of selling licenses for use of its architecture and letting any other chip designer buy them. This presented a new vision of a disaggregated chip industry.

A fixation on hitting short-term margin targets began to replace long-term technology leadership. The shift in power from engineers to managers accelerated this process.

So even though an American company is one of the world’s three biggest DRAM producers, most DRAM manufacturing is in East Asia.

China’s tech giants depend on data centers full of foreign, largely U.S.-produced, chips. The documents that Edward Snowden leaked in 2013 before fleeing to Russia demonstrated American network-tapping capabilities that surprised even the cyber sleuths in Beijing. Chinese firms had replicated Silicon Valley’s expertise in building software for e-commerce, online search, and digital payments. But all this software relies on foreign hardware. When it comes to the core technologies that undergird computing, China is staggeringly reliant on foreign products, many of which are designed in Silicon Valley and almost all of which are produced by firms based in the U.S. or one of its allies.

The primary target of the Made in China 2025 plan is to reduce the share of foreign chips used in China.

Donald Trump’s proclamations about protectionism garnered millions of retweets, but Beijing had a plan, powerful tools, and a forty-year track record of surprising the world with China’s economic and technological capabilities.

Viewed on their own terms, the deals that IBM, AMD, and Arm struck in China were driven by reasonable business logic. Collectively, they risk technology leakage.

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.

The chip industry itself—deeply fearful of angering China or TSMC—put its considerable lobbying resources behind repeating false platitudes about how “global” the industry had become.

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.”

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.

“Making profits and going public… are not the priority” at YMTC, one executive told the Nikkei Asia newspaper. Instead, the company’s focused on “building the country’s own chips and realizing the Chinese dream.”

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.

“The world needs a more balanced supply chain,” Gelsinger argues. “God decided where the oil reserves are, we get to decide where the fabs are.”

The stronger the PLA gets, the less likely the U.S. is to risk war to defend Taiwan. If China were to try a campaign of limited military pressure on Taiwan, it’s more likely than ever that the U.S. might look at the correlation of forces and conclude that pushing back isn’t worth the risk.

Beijing could conceivably gain influence or control over the only fabs with the technological capability and production capacity to churn out the chips we depend on. Such a scenario would be disastrous for America’s economic and geopolitical position. It would be even worse if a war knocked out TSMC’s fabs.

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.”

There’s no guarantee, of course, that chips will remain as important as they’ve been in the past.