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

by Chris Miller

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.”

The China hawks on the National Security Council concluded that America’s semiconductor industry needed to be saved from itself. Left to the whim of their shareholders and to market forces, chip firms would slowly transfer staff, technology, and intellectual property to China until Silicon Valley was hollowed out. The U.S. needed a stronger export control regime, the China hawks believed.

Only Japan has companies producing some comparable machinery, so if Tokyo and Washington agreed, they could make it impossible for any firm, in any country, to make advanced chips.

Germany, which exports large quantities of cars and machinery to China, was warned by the Chinese ambassador of “consequences” if it banned Huawei. “The Chinese government will not stand idly by,” the Chinese diplomat threatened.

Robert Hannigan, former head of the UK’s signals intelligence agency, argued that “we should accept that China will be a global tech power in the future and start managing the risk now, rather than pretending the west can sit out China’s technological rise.” Many Europeans also thought China’s technological advance was inevitable and therefore not worth trying to stop.

Sony and Samsung were tech firms based in countries that were allied with the U.S. Huawei was a national champion of America’s primary geopolitical rival. Viewed through this lens, Huawei’s expansion was a threat. Congress wanted a tougher, more combative policy, too.

Moreover, targeting China’s highest-profile tech firm would send a message worldwide, warning other countries to prepare to take sides.

In the financial sphere, the U.S. had weaponized other countries’ reliance on access to the banking system to punish Iran, for example. These academics worried that the U.S. government’s use of trade and capital flows as political weapons threatened globalization and risked dangerous unintended consequences. The Trump administration, by contrast, concluded it had unique power to weaponize semiconductor supply chains.

These choke points only work if they’re controlled by a couple of companies, and ideally only by one.

Countries in Europe and Asia, however, would like to grab a bigger share of the high-value chip design market. Taiwan and South Korea, meanwhile, have no plans to surrender their market-leading positions fabricating advanced logic and memory chips.

If the U.S. wants to increase its market share, some other country’s market share must decrease. The U.S. is implicitly hoping to grab market share from one of the other areas with modern chipmaking facilities. Yet outside China, all the world’s advanced chip fabs are in countries that are U.S. allies or close friends.

Samsung and its smaller Korean rival SK Hynix benefit from the support of the Korean government but are stuck between China and the U.S., with each country trying to cajole South Korea’s chip giants to build more manufacturing in their countries.

Taiwan’s government remains fiercely protective of its chip industry, which it recognizes as its greatest source of leverage on the international stage.

Chang continues to call for “free trade” in the semiconductor industry, threatening that otherwise “costs will go up, technology development will slow down.” Meanwhile, Taiwan’s government has repeatedly intervened to support TSMC through such measures as keeping Taiwan’s currency undervalued to make Taiwanese exports more competitive.

Europe, Japan, and Singapore are three other regions looking for new semiconductor investments. Some European Union leaders have suggested the continent can “invest massively” and produce 3nm or 2nm chips, putting European fabs near the cutting edge. Given the continent’s low market share in advanced logic, this is unlikely. More plausible is that Europe will convince a big foreign chip firm, like Intel, to build a new facility providing a stable source of supply for European automakers.

Singapore continues to provide substantial incentives for chipmaking, recently winning a $4 billion investment from U.S.-b...

Japan’s decision to subsidize a new TSMC facility, though, wasn’t primarily to help Sony. Japan’s government feared that if manufacturing kept shifting offshore, the parts of the supply chain in which Japan retains a strong position, like machine tools and advanced materials, would shift abroad, too.

Publicly, Intel is encouraging a new wave of chip nationalism and nervousness about reliance on production in Asia. It’s trying to extract subsidies from both the U.S. and European governments to build fabs at home. “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.”

TSMC’s chairman is certainly right that no one wants to “disrupt” the semiconductor supply chains that crisscross the Taiwan Strait. But both Washington and Beijing would like more control over them.

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.

In a 2021 poll, most Taiwanese reported thinking that a war between China and Taiwan was either unlikely (45 percent) or impossible (17 percent).