US, China and The Battle for Semiconductor Supremacy

Most of us live in a paradise of convenience and ignorance. Every year, we expect better technology and more automation without giving much thought to how these miracles are meant to come about.  

The vast majority of modern technology relies on semiconductors: materials with both insulating and conducting properties, which are used to provide the processing power for everything, from smartphones and dishwashers, to advanced medical equipment and missiles. Enormous efforts are made to make them smaller, cheaper and faster, and to satisfy our growing appetite for evermore powerful computers, dazzling screens, and longer-lasting batteries. But the manufacturing of cutting-edge semiconducting substrates is no trivial undertaking. Achieving atomic scale precision while producing on mass requires elaborate lithography and a fingerspitzengefühl that comes only after decades of experience. 

The industry is only accessible to those with the deepest pockets. Building a 5-nanometre chip fabrication plant would cost approximately $15 billion, and unless committed to substantial investments in a complex global supply, hopeful accountants would cherish no hope of amortisation. 

Intel, Samsung, and the Taiwan Semiconductor Manufacturing Company (TSMC) are currently the three biggest players. Although all three are indispensable in keeping the global economy humming, a series of long-term investments has given TSMC unparalleled market dominance. Owning more than half of the global market, TSMC controls 90% of the cutting-edge 5–10 nm sector; its value in the  world economy is estimated to be more than $1 trillion. Acutely aware of the nature of the business, TSMC understands that plants must be adequately nourished in order to be fruitful: the Taiwanese manufacturer etches American designs with Dutch equipment, using Japanese and German chemicals,  while packaging their final products in mainland China. 

Given the importance of the semiconductor industry, its geopolitical fragility is worrying. At least once every six months, either the hermit kingdom of North Korea decides to fire missiles into the Japanese sea, or its closest ally–the Chinese Communist Party–reaffirms its uncompromising determination to annex the democratically governed island of Taiwan. The now-termless President Xi Jinping has tied his legacy to unification with Taiwan, claiming it is a necessary step to achieve a "great rejuvenation of the Chinese nation," and in September, US officials confirmed that a Chinese  invasion of Taiwan is certainly a "distinct threat." Although currently occupied with a myriad of  domestic issues, Xi may soon be tempted to distract his country from a decelerating economy. 

Luckily, the west is wide awake, and it is throwing its weight around like it is 1989. With surprising  resolve, the US Congress recently passed the bipartisan Chips and Science Act to ramp up America's semiconductor manufacturing capabilities. The act provides $52 billion for the semiconductor industry to incentivise private R&D and additional incentives for applied research. With the aim of  disrupting China’s artificial intelligence and supercomputing industries, both of which require high end semiconductors, President Biden’s administration issued fresh restrictions on exports of American chip technology to China. 

The US has deprived Chinese firms of American expertise and barred them from using non-Chinese factories that rely on US technology to develop advanced chips. Efforts to reduce the world's dependence on Taiwan are also underway. Washington has already prompted Intel and TSMC to commit to new plants in the United States, and potential European hubs are also rumoured to be in the pipeline. 

After a decade of calls for a world-class military and immense state-funded industrial programmes, with the sole purpose of overtaking the US in key technologies and rendering American companies  uncompetitive, dismayed Chinese officials have concluded that America's actions are unacceptable  and accused the US of "technological terrorism." Clearly, the United States has adopted a more aggressive geopolitical posture; it is once again directly confronting foreign economic and  technological threats. But as distressing as that may be to arrogant technocrats, it hardly qualifies as anything more than self-preservation.

It is also no secret that emerging technologies such as AI and supercomputing have applications in advanced weapons systems, so did the Chinese Communist Party really expect Washington to supply it with tools that it could use to further undermine the West?