CHINA
28 October 2023
Chip War: The Fight for the World's Most Critical Technology
Semiconductors moved to the heart of geopolitics during the postwar period. As Chris Miller documents in “Chip War,” semiconductors are playing a major role in today's great power competition.
Almost all electronic products we buy – from refrigerators and microwaves to computers and smartphones – run on semiconductors. Around one-quarter of all semiconductors produced today end up in smartphones. Equally, national intelligence systems and military missiles depend on semiconductors.
Today semiconductors are produced through complex supply chains mainly involving a small group of countries who are all allies or partners of the US. Whereas the location of oil once defined geopolitics, the location of technology supply chains may be more important during the coming decades. Indeed, China spends more money importing chips than any other product, including oil.
In his book, Chip War: The Fight for the World’s Most Critical Technology, Chris Miller, an Assistant Professor of International History at the Fletcher School of Law and Diplomacy at Tufts University, untangles the complex story of semiconductors with great verve. In 54 fast-moving short chapters, Miller analyses the history and current state of the industry.
During the early days of the chip industry, in the late 1950s and early 1960s, the companies Fairchild and Texas Instruments were producing semiconductors for the Pentagon and National Aeronautics and Space Administration (NASA). Miller argues that US leadership in semiconductors was one factor behind its victory in the Cold War, and was on display for the whole world during the 1991 Gulf War. Today, a lack of semiconductors is hampering Russia’s efforts in its war with Ukraine.
While the initial customer was the US government, semiconductor producers began commercialising them for broader civilian markets for computers, calculators, video games and smartphones. Today, Apple consumes vastly more semiconductors than the US government. Although commercial usage now dominates the chip industry, governments still play a major role in R&D. Silicon Valley’s enormous success was built as much on government support as brilliant science and entrepreneurship
Over time, the industry became so big and complex that no one company or country could do it all, according to Miller. Japan threatened US semiconductor supremacy during the 1980s, and still plays an important role today. Supply chains then diversified, and spread across the Pacific, with Taiwan and Korea becoming important producers, driven by substantial government incentives.
Taiwan Semiconductor Manufacturing Company (TSMC) has emerged as the leading contract manufacturer of semiconductors, and produces over 90 percent of the world’s most advanced semiconductors. The Taiwanese government targeted the semiconductor industry as a growth driver from as early as the 1960s. Industrial policy, much derided by mainstream economists, was key to Taiwan’s success. Half of TSMC’s initial capital came from the government. Taiwan produces one-third of the new computing power that the world adds each year.
Taiwan started semiconductor production as the US was losing the Vietnam war. The government believed that integrating the economy deeply with the US economy might counter the possibility of the US losing interest in Taiwan’s security in the context of possible post-Vietnam isolationism. Current Taiwanese president Tsai Ing-wen has spoken of TSMC as Taiwan’s “Silicon Shield,” which will deter China from attacking – although her point is debatable, writes Miller.
The “outsourcing” of semiconductor production to TSMC is not a question of getting low-skilled work done. It does work that no-one else can do, and has now jumped ahead in terms of technological capability. Another key player in the semiconductor supply chain is Advanced Semiconductor Materials Lithography (ASML). It exerts a monopoly over lithography machines, which are essential for making the latest computer chips, although it does source some inputs from the US and elsewhere. Only three US companies produce the software to design semiconductors. Overall, the US contributes the greatest value to this dispersed supply chain for semiconductors.
Around 2015-17, at the time that the US government was sanctioning Chinese tech firms, ZTE and Huawei, it came to light that China was 100 percent reliant on imported semiconductors from a tiny number of countries, and all its imports of advanced chips required US technology to produce. Thus US/China strategic competition today is increasingly defined by China’s dependence on imported semiconductors, according to Miller. Indeed, without advanced semiconductors, it will be an uphill struggle for China to develop military technology on a par with the West.
China’s vulnerability has sparked the Chinese government into efforts to reduce its dependence on semiconductors made from US technology. In 2016 Chinese President Xi Jinping declared: “However great its size, however great its market capitalisation, if an Internet enterprise critically relies on the outside world for core components, the ‘vital gate’ of the supply chain is grasped in the hands of others.” Indeed, China’s Artificial Intelligence ambitions rest on a fragile foundation of imported semiconductors.
China is now spending enormous amounts of money to develop its semiconductor industry, and it has been making progress in mastering semiconductor production, though mainly for lower-technology chips. But its ambition of reproducing the whole semiconductor supply chain would seem beyond its reach, given that no other country has managed to do so. Making advanced semiconductors is the most complex and precise manufacturing process humans have ever undertaken. Nevertheless, China can use the power of its enormous market as leverage to force companies like Apple to buy Chinese chips for iPhones sold in China, and to extract semiconductor technology from other countries, writes Miller.
The US is not surprisingly concerned about the concentration of semiconductor production in just a few countries, notably Taiwan whose future is clouded by geopolitical threats. It is also concerned about the possibility of Chinese mastery of semiconductor production adversely affecting the balance of military power in East Asia.
Thus, in August 2022 the US enacted the CHIPS and Science Act which provides new funding to boost domestic research and manufacturing of semiconductors in the United States. In October last year, the US government effectively banned trade with China in advanced semiconductor technology. It also prohibited foreign companies from exporting microchips that incorporate US technology. It’s not clear to what extent these initiatives might be a game changer.
With the entire world economy hinging on peace in Taiwan, there has also been much discussion of diversifying TSMC’s semiconductor production out of Taiwan. A disruption to semiconductor production could have dramatic effects on the world economy, perhaps much more than Covid-19 or the Ukraine war, according to Miller. But while some production facilities are being established in the US, Japan, and Singapore, there has been no major shift out of Taiwan.
Chris Miller offers a riveting tale of technology, economics, and geopolitics. His story highlights the shift in emphasis in the industry from cost efficiency and technological advances towards defence and security concerns. He brings alive the many personalities involved, notably that of Morris Chang, the businessman who founded TSMC after being passed over for the top job at Texas Instruments. Chip War is a must-read for anyone interested in today’s volatile world of geoeconomics and geopolitics.
Today semiconductors are produced through complex supply chains mainly involving a small group of countries who are all allies or partners of the US. Whereas the location of oil once defined geopolitics, the location of technology supply chains may be more important during the coming decades. Indeed, China spends more money importing chips than any other product, including oil.
In his book, Chip War: The Fight for the World’s Most Critical Technology, Chris Miller, an Assistant Professor of International History at the Fletcher School of Law and Diplomacy at Tufts University, untangles the complex story of semiconductors with great verve. In 54 fast-moving short chapters, Miller analyses the history and current state of the industry.
During the early days of the chip industry, in the late 1950s and early 1960s, the companies Fairchild and Texas Instruments were producing semiconductors for the Pentagon and National Aeronautics and Space Administration (NASA). Miller argues that US leadership in semiconductors was one factor behind its victory in the Cold War, and was on display for the whole world during the 1991 Gulf War. Today, a lack of semiconductors is hampering Russia’s efforts in its war with Ukraine.
While the initial customer was the US government, semiconductor producers began commercialising them for broader civilian markets for computers, calculators, video games and smartphones. Today, Apple consumes vastly more semiconductors than the US government. Although commercial usage now dominates the chip industry, governments still play a major role in R&D. Silicon Valley’s enormous success was built as much on government support as brilliant science and entrepreneurship
Over time, the industry became so big and complex that no one company or country could do it all, according to Miller. Japan threatened US semiconductor supremacy during the 1980s, and still plays an important role today. Supply chains then diversified, and spread across the Pacific, with Taiwan and Korea becoming important producers, driven by substantial government incentives.
Taiwan Semiconductor Manufacturing Company (TSMC) has emerged as the leading contract manufacturer of semiconductors, and produces over 90 percent of the world’s most advanced semiconductors. The Taiwanese government targeted the semiconductor industry as a growth driver from as early as the 1960s. Industrial policy, much derided by mainstream economists, was key to Taiwan’s success. Half of TSMC’s initial capital came from the government. Taiwan produces one-third of the new computing power that the world adds each year.
Taiwan started semiconductor production as the US was losing the Vietnam war. The government believed that integrating the economy deeply with the US economy might counter the possibility of the US losing interest in Taiwan’s security in the context of possible post-Vietnam isolationism. Current Taiwanese president Tsai Ing-wen has spoken of TSMC as Taiwan’s “Silicon Shield,” which will deter China from attacking – although her point is debatable, writes Miller.
The “outsourcing” of semiconductor production to TSMC is not a question of getting low-skilled work done. It does work that no-one else can do, and has now jumped ahead in terms of technological capability. Another key player in the semiconductor supply chain is Advanced Semiconductor Materials Lithography (ASML). It exerts a monopoly over lithography machines, which are essential for making the latest computer chips, although it does source some inputs from the US and elsewhere. Only three US companies produce the software to design semiconductors. Overall, the US contributes the greatest value to this dispersed supply chain for semiconductors.
Around 2015-17, at the time that the US government was sanctioning Chinese tech firms, ZTE and Huawei, it came to light that China was 100 percent reliant on imported semiconductors from a tiny number of countries, and all its imports of advanced chips required US technology to produce. Thus US/China strategic competition today is increasingly defined by China’s dependence on imported semiconductors, according to Miller. Indeed, without advanced semiconductors, it will be an uphill struggle for China to develop military technology on a par with the West.
China’s vulnerability has sparked the Chinese government into efforts to reduce its dependence on semiconductors made from US technology. In 2016 Chinese President Xi Jinping declared: “However great its size, however great its market capitalisation, if an Internet enterprise critically relies on the outside world for core components, the ‘vital gate’ of the supply chain is grasped in the hands of others.” Indeed, China’s Artificial Intelligence ambitions rest on a fragile foundation of imported semiconductors.
China is now spending enormous amounts of money to develop its semiconductor industry, and it has been making progress in mastering semiconductor production, though mainly for lower-technology chips. But its ambition of reproducing the whole semiconductor supply chain would seem beyond its reach, given that no other country has managed to do so. Making advanced semiconductors is the most complex and precise manufacturing process humans have ever undertaken. Nevertheless, China can use the power of its enormous market as leverage to force companies like Apple to buy Chinese chips for iPhones sold in China, and to extract semiconductor technology from other countries, writes Miller.
The US is not surprisingly concerned about the concentration of semiconductor production in just a few countries, notably Taiwan whose future is clouded by geopolitical threats. It is also concerned about the possibility of Chinese mastery of semiconductor production adversely affecting the balance of military power in East Asia.
Thus, in August 2022 the US enacted the CHIPS and Science Act which provides new funding to boost domestic research and manufacturing of semiconductors in the United States. In October last year, the US government effectively banned trade with China in advanced semiconductor technology. It also prohibited foreign companies from exporting microchips that incorporate US technology. It’s not clear to what extent these initiatives might be a game changer.
With the entire world economy hinging on peace in Taiwan, there has also been much discussion of diversifying TSMC’s semiconductor production out of Taiwan. A disruption to semiconductor production could have dramatic effects on the world economy, perhaps much more than Covid-19 or the Ukraine war, according to Miller. But while some production facilities are being established in the US, Japan, and Singapore, there has been no major shift out of Taiwan.
Chris Miller offers a riveting tale of technology, economics, and geopolitics. His story highlights the shift in emphasis in the industry from cost efficiency and technological advances towards defence and security concerns. He brings alive the many personalities involved, notably that of Morris Chang, the businessman who founded TSMC after being passed over for the top job at Texas Instruments. Chip War is a must-read for anyone interested in today’s volatile world of geoeconomics and geopolitics.