US/China Tech Wars

James Kynge, a journalist formerly with the Financial Times, tells his story in an audio book, which is a collage of interviews with people from business, government, academia and the media on both sides, animated and tied together by Kynge’s excellent analysis and commentary.

Kynge argues that we are in the midst of a “second China shock”, following the first shock which was based on China’s massive export of low-tech, low cost products like clothing, toys and electronics and which caused much grief to American blue collar workers.

In sharp contrast, the China shock 2.0 comes from the export of high tech items like robots, solar panels, wind turbines, electric vehicles, drones, satellites, and AI. These products are competitively priced, and are shaking up well-known Western companies and white-collar workers.

China shock 2.0 will last for years to come and have profound effects on the West – its industrial base, prosperity, society, and politics. Kynge argues that history shows that geopolitical leadership tends to follow technological leadership. And the China shock 2.0 calls into question not just the West's technological leadership, but also its global leadership. The global preeminence of the West, which has lasted 500 years, could now be in jeopardy.

America would have experienced a “Sputnik moment” in 2025 when Deep Seek, a Chinese tech startup, released a large language AI model comparable to those of US rivals, Open AI and Meta. Suddenly, it was apparent that the US no longer had a clear lead in the AI race.

China’s rise in tech also means that it is dominating world manufacturing. It is estimated that by 2030, China could account for 45 per cent of world manufacturing. Kynge notes that there are only 2 prior examples where one country dominated world manufacturing -- the UK following the industrial revolution in the early 19th century and the US from the 1880s. In other words, China is moving to the centre of the global economy, shifting the balance of power between countries and provoking dislocation in societies.

Kynge takes the reader on a virtual tour of China and the various issues in the tech wars.

Shenzhen – China’s Silicon Valley

A visit to Shenzhen – China’s Silicon Valley – reveals that China is no longer a copycat economy, it is an innovation economy. China used to be way behind the West, which was dismissive of China’s tech capabilities. But times have changed. Some US innovators are now locating to Shenzhen to have access to its vast supply chain of components and factories, and to be able to work at “Shenzhen-speed”.

According to the Critical Technology Tracker of the Australian Strategic Policy Institute, China has a clear lead in its global share of high-impact research output. And China now leads in 66 of the 74 technologies tracked, with the US leading in the remaining eight. The days of China having a low-cost advantage are long gone. China’s advantage is the most intricate and sophisticated manufacturing ecosystem in the world. It has trained engineers who have spent 30-40 years working on manufacturing technologies.

Shenzhen used to be the electronics workshop of the world. But now it is not just building other people's technology. It is building Chinese technology and in the process, China is emerging as a tech innovator and is on a course to overtake the US as the most important tech power in the world.

Chinese “tech titans” Tencent and Huawei are based in Shenzhen. There are also newer trailblazers like DJI which invented the consumer drone market, and BYD, the Chinese leader in electric vehicles. For renewable energy technology, clean technology, EVs, and battery powered vehicles, China is far and away the global leader. It has the supply chains and deep manufacturing expertise.

The US used to believe that to be an innovation nation, political freedoms were necessary. China has turned that idea on its head. In an authoritarian state you can still innovate tech products and sell them on the global market. One factor spurring Chinese innovation is the intense competition between Chinese companies.

Can China become the world’s tech power, an ambition of the Chinese government? A changing of the guard in world politics happens very rarely. But for the first time we are seeing global tech coming out of an authoritarian state. If China wins the tech race, the impact of the world will be huge, and we’re already starting to see it.

Robots

China is on a mission to become a world leader in robotics. To what extent could robots be a solution to China’s rapidly ageing population?

China’s initial development was driven by huge amounts of human labour. But falling fertility is resulting in a declining working age population and now a declining total population. This is due in part to the one-child policy, but also due to educated women struggling to balance work and family life. Further, raising children is an expensive enterprise in cities like Shanghai, with parents who have great education and career ambitions for their children. The upshot is that China has increasing numbers of old people requiring care, fewer young people available to care for their parents and grandparents, and less young workers who can pay taxes to finance social welfare.

China is on a mission to become a world leader in robotics, which can help fill the gap from the aging population. Humanoid robots can look after old people. Service robots, like in hotels, are increasingly common. In 2022, China installed more industrial robots than the rest of the world combined. Robots are now finding their way into factories and warehouses as part of a wave of automation. By connecting robots with AI and 5G connectivity China is building fully automated smart factories. This should provide a much-needed boost to productivity.

All things considered, robots are helping China deal with its aging population, but they are only a partial solution.

The AI race

The AI race between US and C is moving at warp speed.

In 2022, OpenAI came out with ChatGBT, a generative AI chatbot that uses large language models — specifically generative pre-trained transformers (GPTs) — to generate text, speech, and images in response to user prompts. ChatGPT accelerated the AI boom, and the US seemed to be well ahead of its competitors.

But then in Jan 2025, the Chinese startup Deep Seek brought out its R1 model which rattled the US. Its performance on many counts seemed to rival Open AI. Deep Seek’s model costs a fraction of the time and money of ChatGPT. And China has the lead for adoption and commercialisation of AI. In contrast to the many US closed models, Chinese AI models are often open-weight, meaning they can be downloaded, modified and run independently and can be freely used.

It is impossible to predict whether China or the US will prevail in the AI contest. China’s battle to catch up in AI has become a battle for advanced computer chips. In order to make the most advanced AI systems, you need the most advanced chips.

The best chips are made by Taiwan Semiconductor Manufacturing Company (TSMC) for Nvidia. But when the US decided to hamper China’s progress in AI, it banned the export of Nvidia’s most advanced chips to China

The Chip Challenge

The US trade restrictions have had many different effects. Chinese companies made big stockpiles of Nvidia chips before the sanctions were imposed. There is also illegal traffic in chips. And Huawei is working with China’s biggest chip manufacturer, SMIC, on designing China’s own chips. The success of Deep Seek has also spurred Chinese startups to make AI models using less computing power and therefore fewer chips.

Most certainly, China is not down and out. In 2023, Huawei surprised analysts by launching a new phone powered by a 7 nanometre chip far more powerful than anyone thought China was capable of making.

However, China will need huge volumes of chips for the AI revolution, which is crucial for China’s economic future. But that will be difficult with the outdated manufacturing equipment China is using. China will inevitably get better at making chips, but the rest of the world is getting better at the same time, which makes catching up a difficult challenge.

China is determined to become self-sufficient in the production of semiconductors it needs to fuel its AI progress. This is part of China’s wider ambition to achieve technological independence.

China’s military technology

The US/China adversarial relationship has also migrated to space.

The proposition that China only steals US technology and cannot innovate has been out-of-date for a long time. One example of Chinese innovation was revealed when it conducted unprecedented tests of a nuclear-capable hypersonic weapon system in July and August 2021.

This caught U.S. intelligence by surprise and is regarded as another Sputnik moment for the US. The US is no longer supreme in all areas of military technology. Due to US complacency, it is now having to play catch up. If you want to be a superpower, you have to use space for economic and military advantage.

A wake up call for America occurred in 2007 when China tested an anti-satellite weapon blasting a satellite into pieces in near earth orbit with a missile fired from the ground. China has developed technology that can stop US satellites, missiles that can shoot down satellites, lasers that can blind the sensors on satellites, and jammers that can disrupt the communications with satellites.

Then in January 2022 China’s Shijian-21 satellite rendezvoused with a defunct Beidou navigation satellite, grappled with it and towed it thousands of kilometres into a graveyard orbit. That operation demonstrated the ability to capture and relocate a large, non-cooperative object in a strategically important orbit. Although debris removal has civilian applications, the same technology could potentially move a satellite without destroying it.

So in a conflict could China grab an American satellite and throw it into the graveyard orbit? This capability to move US satellites around has potentially worrying implications for American security on earth. The US is nervous about the secrecy surrounding China’s space projects. For space, there is little sign of US/China collaboration. Even in the worst parts of the Cold War, the US was cooperating with the Soviet Union on space projects.

The US Congress imposed trade restrictions to slow China’s progress in its space programme, but they did not work. China built its own space station, and is developing a luna exploration project of its own. China may be 10-15 years behind the US in space technology, but is catching up fast. And regrettably there are no rules of the game for space. The US is worried that space technology translates into greater military power.

Chinese tech goes global

The most visible global presence of Chinese technology is perhaps its electric vehicles, produced by the company BYD. In 2024, BYD overtook Tesla to become the world's largest electric vehicle maker. BYD has established factories in Brazil, Uzbekistan, Indonesia and Hungary. How did BYD succeed?

China’s electric vehicle industry was powered by government subsidies. But then ferocious competition between many local companies also drove efficiency, as did reductions in government subsidies, leading to a big shake out in the market and survival of the fittest. BVY had a head start in the development of batteries, which account for one-third of the vehicle cost. BYD runs a vertically integrated operation, which means that it controls its supply chain and can churn out cars quickly without supply chain bottlenecks. In sum, BYD is cheaper than Tesla and European models.

The US has placed a 100 percent tariff on Chinese electric vehicles, such that BYD has not moved into the US market. When Brussels imposed anti-subsidy duties on Chinese-made electric vehicles in 2024, BYD faced a total tariff of around 27 per cent. But not all Germans were happy, fearing a trade war (Germany is the European champion for motor vehicle production). German carmakers have globalised supply chains, and rely in China for components and parts. And the Chinese auto market is still important for them.

Africa is not a market for the faint hearted. But it’s a market where Chinese companies have succeeded by adapting to local conditions.

Transsion Holdings, from Shenzhen, is a major Chinese mobile phone company that dominates the African market by tailoring its products specifically to local consumer needs rather than just selling standard global devices. Chinese payment Apps have been very popular, although there have been problems with loan sharks.

China’s tech relationship with African has been supported by the Belt and Road Initiative which has delivered deep sea ports, light rail, and telecom cables. Chinese motor vehicles are also popular.

China has been selling the technology of its surveillance state to authoritarian states in the Middle East and Africa. Some 64 countries have reportedly bought Chinese surveillance systems as part of Huawei’s “safe city initiative”. For its part, China is the home of techno-authoritarianism, with its highly controlled society, thanks to widespread surveillance equipment.

Semiconductors return to America

The US/China tech race boils down to chips. Much of the future wealth and power of nations depends on this miniscule technology.

With Taiwan being under threat from China, the US, Germany, Japan and Korea are worried about their dependence on Taiwan’s TSMC for high quality semiconductors.

So the US has pressured TSMC into building a factory in Arizona. President Biden’s “Chips Act” has pledged billions of dollars to entice TSMC to locate a “fab” in Arizona. One problem, President Trump doesn’t like subsidies. He prefers tariffs and accuses Taiwan of having stolen the US chip business. He also argues that Taiwan wants US military protection, but doesn’t pay!

There was a time when the global semiconductor business was centered in Arizona. Motorola used to make chips here, but it closed in the early 2000s, as most of America’s chip making was offshored to Asia. Now Washington wants to bring it back to US soil.

In hindsight, America’s national security establishment should have said that we’re going to need to keep this capability. Today, the US is playing catch up. Chips are critical for new technologies, economic growth and national security. In the 1990s, the US let these industries (largely US inventions) go to Asia. It thought that chips were just a commodity, that the US’s future was in software. Only recently has America seen that it needs its own chipmaking capacity.

The manufacture of chips is now very different from yesteryear when production was vertically integrated. Then began a shift to the “foundry model”. US companies sold their manufacturing businesses and focussed on designing chips rather than making them. They sent chip manufacturing to foundries overseas which make all sorts of chips on a contract basis for companies like Apple and Nvidia. This meant that the foundries had scale.

The foundry model thrived in Asia where labour was cheap. And the company that really won out was TSMC. It does not design its own chips, instead it makes other people’s chips in its fabs. It benefited from massive Taiwanese government support. Today, the US is trying to replicate Taiwan’s success with the Chips Act.

The TSMC Arizona facility is partly open and operational, producing 4nm chips for major customers like Apple. But some doubts linger over TSMC’s longer term commitment particularly in light of Trump. The plan is for six phases of development at this site, but TSMC has only committed to three. US government money helps. But having Apple as a customer is also important. Another problem is that the US has a skills gap. It needs specialised technicians. This problem caused a delay in the building of the fab.

The US also wants US companies, notably Intel, to make advanced chips again. Intel used to be a big chip maker and it wants to scale up again. Intel has a long history in Phoenix. It’s had facilities there since the 1980s, and is currently expanding its Arizona site, thanks to the Chips Act. There was a time when Intel supplied virtually all of the chips for the personal computer market. But its business started to flounder after it missed out on a deal to supply the chips for Apple’s iPhone.

Intel had been responsible for virtually every major innovation in the chip industry for 50 years. Several years ago, Intel made the decision to expand back into the foundry industry, making chips like TSMC does. More recently Intel has struggled. But the US needs Intel to be successful. Subsidies may be the only way to build up a robust semiconductor.

The next superpower will be a tech superpower and for that you need the most advanced chip industry in the world. This is the Manhattan project of our time. The chip project is pivotal for the security and prosperity of the West, as it competes with China for global tech supremacy.

Taiwan’s silicon shield

Taiwan hopes that its semiconductor industry will keep it safe from attack by China. It is betting the US dependence on Taiwanese chips would bring the US running to its defence should China ever try to invade. In short, Taiwan’s “silicon shield” is critical to Taiwan’s security.

The initiative of the US, Germany, Japan and Korea to pressure TSMC to establish chip fabs in their countries would seem to undermine the benefits of Taiwan’s silicon shield. But TSMC’s situation may not be that vulnerable. It took TSMC some 40-50 years to achieve its current excellence. It would likely take Western companies 10-20 years to catch up.

One benefit of TSMC establishing fabs elsewhere is that it could generate support from those governments in the face of threats from China. Further, diversification of the locations of TSMC’s fabs could offer security in the face of earthquakes and typhoons. Taiwan’s initiative to diversify its production by making other technologies, like drones, could also enhance its security.

There is another factor which will favour TSMC’s future. That is, with the advent of artificial intelligence, the global demand for semiconductors will likely grow strongly, underpinning a growing demand for TSMC’s chips.

ASML lithography machine

The US not only bans the export of advanced chips to China. It has also managed to stop the export to China of the extreme ultraviolet lithography machine which makes the advanced chips. ASML, a Dutch company, is the only producer of this machine. So the US government pressured the Dutch government.

ASML’s lithography machine is known as “the beast”. This is the cutting edge of chip making technology. In particular, it is a lithography machine which makes chips by tracing intricate patterns of transistors. The beast is enormous. It weighs as much as two airliners, and costs almost $400 million.

Only a handful of companies know how to use the beast, companies like Intel, Samsung and of course TSMC. TSMC for 90 percent of the world’s most advanced chips. Making chips is one of the most complex processes in the world, and the beast is the most complex machine ever built by humankind.

Semiconductors are at the heart of the tech war between the US and China. Thus, the consolidated chip supply chain is at the heart of the chip war between the US and China. The US has successfully pressured TSMC to stop making high end chips for China. And the US has also banned companies like Nvidia selling advanced AI chips in the Chinese market.

In sum, the US has almost succeeded in starving China of the chips it needs to develop the latest technology. There is a lot of debate about whether China has a tech lead over the US. But access to chips is one area where the US still has a clear lead, and it may be decisive in who emerges in technologies like AI.

China would like to catch up, but the US embargo is just half the problem. The industry is always progressing (Moore’s law) which makes catchup very difficult. The cutting edge of chip technology is a constantly moving finish line. In this sense, the US has interest in keeping Moore’s law going. As long as chips keep getting more advanced, the US can maintain its chip lead over China. But for how long can Moore’s Law keep going? The chip industry has always found a way to advance, and may find other ways to keep ahead of China.

The US has been betting on computing for 70 years. And today it is betting on computing to stay ahead economically, politically and strategically

Spying, suspicion and cyber war

Intellectual property (IP) theft has been a key to China climbing the technology ladder. And tracking down IP theft is an important activity of the FBI. It is estimated that IP theft costs the US $450-850 billion per annum. A lot of that IP theft comes out of Silicon Valley, and comes from China. IP theft is most notable for biotech, nanotech, agtech, and quantum technologies, indeed technologies across the board.

The FBI is engaged in a campaign to track down thousands of researchers, academics, tech workers who are allegedly spies, stealing US tech secrets for China – a development that shows how alarmed the US has become at rising Chinese technological power. Sometimes however the FBI can overreach and unintentionally make false accusations, inflighting pain on innocent US professors and researchers of Chinese origin.

How did China emerge as a threat to US tech supremacy?

Until the rise of the smartphone, China was technologically backward. But the smartphone changed China – within 3-4 years, everyone was online with Ali Baba, Weibo, Tencent (Wechat). It was also driven by “China speed”, the 996 working hour system where employees are expected to work from 9:00 AM to 9:00 PM, six days a week, totaling 72 hours per week.

China’s rise as a tech power was also driven by the ambitions of Chinese leader Xi Jinping expressed in his addresses in 2017, announcing the Made in China 2025 Strategy, a state-led industrial blueprint to transform China from a low-cost assembly hub into a dominant global high-tech manufacturing power. China’s development has since focussed on climbing the technology ladder, with the ambition to top the world in biopharma, aerospace, robotics, AI and more.

Made China 2025 announced China’s ambition to become a peer economic competitor of the US. Today China is a leader or strong rival of the US in 5G, AI, green energy, and quantum computing to name just a few sectors. It’s now exporting technology to the rest of the world, especially surveillance technology. China is rapidly catching up in military technology.

The Americans are worried. The US has not had a national security threat since the end of the Cold War. And it has never had an economic competitor. Who controls technology, controls the future. For the US, this tech race is a tech war. But the crackdown on IP theft has its costs, notably the adverse effect on US research and collaboration with China.

China is building a “siege economy” in technology – an economic system operating under severe external pressures, blockades, or sanctions where import controls are imposed and capital exports are limited.

China’s IP acquisition strategy is part of an IP mission orchestrated by Beijing. Chinese foreign policy mission to steal technology. But China’s tech acquisition also occurs legally through mergers and acquisitions and joint ventures. Another factor is talent acquisition by recruiting Chinese nationals working in the US. By law, Chinese nationals must yield intelligence to the CCP upon request. It is a “whole of society” approach to intelligence gathering. This means that every Chinese is seen as a threat by the FBI, and why it casts its net so wide. But as mentioned above, some innocent people get ensnared in the FBI net.

There are costs to the US’s crackdown on IP theft. China is the largest talent supplier to the US through its migrants and joint collaboration projects. IP theft is arguably less of an issue now that China is an innovation powerhouse. In 2020, China was biggest source of applications for patents

Technology was a part of the first Cold War – space race, computer arms race, nuclear arms race. But this time it is different. A tech war is mixed with interdependence. A large proportion of the sales of lower grade semiconductor is to China. US companies make lots of money in China. And China depends on Western markets for its huge trade. Both sides would find it hard to survive without the other. We are not in a Cold War, but a codependent war.

All that said, Kynge believes that China is set to win the tech race because of the extraordinary power of its supply chain around Shenzhen. If the US and Europe erect trade barriers, China will only retaliate.This would tear us all apart, but it could still happen. When codependents fight, both lose.