Semiconductor Struggle: The Heart of US-China Tech Tensions
Amsterdam, Thursday, 19 September 2024.
The semiconductor industry, projected to reach trillions in value by 2030, is at the center of growing geopolitical tensions between the US and China. As chips become integral to modern technology and military power, nations are implementing policies to boost domestic production and restrict rivals’ access to advanced technology.
The Importance of Semiconductors in Modern Technology
Semiconductors, often referred to as chips, are integral components found in nearly every modern electronic device. From smartphones and cars to advanced military systems, these tiny circuits enable the functionality of various technologies. Chris Miller, author of ‘Chip War’ and associate professor at Tufts University, emphasized that ‘chips are in almost every device that has an on and off switch today’[1]. The ubiquity of semiconductors in daily life underscores their strategic importance and the high stakes involved in controlling their production and supply.
Geopolitical Moves: US and Europe
To safeguard their technological edge, countries like the United States and those in the European Union are enacting significant legislation aimed at bolstering domestic semiconductor production. The US’s $280 billion (€258 billion) Chips and Science Act is a monumental effort to enhance domestic chip manufacturing capabilities while restricting advanced chip sales to China[1]. Similarly, the European Commission’s €43 billion Chips Act, unveiled in February 2022, aims to boost semiconductor production within Europe, though experts like Jean-Pierre Raskin consider this insufficient compared to other nations’ responses[1].
Taiwan: The Epicenter of Chip Manufacturing
Taiwan plays a pivotal role in the global semiconductor market, holding over 65% of the global semiconductor manufacturing market[1]. The Taiwan Semiconductor Manufacturing Company (TSMC) is particularly significant, known for its precision and high production yields. TSMC is set to build new foundries in Arizona, showcasing its global influence and the critical role it plays in the US-China tech tensions[4]. However, geopolitical tensions between China and Taiwan pose a substantial risk to this critical supply chain, with potential disruptions that could lead to unprecedented manufacturing crises[1].
China’s Strategic Position
China, through its Beijing-backed Semiconductor Manufacturing International Corporation (SMIC), is striving to overcome innovation barriers amidst the tech war with the US. American funding has historically contributed to SMIC’s growth, which is now perceived as a security threat by Washington[3]. In response to US-imposed export controls and restrictions, Chinese companies are ramping up investments in domestic supply chains, supported by billions in government and investor funding[3]. This strategic maneuvering highlights the intense competition for technological supremacy between the two superpowers.
The Global Division of Labor
The semiconductor industry is characterized by a complex global division of labor. Different countries and economies specialize in specific roles within the value chain. For instance, the Dutch company ASML is the sole supplier of lithography machines required for high-end semiconductor production[1]. This interdependence underscores the fragility and strategic importance of the semiconductor supply chain, as evidenced by the significant disruptions and economic losses experienced during the COVID-19 pandemic[1].
Conclusion: Navigating the Tech Cold War
As the semiconductor industry continues to grow, reaching a projected value of trillions by 2030, its centrality to the tech cold war between the US and China will only intensify. The strategic importance of these tiny circuits in both civilian and military applications makes them a critical battleground in the quest for technological dominance. Policies aimed at reshoring production, such as the US Chips and Science Act and the European Commission’s Chips Act, reflect the high stakes involved. The outcome of this tech cold war will significantly shape the future of global technological and economic landscapes.