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Opinion: China Is Cutting Down US’s Tech Supremacy, Chip By Chip | EnvoyPost

Just over a year ago, when Chinese smartphone and telecoms giant Huawei launched its latest smartphone, the Mate60 Pro, eyebrows were raised in Washington. More than 85% of the 37 chips used in it were locally manufactured, including the advanced 7 nanometre (nm) chip.

The Biden administration wondered how China had managed to produce the advanced chip that powered the phone. The White House was secure in the knowledge that the CHIPS and Science Act of 2022 had erected enough high walls around its cutting microchip technology, ensuring that it remained out of China’s reach. Additionally, in 2019, the US government barred Huawei from accessing its high-end chipmaking tools, citing national security concerns.

A Multi-Pronged Effort To Stop China

The US efforts to contain China’s steady rise as a rival global power do not stop at reducing the dragon’s influence in trade and geopolitics, the Biden administration has also actively sought to impede the country’s rapidly growing semiconductor or microchip industry. This has triggered a chip war between the world’s two biggest economies. The US wants to regain its leadership role in the semiconductor ecosystem, while China wants to become self-reliant to propel its economy to be the world’s number one. At the heart of this conflict is the recognition that semiconductors are essential not just for consumer electronics but also for advanced technologies, including artificial intelligence, quantum computing and military applications.

It is a matter of worry for the US that its containment policy against China has not had the desired effect. It invokes national security as one of the primary reasons for checkmating the Chinese chipmaking industry’s rapid growth.

Two decades ago, China lagged far behind the US in the chip industry by several generations. But American policymakers overlooked China’s eagerness to flex its muscles in the microchips industry for long. Today, there is a global consensus among experts that Chinese companies are behind the world’s most advanced chip-making companies by only three to five years. For microchips, this gap is too narrow.

But Containing China Isn’t Easy

In order to preserve its technological supremacy and national security, the US has imposed stringent export controls on semiconductor technology to China, aiming to limit the latter’s ability to manufacture advanced chips. This strategy has been bolstered by a concerted effort to support domestic chip manufacturing, mandated in the CHIPS and Science Act, which allocates substantial funds to boost American semiconductor production and research.

However, containing China is proving to be difficult.

In his book, The Asian 21st Century, Kishore Mahbubani, a former diplomat who served as Singapore’s permanent representative to the United Nations, has challenged the US policy of containing China’s rise and said it would prove counter-productive. He argues, “I will make a prediction confidently that the containment policy will fail, because China has already integrated itself with the world, more than the US has. More countries do trade with China than they do with the US.”

Why Are Semiconductors So Important?

Last year, economic historian Chris Miller captured the microchip industry’s growing importance in his aptly titled book, Chip War. One of Barack Obama’s favourite books, it reads like a non-fiction thriller. Miller explains how semiconductors came to play a critical role in modern life and how the US became dominant in chip design and manufacturing and applied this technology to military systems. “Today, military, economic, and geopolitical power are built on a foundation of computer chips. Virtually everything-from missiles to microwaves-runs on chips, including cars, smartphones, the stock market, even the electric grid. Until recently, America designed and built the fastest chips and maintained its lead as the #1 superpower, but America’s edge is in danger of slipping, undermined by players in Taiwan, Korea, and Europe taking over manufacturing.”

Now, as the book reveals, China, which spends more on chips than any other product, is pouring billions into a chip-building initiative to catch up to the US. At stake is America’s military superiority and economic prosperity.

How Big Is The Industry?

Microchips are used in nearly every digital gadget or machine we use today, ranging from computers to smartphones, from aircraft to military equipment, from drones to medical equipment to AI tools. The car we drive has, on average, 1,500 chips; the smartphone we use is powered by two-three dozen microchips. Miller says it’s a new oil, and like the oil, the semiconductor industry is also being dominated by a handful of players.

It’s a giant of an industry. In June, the World Semiconductor Trade Statistics (WSTS) raised its forecast for the year-on-year growth rate of the global semiconductor market this year to 16%. The global semiconductor market, according to the WSTS, is expected to reach $611.2 billion by the end of 2024.

Semiconductor manufacturing comprises four elements: design, lithography, fabrication, assembly, and packaging. There are different types of advanced chips, but the four primary types are logic chips, memory chips, and analogue.

In terms of manufacturing technology, advanced or cutting-edge microchips are 5 nm or even 2 nm in size. In contrast, legacy chips refer to those which are 28 nm or bigger. But these legacy chips are not to be sniggered at. They are widely used in various applications, including automobiles, medical devices, household appliances, energy infrastructure, and aerospace products.

Types Of Chips, And Their Lead Manufacturers

Microchips can broadly be divided into logic and memory chips. South Korea specialises in memory chips, such as DRAM and NAND flash, which are used for data storage. Its companies Samsung Electronics and SK Hynix are among the world’s largest producers of memory chips.

On the other hand, Taiwan specialises in logic chips (also known as processors or central processing units (CPUs), which are used for computing and data processing. The Taiwan Semiconductor Manufacturing Company (TSMC) produces an estimated 90% of the world’s super-advanced semiconductor chips. 

Let’s not forget China entertains sovereignty claims over Taiwan, and governments in the West fear that Beijing will soon take control of it. If that happens, the semiconductor global supply chain will be massively disrupted. But more than that, what the US fears is that China will become the dominant player in logic chips, without which computers don’t work. 

How China Overtook US 

The US invented semiconductors in the early 1950s and remained the world’s leading chip builder for a very long time. But between 1990-2021, its share of global semiconductor production fell from 37% to 12%. In the same period, China’s share leapt up from almost nothing to 15%. The Biden administration decided to revive its pre-eminent position, and the result was the passage of the CHIPS and Science Act of 2022. Heavy subsidies are being given to chip manufacturers, as directed by the Act. 

China said at the time that the Act was a violation of fair trade practices as it required subsidy recipients not to invest in Chinese semiconductor production of advanced chips. China protested, but moved on. In response, it has now embarked on an ambitious initiative to achieve self-reliance in semiconductor manufacturing, recognising that its dependence on foreign technology poses a significant vulnerability. Interestingly, in June 2023, the US had also brokered a deal with the Netherlands to restrict its exports to China of leading-edge EUV (extreme ultraviolet) equipment, a new technology used to manufacture the most intricate layers on a chip. 

A Global Battleground

The chip war between the US and China is not merely a bilateral tug of war but a global contest involving various key players, who are all trying to navigate the complex interplay of technology, security, and economic interests. The war is not coming to an end anytime soon, with both parties unwilling to collaborate for greater global good. The US is still in control, but China is eating away at its tech supremacy, chip by chip.

But where does India stand? Has India joined the race? Can India facilitate a dynamic microchip landscape? The second part of this column will try to answer these questions.

(Syed Zubair Ahmed is a London-based senior Indian journalist with three decades of experience with the Western media)

Disclaimer: These are the personal opinions of the author

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