Last year, the US Department of Defense tested an off-road autonomous vehicle in California, with the aim of developing unmanned vehicles that can negotiate harsh terrains and perform other military tasks. US companies such as Lockheed Martin and Northrop Grumman have already designed and tested AVs for military purposes. The benefits of such technologies in war environments are multiple – they reduce casualties, are unsusceptible to fatigue, hunger, or coercion, and importantly significantly improve military effectiveness.
The components that enable these advances are, of course, semiconductors. But there is more than just military effectiveness involved in the race to control the global chip industry. Semiconductors drive almost every technology available to us, from fridges and smartphones to drones and satellites.
That’s why the White House took everyone by surprise in October 2022 by introducing a far-reaching US ban on chip and chip-making equipment imports to Chinese manufacturers, while strongly encouraging US allies to follow suit. The measure has been likened to something that would be targeted against countries at war. It also banned US citizens from working for Chinese chip companies and suspended technical services and cooperation with Chinese companies, causing many to cease operations, while kickstarting an immediate brain drain from Chinese technology providers.
The chip industry is subject to a global supply chain – no single country has the expertise to build all types of chips or fabrication plants itself. It means that the largest exporter of chips in the world – China – is also a significant importer of semiconductors (China’s imports of chips jumped from $260.38 billion in 2017 to $432.55 billion in 2021), and its biggest source of chip imports is Taiwan (in the first half of 2022 semiconductors accounted for 37.6% ($92.84 billion) of Taiwan’s exports to the mainland). Taiwan Semiconductor Manufacturing Company (TSMC) is the world’s largest provider of semiconductors.
On 19 November Taiwan media reported that TSMC chartered 10 aircraft to airlift more than 300 crucial technical personnel and their families to Phoenix, Arizona to support TSMC’s new plant opening in December. TSMC plans to charter another 100 flights to transport more than 1,000 key technical personnel and their families to the US over the next few months.
The global repercussions, however, extend way beyond China, Taiwan, and the US. For example, straight after the ban on 27 October, three enterprises of Singapore’s ASM Technology (ASMSPT) ceased operations on 1 November. ASMSPT is a subsidiary of Holland’s ASM International.
ASM Holdings (ASML) has a 100% global market share for the production of lithographic machines essential for building advanced chips. The Netherlands is yet to make a decision on whether to support the US ban. Likewise, Japan, South Korea and the EU are working on their own Chips Act – in November, eight Japanese companies formed a joint venture, Rapidus, to work with the US on what is called “state- of-the-art 2nm chips.”
China is yet to announce retaliatory measures, but its main focus is on becoming self-reliant within 10 years, an unlikely feat. At the same time, while US measures have slowed down the development of China’s chip industry in areas such as military equipment, AI, and electric vehicles, the US faces challenges in cost, ecosystem deficiencies, and relations with allies.
The US Chips Act carries a price tag of $280 billion. But according to the Financial Times Editorial Board, in addition to the billions being spent, another “$1.2 trillion will be required in upfront costs, then another $125 billion per year, to create fully localized supply chains at 2019 levels of production.”
Washington’s challenge is to persuade US allies that there is a global market for their chip technologies, even without China. The battleground has been drawn.
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