Chip ‘war’ threatens to change the global landscape

China’s ascent to the tech frontier would mean an economic boom for Beijing and a bust for Washington

China’s champions for computer chip design and manufacturing, HiSilicon and Semiconductor Manufacturing International Corporation or SMIC, are making waves in Washington.

SMIC was long considered a laggard. Despite being the recipient of billions of dollars from the Chinese government since its founding in 2000, it remained far from the technological frontier.

But that perception – and the self-assurance it gave the United States – is changing.

Last year, Huawei launched its high-end Mate 60 smartphone. According to the Center for Strategic and International Studies, the launch “surprised the US”.

The chip powering it showed that Chinese self-sufficiency in HiSilicon’s semiconductor design and SMIC’s manufacturing capabilities were catching up at an alarming pace.

Now, Huawei and SMIC are planning to mass-produce so-called 5-nanometre processor chips in new Shanghai production facilities. This has stoked further fears about leaps in their next-generation prowess.

Clear position

These chips are a generation behind the cutting-edge ones, but they show that China’s move to create more advanced semiconductors is on track, despite Washington’s export controls.

The US has managed to maintain its clear position as the frontrunner in chip design and has relied on close allies to supply the finished products.

But now it faces formidable competition from China, whose technological advance carries profound economic, geopolitical, and security implications.

A Chinese chip production line in Jiangsu. Photo: Courtesy China Daily

For decades, chipmakers have sought to make ever more compact products. Smaller transistors result in lower energy consumption and faster processing speeds, so massively improve the performance of a microchip.

Moore’s Law – the expectation that the number of transistors on a microchip doubles every two years – has remained valid in semiconductors designed in the Netherlands and the US, and manufactured in Korea and Taiwan.

Chinese technology has therefore remained years behind. While the world’s frontier has moved to 3-nanometre chips, Huawei’s homemade chip is at 7 nanometres.

Maintaining this distance has been important for economic and security reasons. Semiconductors are the backbone of the modern economy. They are critical to telecommunications, defense, and artificial intelligence.

Washington’s push for “made in the USA” chips has to do with this systemic importance. Semiconductor shortages wreak havoc on global production since they power so many of the products that define contemporary life.

Trojan horses

Today’s military prowess even directly relies on chips. In fact, according to the Center for Strategic and International Studies, “all major US defense systems and platforms rely on semiconductors.”

The prospect of relying on Chinese-made chips – and the backdoors, Trojan horses, and control over supply that would pose — are unacceptable to Washington and its allies.

Since the 1980s, the US has helped establish a distribution of chip manufacturing, dominated by South Korea and Taiwan. But the US has recently sought to safeguard its technological supremacy and independence by bolstering its manufacturing ability.

Through large-scale industrial policy, billions of dollars are being poured into American chip manufacturing facilities, including a multi-billion dollar plant in Arizona.

A clean room at an ASML factory in the Netherlands. Photo: Courtesy ASML

The second major tack is exclusion. The Committee on Foreign Investment in the United States has subjected numerous investment and acquisition deals to review, ultimately even blocking some in the name of national security.

This includes the high-profile case of Broadcom’s attempt to buy Qualcomm in 2018 due to its China links.

Last year, Washington issued an executive order inhibiting the export of advanced semiconductor manufacturing equipment and technologies to China. By imposing stringent export controls, the US aims to impede Beijing’s access to critical components.

The hypothesis has been that HiSilicon and SMIC would continue to stumble as they attempt self-sufficiency at the frontier.

Dutch designer

Washington has called on its friends to adopt a unified stance around excluding chip exports to China. Notably, ASML, a leading Dutch designer, has halted shipments of its high-tech semiconductors on account of US policy.

Washington has also limited talent flows to the Chinese semiconductor industry.

The regulations to limit the movements of talent are motivated by the observation that even “godfathers” of chip manufacturing in Japan, Korea, and Taiwan went on to work for Chinese companies – taking their know-how and connections with them.

This, and the recurring headlines about the need for more semiconductor talent in the US, has fuelled the clampdown on the outflow of American expertise.

Finally, Washington has explicitly targeted China’s national champion firms – Huawei and SMIC. It banned the sale and import of equipment from Huawei in 2019 and has imposed sanctions on SMIC since 2020.

China and the US are locked in a high-tech battle. Photo: Social Media / File

The “chip war” is about economic and security dominance. China’s ascent to the technological frontier would mean an economic boom for China and a bust for the US.

And it would have profound security implications.

Economically, China’s emergence as a major semiconductor player could disrupt existing supply chains, and reshape the division of labor and distribution of human capital in the global electronics industry.

From a security perspective, Chinese-made chips risk compromising critical infrastructure by opening backdoors to cyber espionage.

Silicon shield

Chinese self-sufficiency in semiconductor design and manufacturing would also undermine Taiwan’s “silicon shield”. Taiwan’s status as the leading manufacturer of advanced chips has so far deterred China from using force to attack the island.

Still, China is advancing its semiconductor capabilities. The economic, geopolitical, and security implications will be profound and far-reaching.

Given the stakes that both superpowers face, what we can be sure about is that Washington will not easily acquiesce, nor will Beijing give up.

Robyn Klingler-Vidra is an Associate Dean for Global Engagement and an Associate Professor in Entrepreneurship and Sustainability at King’s College London. Steven Hai is an Affiliate Fellow of the King’s Institute for Artificial Intelligence at King’s College London.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy of China Factor.