US-China chip war: America is winning

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US-China chip war: America is winning

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Flag of USA and China on a processor, CPU or GPU microchip on a motherboard.
Image caption,The fight for dominance in the semiconductor sector is reshaping the global economy

By Suranjana Tewari

Asia Business Correspondent

For more than a century the scramble for oil unleashed wars, forced unusual alliances and sparked diplomatic rows.

Now the world’s two biggest economies are battling over another precious resource: semiconductors, the chips that literally power our daily life.

These tiny fragments of silicon are at the heart of a $500bn industry that is expected to double by 2030. And whoever controls the supply chains – a tangled network of companies and countries that make the chips – holds the key to being an unrivalled superpower.

China wants the technology to produce chips. That’s why the US, a source of much of the tech, is cutting Beijing off.

The two countries are clearly engaged in an arms race in the Asia Pacific, says Chris Miller, author of Chip Wars and associate professor at Tufts University.

But, he adds, there’s more to the race: “[It] takes place both in traditional spheres, like numbers of ships, or missiles produced but increasingly, it’s taking place in terms of the quality of Artificial Intelligence (AI) algorithms that can be employed in military systems.”

For now, the US is winning – but the chip war it has declared on China is reshaping the global economy.

The chip-makers

The manufacture of semiconductors is complex, specialist and deeply integrated.

An iPhone has chips that are designed in the US, manufactured in Taiwan, Japan or South Korea, then assembled in China. India, which is investing more in the industry, could play a bigger role in the future.

Semiconductors were invented in the US, but over time East Asia emerged as a manufacturing hub, largely because of government incentives, including subsidies.

This allowed Washington to develop business ties and strategic alliances in a region vulnerable to Russian influence during the Cold War. It’s just as useful now, in the face of Beijing’s growing influence in the Asia Pacific.

The race is on to make the best and most efficient chips at scale – and the smaller, the better. The challenge: how many transistors – tiny electrical switches that can turn a current on or off – can you fit onto the smallest bit of a silicon wafer?

“It’s what the semiconductor industry calls Moore’s law, essentially doubling the transistor density over time, and that’s a hard goal to achieve,” said Jue Wang, a partner at Silicon Valley at Bain & Company.

“It’s what enables our phones to get faster, our digital photo archive to get bigger, our smart home devices to get smarter over time and our social media content to get richer.”

US President Joe Biden (R) and China's President Xi Jinping (L) meet on the sidelines of the G20 Summit in Indonesia
Image caption,Washington is trying to cut China off from the tech that makes chips

Getting there is not easy even for the top chip-makers. In mid-2022, Samsung became the first company to start mass producing three-nanometre chips at scale. Later that year, Taiwan Semiconductor Manufacturing Company (TSMC) – the world’s biggest chip-maker and a major supplier to Apple – followed.

How narrow is that? Much narrower than a strand of human hair, which is about 50 to 100,000 nanometres.

These smaller “leading edge” chips are more powerful, which means they go into more valuable devices – supercomputers and AI, the internet of things.

The market for “lagging edge” chips – which power the more mundane bits of our lives, such as microwaves, washing machines and refrigerators – is lucrative too. But demand will likely wither in the future.

Most of the world’s chips are currently being made in Taiwan, giving the self-ruled island what its President calls a “silicon shield” – in other words, protection from China, which claims the territory.

Beijing too has made chip production a national priority and is investing aggressively in supercomputers and AI. It is nowhere near being a global leader but has been catching up quickly in the past decade, especially in its chip design capabilities, Mr Miller says.

“What you find historically is that whenever powerful countries have advanced computing technology, they deploy them to intelligence and military systems,” he added.

This, and the dependence on Taiwan and other Asian countries for supply, is rattling America.

How is the US hobbling China’s progress?

The Biden administration is trying to choke China’s access to the technology that makes chips.

Last October, Washington announced sweeping export controls making i

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