September 2023

Tit-for-tat tech

China and the US are each taking steps to limit the sharing of technical expertise by imposing restrictions on the trade in microchips, drones and vital minerals in what is being described as a new ‘chip war’. Nicholas Nugent considers whether the epithet is justified

In his book on the development of computers, Chip War: the Fight for the World’s Most Critical Technology, Chris Miller makes the surprise assertion that ‘the future of war will be defined by computing power’. Since microchips, or semiconductors, lie at the heart of every technical device in use today – from mobile phones and laptops, through washing machines and cars to drones and guided missiles – it is hard to disagree that the microchip is an instrument of power in the 21stcentury.

To understand Miller’s thesis, one needs to see where such power lies at present – and where it might be going. The United States, which pioneered the computer (albeit not single-handedly), is now in a race with east Asian nations, principally China, for the power delivered by the simple microchip.

But is this actually a ‘war’, rather than a more traditional technological ‘race’? The answer lies in the steps each side is taking to advance technology while giving themselves an advantage – and disadvantaging the other.

President Biden started the current round a year ago, in August 2022, by signing into law the Chips Act, which limits the US and its allies from exporting the most advanced microchips to potentially hostile states, including China and Russia. The US argued that these could be applied for military purposes.

a Tesla electric vehicle
Tesla builds its cars around chips manufactured in Taiwan but uses minerals from China

This has undoubtedly impacted Chinese business. Gerald Yin, CEO of the Chinese chip manufacturer AMEC, told the Hong Kong-based South China Morning Postthat China had been pushed back ‘several generations’ by the US act, though others say the move will incentivise China’s own development of leading edge microchips. The Chinese official newspaper, Global Times, reported that China was the largest single semiconductor market in 2022, with sales of $180.4 billion.

The US law subsidises home production of chips. As a result, the Taiwan company TSMC, which produces more than 90 per cent of the world’s most advanced ‘logic’ chips, is building production centres, or ‘fabs’, in Arizona. The leading producer of ‘memory’ chips, Samsung of South Korea, is also expanding production in the US, while Japan and the European Union are also applying state subsidies to reduce their dependence on Taiwan and Korea for advanced chips.

These two eastern nations, Taiwan and South Korea, dominate global production of advanced semiconductors, using equipment from the Netherlands – extreme ultraviolet lithography – to etch chips with ‘designs’ developed in the US and Europe.

Is this actually a ‘war’, rather than a more traditional technological ‘race’?

Taiwan is the only country currently capable of producing in commercial quantity chips below 7nm in size, the nanometre being the measure both of size and sophistication: it measures how many billions of transistors can be etched onto a fingernail-sized silicon chip. Every 1nm reduction gives the chip more power for less energy: 7nm is considered the breakthrough point for the most advanced chips.

In the competition to produce smaller and more efficient chips, the Chinese company Huawei has claimed its own technological breakthrough in the field of ultraviolet lithography, suggesting it may be coming closer to catching up with Taiwan in the commercial production of low nanometre chips. The United States earlier banned Huawei from operating within the US, alleging its equipment was being used for spying – a claim the company denies. 

In its own recognition that high tech equipment has implications for a nation’s security, China introduced restrictions on the export of drones and drone technology from September 1. Sophisticated drones, telecommunications equipment and even balloons deliver power.

Chips are vital for domestic, business and military use but, given the current global imperative to reduce carbon emissions to zero, other technologies involved in this so-called ‘war’ are relevant. Alternative energy sources such as wind and solar power and, crucially, electric vehicles need minerals like copper, lithium, nickel and cobalt. 

Taiwan and South Korea dominate global production of advanced semiconductors

China is the chief producer or refiner of copper, lithium and cobalt and takes second place to Indonesia in nickel production. Another eastern country, Australia is also well represented as a producer of so-called ‘green’ minerals.

So when China introduced restrictions, from August 1, on the export of the relatively rare element gallium – which holds out much hope for advances in the field of energy management, including for vehicle batteries – and germanium, also used in semiconductors, it was fighting back against US restrictions. China currently supplies 98 per cent of the world’s gallium.

Last month President Biden played another card by signing an order prohibiting some new US investment in China in semiconductors and microelectronics, quantum information technologies and artificial intelligence systems. It is not clear whether this amounts to a total ban or whether potential investments will be considered on their merits by the US body that approves (or blocks) foreign investment.

US firms affected by these tit-for-tat restrictive measures include Apple, which makes advanced chips for its iPhones in Taiwan, shipping them to mainland China for assembly. Moves are underway to shift phone assembly to Vietnam and India, yet currently China itself is the largest market for iPhones.

Another firm affected is Tesla, which builds its cars around chips manufactured in Taiwan but uses minerals from China, including lithium and cobalt, and possibly gallium, in their batteries. The Japanese Nikkei newsagency says 39 per cent of components of Tesla cars are sourced from China, but then a high proportion of Tesla cars are actually built in China.Worldwide, China was the major source of electric cars sold in 2022, providing 35 per cent of all exported EVs.

Gerald Yin, CEO of the Chinese chip manufacturer AMEC, says China has been pushed back ‘several generations’ by the US Chips Act

One of the US’s chief chip producers, Intel, recently expanded its investment in a plant at Shenzhen southern China, to develop chips for artificial intelligence (AI).Such crossovers of trade and investment raise doubts as to whether it is feasible to isolate China from technology developed in the West, such as GPU chips – the building blocks of Artificial Intelligencecurrently made in Taiwan for the US company Nvidia – without harming US interests.

Chris Miller believes that whoever makes or controls the components of advanced computers will have the upper hand should war break out – or may even be emboldened to start a war. What is happening today is truly a race for computing power.

With drones playing a role in the war between Russia and Ukraine, it is easy to imagine that such technological power, and efforts to limit its spread, will affect the timing and outcome of the next war, whether it be fought in the East China Sea or elsewhere.

Nicholas Nugent, a former BBC correspondent, watches the technological race, or war between East and West