The US and China are engaged in a global struggle for dominance in the semiconductor industry (aka “chip wars.”) Recognizing the importance of semiconductor chips in innovation and national security, both countries are investing to increase domestic production.
Semiconductors also referred to as microchips, are the small electronic components in popular digital devices. Devices that we use every day in smartphones, computers, cars, and aircraft. Because these chips are essential to technological innovation and national security, given they power military communications and missile guidance systems.
The US and China’s Battle for Dominance
Albeit the U.S. and China have long been competitors in the semiconductor industry. Tensions between the two countries have escalated in recent years. Consequently, both sides seek to reduce their reliance on the other by establishing themselves as the dominant player in the industry.
The U.S. is currently the world leader in semiconductor chip production with Intel, Qualcomm, and Nvidia dominating the market. Increasingly, U.S. dominance is being challenged by China, which is investing in semiconductor production to become self-sufficient.
Challenges Faced by the US and China
The U.S. and China face significant challenges in their efforts to increase the domestic production of semiconductors. These challenges include a shortage of raw materials and a lack of skilled workers in an increasingly complex global supply chain.
Another key point, the U.S. is facing a shortage of semiconductor chips. Consequently, this has impacted a wide range of industries, from automotive to healthcare. The shortage has been exacerbated by the Covid-19 pandemic, which has disrupted global supply chains and reduced the availability of raw materials.
Equally, Taiwan plays a crucial role in the semiconductor industry by producing advanced, high-speed semiconductors. Taiwanese companies TSMC and UMC are amongst the world’s leading semiconductor foundries, responsible for chip manufacturing for global technology giants.
However, Taiwanese companies play a critical role in developing advanced, high-speed semiconductors. Chips that are commonly used in 5G, artificial intelligence, and the internet of things.
Furthermore, the Dutch company ASML is a key player in the semiconductor industry. ASML produces the equipment necessary to manufacture advanced microchips. The world’s leading semiconductor foundries use ASML’s lithography machines to manufacture chips with ever-increasing precision and complexity. Client list names include global companies such as TSMC and Samsung.
Moreover, ASML’s dominance in advanced lithography makes it a target in the U.S.-China chip wars. Both countries aim to restrict ASML’s export of equipment. Consequently, the U.S. is pressuring the Dutch government to limit ASML’s machine export to China.
Significantly, a vital link in the chip chain is U.S.-based Applied Materials. Applied Materials (AMAT) is a leading producer of semiconductor manufacturing equipment and plays a crucial role. Semiconductor foundries use the company’s equipment to produce chips with ever-increasing precision and complexity.
The Global Semiconductor Supply Chain
Subsequently, the semiconductor supply chain is a complex global network involving the production of semiconductor chips. The supply chain spans from the design and manufacture of the chips to the final assembly of electronic devices.
Meanwhile, different companies and regions specialize in different stages of the production process, making the chain highly specialized. The semiconductor supply chain is sensitive and vulnerable to potential choke points, with disruptions or delays in one part of the supply chain potentially impacting the entire industry.
Various factors have caused semiconductor chip shortages, including Covid-19 pandemic disruptions and extreme weather conditions in Texas, reinforcing the fragility of the supply chain. Interdependence means disruption in one region is felt across the entire industry. U.S. restrictions on the export of semiconductor equipment to China resulted in supply shortages for the Chinese industry, which relies upon imported equipment.
Implications for Global Security
The chip wars between the U.S. and China impact global security as the development and control of semiconductor chips are essential to technological innovation and national security.
The dominance of the U.S. and China in the semiconductor industry influences global economic and technological leadership. The winner of the chip wars could reign as the dominant player in the digital age with long-term implications for other countries and regions.
The U.S. becoming the dominant semiconductor player could secure its global economic and technological leadership. Developing a robust domestic semiconductor industry would reinforce this position. If China dominates, it would impact the U.S. and other advanced economies.
A War Beyond Chips
China has made no secret of its intentions toward Taiwan, which views the island nation as a province of China, politically lost. Reunification (by any means necessary) is clearly on the table.
A Chinese attack on Taiwan would have severe implications for the semiconductor industry and the global economy. Taiwan is a critical player in the semiconductor industry, producing a large percentage of the world’s advanced semiconductors.
An invasion of Taiwan by China would jeopardize the global semiconductor supply chain and cause economic disruption felt worldwide, potentially sparking a global recession.
Accordingly, an invasion of Taiwan could have wider geopolitical implications beyond the direct impact on the semiconductor industry. The United States is treaty-bound to defend Taiwan.
A Chinese attack on the island could lead to armed conflict between the two superpowers. Such a conflict could escalate into a third world war, rippling catastrophic consequences across global economies and security.
The chip wars between the U.S. and China have significant implications for the technology industry and global security. Developing and controlling semiconductor chips are essential to technological innovation and national security.
The U.S. and China have both struggled to increase domestic semiconductor production. The winner of the chip wars could become the dominant player in the digital age. The outcome of the culmination of tension and the long-term impact on the world remains uncertain, yet the implications could be world-changing.
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