GeoTech Wars - Semiconductors and Geopolitics with Chip War Author Dr. Chris Miller
You can listen to this episode on the CSIS website, or wherever you get your podcasts.
In this episode of GeoTech Wars, Kirti and Andrew discuss the ongoing geopolitical competition over semiconductors. They are joined by guest Chris Miller, Associate Professor of International History at the Fletcher School at Tufts University and author of Chip War: The Fight for the World’s Most Critical Technology. Dr. Miller is an economic historian whose research focuses on technology, geopolitics, economics, international affairs, and Russia.
As Dr. Miller argues, despite passionate rhetoric about re-shoring semiconductor manufacturing and policy initiatives such as the CHIPS and Science Act, the United States cannot be fully independent in its semiconductor supply. No country can be. Semiconductors are the most complex device in human history, and their production is too intricate for any one nation to do it alone.
Indeed, cutting-edge chips, the most sophisticated semiconductors, are only produced by three companies: TSMC in Taiwan, Samsung in South Korea, and Intel in the United States. While there are dozens of chip manufacturers globally, manufacturing the most cutting-edge chips requires substantial technical know-how and resources that few companies possess. In fact, the prevailing trend in the semiconductor industry is that companies are falling behind these three leaders, not catching up.
Accordingly, questions about how the United States will fare in cutting-edge semiconductors come down to which of these three companies will manufacture the most cutting-edge chips in the future and how much of their manufacturing capacity will be in the United States. It is unclear who will be leading the race, but the United States must pursue more investment from all three to ensure a greater share of cutting-edge chips will be produced domestically in the future.
China, for its part, is often the target of speculation wondering when it will gain cutting-edge capacity and “catch up” to the Taiwan, South Korea, and the United States. But ultimately, if trends continue, it is likely that China will continue to fall further behind the leaders unless it produces a company that can compete with TSMC, Samsung, and Intel.
Still, cutting-edge capacity is only part of the equation. Legacy chips, older and less-sophisticated semiconductors, are both ubiquitous and essential to a myriad of products such as automobiles, computers, and home appliances. Throughout the recent chip shortage during the COVID-19 pandemic, firms faced sharp shortages of legacy chips, not cutting-edge chips.
China remains a significant player in legacy chips, both in their production, but also their consumption. 30 percent of all semiconductors are sold to the Chinese market, while even more pass through China at some point in their development cycle. This gives China leverage over semiconductor firms. Currently, companies depend on China for both its market and its position in the semiconductor and electronics supply chain.
Companies are therefore seeking to diversify their semiconductor and electronics supply chains. Assembly—putting semiconductors into products such as computer servers which are ultimately sold to consumers—is slowly moving out of China, as companies attempt to reduce their exposure to the Chinese government. This diversification is certainly spurred by actions from the U.S. government, which is balancing economic integration with China and national security concerns.
Ultimately, the key for the United States is to disentangle critical supply chains from China slowly. Understandably, the United States does not want U.S. companies to transfer their advanced technology to China if it is something that China does not currently possess. Moreover, the United States does not want its strong venture capital pool to help develop businesses in China in sensitive industries.
In the larger chip war between the United States and China, China does not have many great options for retaliation. While it has retaliated in the past, such as through restrictions on exports of Germanium and Gallium, China must weigh any damage done on the United States against blowback to its own industries. China’s ban on memory chips from U.S. chip firm Micron, for example, were limited to chips that could easily be replaced by South Korean firms.
Nevertheless, disentanglement of critical supply chains from China must be done slowly, so as not to elicit strong retaliations. U.S. semiconductor firms still generate one-third of their revenue on sales to China. It is critical these flows continue, as they generate the revenue necessary for U.S. firms to invest in R&D and innovate. Further, disentanglement must be done in a targeted manner to avoid unnecessary costs. U.S.-China trade, which reached an all-time high in 2022, generates billions of dollars in profits for U.S. firms. Most of this trade is beneficial for all involved—there are no national security implications of Nike selling tons of shoes in China.
This piece summarizes the discussion in GeoTech Wars, "Semiconductors and Geopolitics with Chip War Author Dr. Chris Miller.” It does not represent the opinions of the hosts.