Global Tensions Rise in the Battle for Semiconductor Dominance: The U.S., China, and the Strategic Importance of Chips

This article originally appeared on JoeHoft.com and was republished with permission.

Guest post Col Retired John Mills

One of the key areas of contention in the great competition between China and America is the world of computer chips (more formally known as semi-conductors).  Chips are becoming omni-present in common consumer products, but they are also dual-use items as they are very necessary in modern missiles such as the tank killing Javelin missile used widely in the war in Ukraine.

President Biden has sent a string of representatives to China, the most recent being Secretary of Commerce Gina Raimondo.  The messages have been a bit confusing.  The first visitor, Secretary of the Treasury Janet Yellen said, “Decoupling would be a big mistake” while Secretary Raimondo sought reproachment, but also said, the United States is “trying to choke” the Chinese development of weapons with the tightening U.S. export controls on chips.  The nuance has been that America will sell chips, but not the cutting edge, most advanced chips to China.

Taiwan, South Korea, Japan, and the U.S. dominate chip production

The flashpoint of tension with China, Taiwan, has become the dominant chip maker in the world.  Taiwan’s TSMC is the leading manufacturer of chips and is now mass producing the 3-nanometer (nm) chips to support 5G phones.  The previous state of the art was the 5nm chips (the smaller number implies more computing power in a smaller area).  Chip manufacturing is expensive and requires extensive engineering, planning, and time to get the “fab” (fabrication) tooling and machines ready for a production run.  TSMC has demonstrated a hard to explain expertise in chip manufacturing and produces more than 80% of the world’s chips.  Most of the rest of the world’s requirements is met by companies in South Korea, Japan, and the U.S.  The TSMC expertise is not just the “fabs” but also the workforce.

To meet American demand and start migrating the concentration of the TSMC “fabs” in Taiwan – TSMC is working with American companies for a massive facility north of Phoenix, Arizona.  In the searing 100 degree desert heat, the endeavor is already doubling in size and may grow larger.  The U.S. Congress has passed and President Biden has signed the CHIPS Act which is a $50 billion government investment to expand chip production in America and to ensure American dominance in chips.  This law was passed with strong bi-partisan support, both sides of the American political aisle see great wisdom in focusing on computer chip production.

In a parallel development which coincidently also has South Korea, Japan, and America together is the suddenly announced “Pacific NATO”, a rather game changing event.  The military and economic alliance between these three nations does not explicitly include Taiwan, but in many ways it does so in an unspoken and implied manner.  Chinese adventurism has created an environment where South Korea and Japan are working closely together, overcoming lingering tension on unresolved matters from World War II.  In many ways, Taiwan and Japan have a close relationship going back to the early 1800s and Taiwan feels far more aligned with Japan then they do with China.  Japan is becoming more vocal that any move by China on Taiwan is a “red line”.  This Pacific NATO is very much about Taiwan and any attempt by China to use malign influence in the Western Pacific or other places around the world.

Very likely you just bought a product that has computer chips

The average consumer may not think a lot about the chip issue – but is becoming ensnared in the “Chip

War” because of the growing chip shortage.  The chip shortage is a bit focused on certain sectors, while other sectors are experiencing a glut.  “Chip shortages result from a mismatch between supply and demand that cannot be addressed quickly either by chip manufacturers…” said Prof. Rakeesh Kumar.  Trending demands such as 5G, Artificial Intelligence, and autonomous vehicles need the more cutting-edge chips, but legacy chips are also important for more routine needs such as cars and appliances.

Even with these more seemingly mundane uses, the older legacy chips are still needed, and it is hard to predict when and where they will be needed which can lead to supply chain disruptions among all chips.  Computer chips give great storage and processing power to the most routine of products.  To economize on chip use, cars may be missing certain functions such as electronic seat controls on the passenger seats or remote opening and closing of the rear tailgate, features consumers have come to expect, but they must check closely to ensure the model they are interested in matches their consumer expectations.

China has the rare earth metals and is trying to establish its own production

In the game of Great Power competition, China does have some leverage and advantages.  China has rare earth metals and has weaponized access to these rare earth metals as its contribution to the friction with America.  Until the Chip War, few had heard of gallium and germanium, but China has restricted export of these rare earth metals used in chip production to punch back in the chip restrictions it is facing from America.

TSMC does have a few plants in China, but they make the older chips.  So far the company has been able to conduct effective internal surveillance to limit any attempts at Chinese intellectual property theft.  China has attempted to clone TSMC the company through establishment of the Chinese HSMC Corporation, but that ended up being another large-scale fraud and scandal like the domestic Chinese real estate market.  China needs the most advanced chips and the Taiwanese have them, while migrating significant production to America.  Much of the Chinese interest in taking over Taiwan has pivoted toward the Chinese need for the advanced TSMC chips.  This changes the Chinese invasion calculus significantly.  China needs the TSMC plants unsullied by war and they also need the TSMC workforce and their families unharmed and cooperative to operate the plants.  The new South Korea-Japan-U.S. Pacific alliance also changes the situation with its unspoken inclusion of Taiwan.

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