Chip Wars #1: What is it?

In recent years, the US has started the “Chip Wars”. No, it’s not a physical war with planes and bombs. Rather, it is a war over various aspects of the ubiquitous semiconductor chips. For now, it focusses on these aspects: (1) Which kind of chips should be on the forbidden list? (2) Who should they not be sold to?

 

In When the Chips are Down, Pranay Kotasthane analyzes this new war. He concludes there were 3 major triggers for this. First, geopolitics. With China snapping at America’s heels, the US is very worried. Since China is far, far behind in the chip design and chip manufacturing sectors, the US decided to try and lock the Chinese out now, before it is too late. The other factor here is that the world’s highest-end chip manufacturer (TSMC) is located in Taiwan. The aggressive Chinese stance on Taiwan worries the US. If Taiwan were attacked or blockaded, the availability of all highest-end chips would be at risk.

 

Second, geoeconomics. The COVID-19 aftermath found a severe shortage of chips globally. In turn, that impacted other sectors, from PC/laptop manufacturers to automobiles. While there was no malice in any of this, it made the US realize that super-specialization in different areas is scattered. South East Asia in manufacturing and testing; raw materials in China; chip design in the West. A lack of control on all aspects is now perceived as a threat in the US – each specialist could dance to different agendas in times of crisis.

 

Third, technological. Today, chips are foundational to everything. Military, AI, big data storage, next generation communication, transmission towers, automobiles, you name it… as everything moves into software, the underlying hardware (and chips) becomes super-critical. Control the chips, and you can cripple your enemy, militarily and economically.

 

This then is why the Chip Wars have begun.

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