It was only six days before the 2016 American presidential election that the Obama administration finally had a public “aha” moment on the vital importance of semiconductors to the way we live now.
The moment came when then-commerce secretary Penny Pritzker gave a speech in Washington in which she declared it was “imperative that semiconductor technology remains a central feature of American ingenuity and a driver of our economic growth.” She went on to explain the seriousness of the battle over semiconductors with China.
For the tech-minded, especially Silicon Valley veterans, the speech was long overdue. But, in the White House’s defence, the vast majority of policy analysts had failed to appreciate the issue.
“The Obama administration moved slowly on semiconductors, one person involved in the effort recalled, because many senior officials simply didn’t see chips as an important issue,” explains Chris Miller in his new book “Chip War: The Fight for the World’s Most Critical Technology.”
But to whatever degree policy circles have increased their attentiveness to the issue, the general public’s knowledge of it remains slim to zero.
Hopefully Miller’s finely researched book—which has already won accolades and become a bestseller—will steer the conversation in that direction. Because after reading “Chip War,” you’ll never look at a piece of technology the same way again.
The key message in this important read is that our modern way of life is made possible by the production of extremely complex chips used in computers and electronics—semiconductors—that are produced at a select few locations around the world and whoever controls access to these facilities controls modern society.
“The fact that Russia faced shortages of guided cruise missiles within several weeks of attacking Ukraine is also partly due to the sorry state of its semiconductor industry,” Miller explains. “Meanwhile, Ukraine has received huge stockpiles of guided munitions from the West, such as Javelin anti-tank missiles that rely on over 200 semiconductors each as they home in on enemy tanks.”
If you have access to an ongoing supply of the most advanced chips, you have a leg up on your competition—whether you’re a producer of consumer electronics or a country at war. If you don’t, things start to fall apart.
As the war in Ukraine continues, Russian factories have had to reallocate chips otherwise meant for dishwashers to their military procurement needs. This sort of scarcity both slows down their efforts on the front lines, but also causes scarcity of goods and price increases for Russian consumers at home.
But the role of semiconductors in the ongoing war in Eastern Europe is just a footnote in “Chip War.” The main event is China.
The regime in Beijing is well aware of the strategic importance of semiconductors. Despite the fact that the bulk of advanced chips are produced in their part of the world, China’s own domestic production is woefully behind.
Both the research and development costs and the machinery costs to produce the chips are so expensive that there’s a major barrier to entry to the industry. It would take years and many billions of dollars of investment to begin carving out the smallest market share in chip production.
That’s why many analysts fear China may just try to exert its power over the most important semiconductor producer in the world, which just happens to reside within a territory that the Chinese Communist Party has long mused about invading.
Over the past few decades, Taiwan has wisely made itself the most important hub in the world for the production of advanced chips. They are the indispensable nation when it comes to the requirements of our technology-based society.
Taiwan Semiconductor Manufacturing Corporation (TSMC) is the most important such facility in the world. Most advanced electronics and computer companies don’t produce their own chips. While they may design them, they get them built at TSMC and then shipped to their assembly facilities.
“Computers, phones, data centres, and most other electronic devices simply can’t work without them, so if Taiwan’s [facilities] were knocked offline, we’d produce 37 per cent less computing power during the following year,” Miller writes. The same goes for military equipment.
While Western companies rely upon TSMC to build their goods, the island of Taiwan hugs up against mainland China. There is real concern that China’s aggressive posture towards Taiwan—they see it as a renegade province that must be reabsorbed into the mainland—extends towards controlling TSMC.
“If so, we’d find ourselves not only reliant on China to assemble our iPhones. Beijing could conceivably gain influence or control over the only [factories] with the technological capability and production capacity to churn out the chips we depend on,” writes Miller. “Such a scenario would be disastrous for America’s economic and geopolitical position.”
Once you have the “aha” moment over semiconductors, you’ll never look at geopolitics the same way again.
