US-China Chip War: Battle for “New Oil” 

For more than a century, the scramble for oil sparkedwars, forced nations to form unusual alliances and sparked more diplomatic disputes. Now, the world’s two largest economies compete for another precious resource – semiconductors, the chips that literally power our daily life. It has become the “new oil” of the 21st century. The United States and China are engaged in a pitched chip war.

These tiny electronic chips of silicon are at the heart of a $500 billion industry expected to double by 2030. Whoever controls the supply chain is the key to becoming an unparalleled superpower. With the development of technology, more and more chips are used in modern equipment. For example, in 2021, there will be about 1,200 chips per car on average, twice as many as in 2010.

America is winning the war

China wants to own the technology to make chips, most of which comes from the US, which is why the US is cutting off Beijing’s access to chip technology to prevent high-end chips from powering China’s tech applications – from military use and artificial intelligence to supercomputers.

The BBC reported that Chris Miller, author of “War on Chips” from American Tufts University, said that the two countries are clearly engaged in an arms race in the Asia-Pacific region. But, he added, there’s more to the race, “it is happening in traditional areas, like the number of ships or missiles produced, but it is also it’s taking place in terms of the quality of Artificial Intelligence (AI) algorithms that can be employed in military systems”.

The BBC said that the United States is winning in this chip war, but the chip war it has declared on China is reshaping the global economy.

Semiconductors were invented in the US, but East Asia became a manufacturing hub over time. The US dominance of semiconductor technology enabled the country to develop commercial ties and strategic alliances with regions vulnerable to Russian influence during the Cold War. The same holds true now in the face of Beijing’s growing influence in the Asia-Pacific region.

The current race is to be able to mass-produce the best and most efficient microchips, and the smaller the chips, the better. Even for top chipmakers, that goal will not be easy. In mid-2022, Samsung will become the first company to start mass-producing three-nanometer chips. Later that same year, Taiwan’s TSMC followed suit.

These smaller, high-end chips are more powerful, which means they’re going into more valuable devices – supercomputers and artificial intelligence, the Internet of Things. Although non-high-end chips still power some of the devices in people’s lives, such as microwave ovens, washing machines and refrigerators, demand may shrink in the future.

US Chip Restriction Hit China’s Ambition

Most of the world’s chips are made in Taiwan, underscoring the importance of the West protecting Taiwan from Chinese influence. China has also prioritised chip production and is investing aggressively in supercomputers and artificial intelligence. While China is far from becoming a global leader, it has been catching up over the past decade, especially in its chip design capabilities, Miller said.

The Biden administration is trying to stifle China’s access to chipmaking technology. Last October, Washington announced total export controls, making it nearly impossible for global companies to sell chips, chipmaking equipment and software containing US technology to China. What’s more, the United States also prohibits American citizens and permanent residents from supporting certain companies in China to “develop or produce” chips.

The US measures deal a heavy blow to China, which relies on imported hardware and foreign talent to fuel its fledgling chipmaking industry.

The BBC said that the US restrictions are hitting the pain points of China.  Following the restrictions, Apple has shelved a deal to buy memory chips from China’s Yangtze Memory Corp (YMTC).The United States is also seeking the support of its allies in the export of chips to China. White House National Security Advisor Sullivan confirmed on 12 December last year that the United States has discussed with partners in countries, including Japan and the Netherlands, how to tighten exports of chips and related equipment to China.

Dutch company ASML has a monopoly on key advanced chip-making tools. The United States has been working hard to prevent ASML from exporting advanced chip-making tools to China. The Wall Street Journal has reported that analysts believe that without ASML’s state-of-the-art machines, Chinese chipmakers cannot make leading-edge chips. It is estimated that it will take at least ten years for the CCP to reach ASML’s technological level.

China doesn’t have a good option to deal with this problem. Withdrawing goods or services or imposing its own export controls would backfire and could do more damage when China’s economy faces a severe slowdown.