Thursday, March 23, 2023

US-China Rivalry Over Semiconductor Chips Is Fueling a Technological Cold War

Washington, DCContinuing on the counter-measures to hinder China’s technological ambitions, the Biden administration recently introduced a fresh set of guidelines for American companies that trade with China. The Department of Commerce, on August 9, introduced the $50 billion CHIPS and Science Act of 2022 to strengthen the domestic semiconductor industry, commonly referred to as the chips industry, as a part of $280 billion capital for research and advanced technological manufacturing. 

Besides the CHIPS Act, the United States also recently hosted a preliminary meeting of a working group, dubbed ‘Chip 4‘, to discuss semiconductor supply chain resilience and cooperation. The group includes Taiwan Semiconductor Manufacturing Co Ltd, the world’s largest contract chip maker, South Korean memory chip giants Samsung Electronics Co Ltd and SK Hynix, and key Japanese semiconductor materials and equipment suppliers. 

These developments mean that American companies are banned from dealing and trading with China for the next couple of years in this sector. In short, US-based firms will not be allowed to invest or develop anything related to chips, particularly in China. The primary reason that has been given behind this move of the administration is the threat to national security. 

Amongst the many domains where the US and China compete to gain global influence in technology, semiconductor chips are one of the most crucial aspects of their great power strategic competition. The rivalry is centered around semiconductors, a critical component of every electronic device. Lately, the semiconductor industry has gained significant weight in the world’s geopolitical calculations since it can influence global economic and military dimensions. That is why it remains a crucial factor in the tensions between the US, China, and Taiwan as well.

The impetus behind this technological Cold War can be traced to 2015 when China announced its ‘Made in China 2025′ strategy. This was when the global supply chain system was struggling, and China sought to grab the opportunity by focusing on boosting its manufacturing industry. Through this strategy, it wants to achieve the title of the world’s supplier. This raised alarm bells in Washington. Effective immediately, the Trump administration started restricting equipment sales of Huawei, a major player in the telecommunication and technology sector. The United States also ensured that the US-based companies did not provide any export licenses to the companies that used to provide components to Huawei.

Last September, the US government imposed sanctions against the largest Chinese chip manufacturer – Semiconductor Manufacturing International Corporation (SMIC), citing the “unacceptable risk of SMIC being used for military ends.” This damaged China’s ambitions to become a world leader in technology. Two months later, China announced its 14th Five Year Plan, which specifically signaled the elevation of independent semiconductor production for achieving self-reliance in the technological sector. Chinese Premier Li Keqiang underlined the investments in crucial technologies like artificial intelligence, 5G, and not to forget chips. Achieving technological dominance in semiconductors is Beijing’s key priority. 

And the US has kept up the pressure. On August 12, 2022, the Bureau of Industry and Security, under the US Department of Commerce, issued a fresh set of restrictions on advanced semiconductors. These restrictions worsened the situation for Chinese manufacturing industries since China has still been unable to produce advanced semiconductor chips, which are essential in almost every electronic and technological equipment.

One of the effects of the US restrictions on China includes the Graphics Processing Units or GPUs, which are mainly manufactured by Silicon Valley-based companies like Nvidia and Advanced Micro Devices. Although these components were initially meant for rendering images in video games, they have been lately deployed in supercomputers by scientists. These supercomputers are used for the purposes of research and development of weapons as well as intelligence gathering. Some of the large-scale systems in China have been linked to surveillance. These restrictions are also going to limit China’s domestic capabilities of oppression. 

The Biden administration’s strict measure against China has two particular reasons. The first one is that the US and most developed countries are worried that China is weaponizing semiconductors and using them for destructive purposes. Lately, the surging cyber attacks from Chinese state-sponsored hackers have raised concerns in Washington. It is no secret that hackers use advanced systems and supercomputers for such purposes in which semiconductors are vital components. Second, the US is also concerned about China’s use of semiconductors or chips for military purposes. There are possibilities that it can also include the threat to the global IT ecosystem, which the US doesn’t want to let happen. For these reasons, the US has kept up the pressure on Chinese companies. It is leaving no stone unturned to bridle Chinese technological ambitions.


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