The Daily – The Sunday Read: ‘The Silicon Blockade’

Intro

In this episode of “The Daily,” the focus is on the historic turning point in US-China relations due to the US announcing export controls to prevent China from obtaining advanced semiconductor chips. These controls aim to not only stop China’s technological development but also to reverse it. The implications of this move and its impact on the global order are explored in detail.

Main Takeaways

US-China Technological Cold War

• The US announced export controls to prevent China from getting advanced semiconductor chips, which is a historic turning point in US-China relations.
• The goal of the October 7th controls was not just to stop China’s technological development, but to reverse it and pull the rug out from under them.
• The US is the linchpin in producing the most advanced chips, and the October 7th controls cut off the entire supply chain for China, making it a technological Cold War.
• The outcome of the US-China competition will likely shape the future of the global order for decades to come.

Global Dominance and Choke Points

• The semiconductor industry is a poster child for globalization.
• Only a handful of companies can compete at the cutting edge where breakthroughs cost billions of dollars and decades of research.
• The EUV lithography machine made by ASML is a choke point in the industry and is capable of crafting structures as small as 10 nanometers.
• The Biden administration aims to block China from the future of chip technology by squeezing on the industry’s natural choke points.

The US-Taiwan Relationship

• Taiwan’s central role in global chip production makes it indispensable to the United States, and its chips’ stranglehold is sometimes called its silicon shield, the island’s most formidable deterrent against a Chinese attack.
• American policymakers see US’s dependence on Taiwan as an unacceptable risk, and push for TSMC to build more fabs in the US to locate more semiconductor manufacturing closer to American shores.
• Taiwan has no choice but to comply for fear of upsetting its most powerful ally and largest arms supplier.

The Battle for Technological Supremacy

• The complexity of chip-making and global supply chains make it difficult to imitate expertise solely through government funding and engineers.
• Despite export controls crippling China’s advanced chip-making ability, it may spur long-term growth by forcing domestic companies to innovate together or die.
• Huawei, despite being battered by American sanctions, has continued to emphasize innovation with a research team of over 100,000 employees and a budget of $24 billion for R&D.
• The controls will not stop China permanently and are a delay tactic meant to offer the West space to expand their lead in key technologies, but the future of chips is life or death for both China and the US.

Summary

US-China Technological Cold War

The US-China relationship has reached a historic turning point with the US announcing export controls to prevent China from obtaining advanced semiconductor chips. The goal of these controls is not only to halt China’s technological development but also to reverse it. By cutting off the entire supply chain for China, the US has initiated a technological Cold War. The outcome of this competition will have far-reaching implications for the global order.

Global Dominance and Choke Points

The semiconductor industry, a symbol of globalization, is dominated by a few companies that invest billions of dollars and decades of research into cutting-edge chip development. The EUV lithography machine by ASML is a critical choke point in the industry. The Biden administration aims to block China’s access to chip technology by targeting these choke points. The battle for technological supremacy will shape the future of innovation in areas like quantum computing and artificial intelligence.

The US-Taiwan Relationship

Taiwan plays a central role in global chip production, making it indispensable to the United States. Its chips act as a deterrent against a potential Chinese attack, known as the silicon shield. However, the US sees its dependence on Taiwan as a risk and pushes for more semiconductor manufacturing on American shores. Taiwan complies due to its reliance on the US as its powerful ally and largest arms supplier.

The Battle for Technological Supremacy

The complexity of chip-making and global supply chains makes it challenging for countries to imitate expertise solely through government funding and engineers. While export controls may cripple China’s chip-making ability, they could also foster long-term growth by forcing domestic companies to innovate or face failure. Despite facing American sanctions, Huawei continues to prioritize innovation. However, the future of chips is crucial for both China and the US, as it determines their technological and economic standing.

Conclusion

The US-China technological Cold War, driven by export controls on advanced semiconductor chips, marks a turning point in global relations. The battle for dominance in the semiconductor industry, the role of Taiwan, and the challenges of imitating technological expertise are key factors in this competition. While the controls offer the West a temporary advantage, the long-term future of chips is vital for both China and the US. The outcome of this battle will shape the global order and determine the trajectory of innovation for decades to come.