Art of ‘chip war’: The tech rivalry between US-China

Beijing and Washington increasing rivalry on semiconductors is a crucial indicator of how the U.S. sees China’s uses of technological know-how as a threat to its national Security. According to the 2022 U.S. National Security Strategy (NSS), the People’s Republic of China (PRC) is the United States “only competitor with both the intent to reshape […]

Beijing and Washington increasing rivalry on semiconductors is a crucial indicator of how the U.S. sees China’s uses of technological know-how as a threat to its national Security. According to the 2022 U.S. National Security Strategy (NSS), the People’s Republic of China (PRC) is the United States “only competitor with both the intent to reshape the international order and, increasingly, the economic, diplomatic, military, and technological power to do it.” The new battleground of chip technology is aimed at thwarting China’s Chipmaking capabilities and advancement in space, military, and supercomputing. The U.S. keeps efforts to hobble China’s process in the semiconductor industry. But why is this semiconductor industry so critical? U.S.’s concern around Chinese technological rise is not new and dates back to the early 2000s. U.S.’s threat perception is based on China’s economic strategy. According to the U.S. reports released in 2018, the Chinese state-led economy attracts foreign firms, indigenizes and gathers the technology at low cost, and then replicates large companies from the Chinese market. And another widely known concern is data security which puts national Security at risk. However, it is tough to prove all these claims as valid. But the Chinese economic venture in different parts of the world, especially the Belt and Road Initiative, has got the U.S. keen on using economic coercion against its rising challenger. But the Chinese economy has moved far ahead and can undoubtedly backfire on the U.S. if not used wisely. And thus, Washington has turned toward technology to fight its “war” with China. Under President Trump’s administration, the first strong sanction was imposed on Chinese tech corporations like Huawei. It is under President Biden that the U.S. has gone all out to halt Chinese growing semiconductor industry. 

Semiconductors are now considered the new oil for the manufacturing industry, and the global pandemic has increased the demand for semiconductors. Digital and green transformation underpinned by the Russia-Ukraine war and the increasing necessity for Artificial Intelligence, quantum computing, and 5G Technologies have created enormous semiconductor demands, making it a focal point of US-China rivalry. Chris Miller’s Book Chip War: The Fight for the World’s Most Critical Technology has been named the Financial Times Best Business Book of the year, revealing the criticality of semiconductors for global dominance. 

While U.S. president Biden and Chinese President Xi were shaking hands at the Bali G20 summit in October 2022, a monumental shift in U.S. foreign policy vis-à-vis China was taking place in the background. On October 7 U.S. Commerce Department released a 139-page document restricting China’s access to advanced semiconductors – now a necessity in every electronic gadget from mobile to washing machines. Semiconductors are of utmost necessity in technologies ranging from A.I. and sophisticated weapons to medical innovations. The measures to curtail China’s access comes as a setback for its 14th Five years Plan. Washington also has put strict criteria by preventing U.S. citizens and Green Card holders from working for Chinese Chip companies. This also gives a significant blow by cutting off the American talent on which China heavily depends. The U.S. is undoubtedly the world’s leading chipmaker, and by excising sanctions on semiconductors U.S. is directly exercising its technological power to settle its geopolitical rivalry on an incredible scale. 

President Xi, in the recent communist Party congress, used the term “technology” 40 times, heavily emphasizing technological self-sufficiency and innovation. The days following President Biden’s control measures witnessed a spurt in the semiconductor industry in China. China purchases more than $300 billion worth of foreign semiconductors annually, most of which are manufactured using U.S. technology. This makes export control of microchips a new tool to deprive Beijing of modern U.S. technological know-how. China is also hugely reliant on Taiwan and Japan for semiconductors, so when U.S. speaker Pelosi visited Taiwan, the chip rivalry intensified, making China’s growing military capabilities clear to the world. The Chinese support for Russia’s position in the Russia-Ukraine war perhaps has also pushed the U.S. administration to apply sanctions on semiconductors, which are the raw materials for nearly every aspect of modern warfare and battle management – satellites, GPS, tanks, planes, and radar systems. The sanctions have also strengthened the arguments of those who have previously opined on the U.S. intention to contain China’s rise. But whatever the case, there is no doubt that the two countries are moving towards a “New Cold War” scenario. The U.S. knows that the semiconductor sector is its stronghold; in some form, all the micro-chip around the world have some link with the U.S. – the birthplace of the microchip industry. It cannot be ignored that only around 12 per cent of computer chips come from U.S. firms. Still, the leading microchip assembly lines are primarily located in Asia, especially Taiwan and South Korea. These sanctions resemble a lot to financial sanctions. U.S. dominance in the microchip sector is also betting that the world’s largest microchip producers, such as South Korea’s Samsung or Taiwan’s MediaTek and TSMC, will side with it and stop working with Chinese companies. The U.S. has also realized that too much dependency on Asian manufacturing units could put its defence industry at risk. Therefore, President Biden has repeatedly committed to reviving the chip manufacturing units by proposing a contribution of $50 billion to the semiconductor industry as a part of his $2 trillion infrastructure plan. It offers to foster a skilled workforce needed by the industry. But China also has its retaliation mechanism in place. It dominates the renewable markets like solar cells, windmills, and car batteries critical for U.S.’s energy transition. The new sanctions are also fuelling Chinese own manufacturing units to increase their production, which poses a challenge for the West. But as of now, China is dependent on U.S. semiconductors. The CSIS report states, “In weaponizing its dominant chokepoint positions in the global semiconductor value chain, the United States is exercising technological and geopolitical power on an incredible scale.” But these adverse actions have accelerated rather than slowed China’s ambition to head toward civil-military integration in developing dual-use technologies that the domestic manufacturing units see as an opportunity. Temporary respite for China is that U.S., Korean and Taiwanese firms have at least secured temporary one-year licenses to use U.S. technologies at these sites. 

On the other hand, this Chip rivalry is having a spillover effect on different parts of the world, encompassing larger geopolitics – predominantly European countries like the Netherlands and Germany. From Japan to Germany, the political leaders turned this crisis into a geopolitical rivalry as plugging into a US-centric supply chain also increased their confidence that the U.S. would guarantee their national Security. For the U.S., this helps maintain its dominance in computing capabilities which translates into future military capabilities. It makes China still strategically vulnerable as it is hugely reliant on its geopolitical rivals for semiconductors at this moment. While the Global Tech rivalry has set to sharpen, it is high time that India boosts up its own indigenous semiconductor manufacturing ecosystem. 

Dr Sreshtha Chakraborty is presently working as an Assistant Professor in Political Science in MRIIRS. She holds PhD in International Studies from Jawaharlal Nehru University.