Microchips is the next US-China battleground
Computing power holds the key to dominating the world today and microchips decide your computing power. That’s exactly why the US and China are at daggers drawn over staying ahead in the race for more powerful computer microchips.
In case you weren’t paying attention, microchips aren’t used in computers alone. You’ll find microchips in everything, from smart TVs to cars to mobile phones to microwaves to every gadget you are saving money to buy this year.
It wouldn’t be an exaggeration to say silicone microchips run the modern world.
The very fact that microchips are used everywhere is leading to a less-than-friendly tug-of-war between two powerful nations: the US and China.
Background of silicone chips
A silicone microchip, often called a silicone chip or sometimes just chip, is built by layers of thin wafers of semi-conducting material. These microchips, mostly 1.2cm in size, contain circuitry called integrated circuit (IC). Robert Noyce and Jack Kilby are credited with inventing the microchip technology. The IC can be used to control particular actions or tasks by controlling the electric current between transistors.
As an article in The New York Times explains, chips are built to function either as micro-controllers or microprocessors. Micro-controllers work with simpler programs, while microprocessors work on complex programs.
No discussion about microchips and semiconductors is complete with Moore’s law (named after Gordon Moore, the co-founder of Fairchild Semiconductor and one-time Intel CEO). Moore observed that the number of transistors in IC double every two year. In simpler words, processing power of devices using microchips — basically nearly all devices — could double every two years.
The ubiquity as well as the huge power of microchips makes everyone — research institutes, multi-national companies, countries — want to dominate the microchip space.
The US-China standoff
The US seems to believe one of the best ways to stymie China’s progress is to make sure China’s supply of microchips remains clogged.
A few years back, the US had stopped Intel selling its chips to China. The US-China standoff on technology may have become stark apparent to many when the US President Donald Trump, in 2018, put in force an export ban on selling made-in-USA chips and related software to ZTE.
ZTE, headquartered in Shenzhen, Guangdong province China, is a leading telecom equipment manufacturer. The ban was potentially dangerous to drive the company to bankruptcy. Fortunately for ZTE, the ban was lifted swiftly.
China, on the other hand, remains adamantly committed to dominating the world of microchips, US pressure notwithstanding. It is following a multi-pronged approach to pursue its dreams — investments, acquisitions, research facilities, strategic planning, funding, everything.
So who’s winning the war?
Here’s how the US is having an upper hand…
Like some nations, the United States too believes China is deeply guilty of forced technology transfer. As a reaction (or punishment, depends how you look at it), the US has taken, and continues taking, a variety of steps.
Here’s some of the reasons why the US has an upper hand in its microchip rivalry with China:
International support
1. Canada offered tacit support when it arrested Huawei’s CFO Meng Wanzhou in December 2018 on unspecified charges. This arrest was made in Canada, but on behalf of the US.
2. New Zealand asked a mobile-network service provider to not use China’s telecom equipment giant Huawei’s parts.
3. Japan and South Korea, both US allies, are two of the leading names when it comes to microchips in particular and technology in general. Their backing gives US the ammunition to continue its fight.
Technology lead
1. Many experts believe dominance in the microchip industry comes on the basis of experience, in addition to huge investments. China has a lot of the latter, but isn’t exactly rich with experience. That’s because till recently it was more a packager of microchips for the US and some European nations.
2. America is already looking at building smarter options and coming up with better designs while China may still only be catching up on powerful microchips. That way, America may still continue holding the key to the future.
3. Chip manufacturing facilities, called fabs in the industry, are owned by companies based in America. Setting up fabs requires more than just big investments.
But China isn’t that far behind…
It would be wrong to say China is getting a raw deal or is feeling cornered. To begin with, China has always been a tough, resilient nation.
It’s notorious for achieving goals it sets for itself, international sanctions and domestic problems be damned.
It’s also training its sight on manufacturing dominance with schemes like Made in China 2025. Here’s some of the things that are working in China’s favor:
Strategic
1. Back in 2015, China played hardball by fining Qualcomm $975 million for what China terms as exploitative tactics by the American giant.
2. China has already laid down the groundwork. Companies like Tianshui and JCET are making long-term advancements in research, something that may be aided by better known Chinese giants like Alibaba.
Technological
1. Of the top 4 supercomputers in the world today, the top 2 belong to the US, while the next 2 to China. Apparently, China isn’t that far behind.
2. While manufacturing higher-end microchips may sound extremely challenging for today’s China, it is capable of making the rest. As The Economist quotes Len Jelinek of the research firm IHS Markit, around 75% to 80% of chips are not cutting-edge chips, which means they’re within China’s reach.
3. The rate of growth of the processing power of chips (Moore’s law) is steadily slowing down. As a result, the pace of growth for the US is slowing down too, which means China can close in faster.
Concluding remarks
At some level, the actions taken by America to maintain its technological leadership sound like blatant protectionism. In today’s world of free-trade there’s only so much protectionism you can push.
More importantly, the complexity of manufacturing of modern-day chips ensures no single company can ever do everything required to make a chip. Right from excavation to the intermediate processes to testing, a huge number of companies and contractors are involved in the process, all spread across multiple countries.
As a result, any ban that seeks to support protectionism will likely not amount to much in the long run since there will be far too many factors and organizations involved. Even the American companies themselves, the ones that are showcased as the world leaders of silicon chip manufacturing, are dependent on numerous suppliers and contractors, many of whom can be influenced by Chinese government.
Finally, the multinationals of 21st century are truly multi national, meaning they can’t really afford (or justify) being loyal to just one nation. That’s because their revenue streams are strewn across different countries. (For instance, Apple’s largest market is mostly China.)
What will emerge out of the US-China off-now, on-now relationship is anybody’s guess but the coming days are sure not going to be a chip off old the block.
PS: Interested in learning what factors count for and against China in it’s race to global dominance in Artificial Intelligence (AI)? Find out all in a 2-minute video.
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Note:
This post has used the following two as its principal sources:
