The Red Line
Episode 81. The Geopolitics of Microchips and Semiconductors
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The Biden administration has just dealt a huge blow to the trajectory of the Chinese military, placing a ban on high-end microchips and semiconductors entering China. This is a virtually unprecedented move, and will almost certainly anchor down any growth for China's next generation of war fighting technology; but was this the right time? This is the biggest card the US could have possibly played. Should they have played it now and given Beijing a chance to recover before a possible war, or played it later when China was at its most vulnerable? We sat down with our panel of experts to ask what effects these sanctions will have both now, and in the long term.
Part 1: A Chip Off the Old Block (4:54)
Tim Cross talks us through what microchips and semiconductors are and how they are made, including the astronomical costs for the few manufactures who make them today. These costs are what has resulted in essentially only three companies making these logic chips; Intel, Samsung, and TSMC.
We discuss the ban on Huawei technology in recent years as a sort of test run for this ban, cutting it off from any technology of US origin, which was largely effective in curbing Huawei's international expansion.
We talk through the reliance on these chips and semiconductors for rapidly emerging military technology, such as missile guidance systems, advanced fighter jets, and AI-technology.
We unpack why TSMC and Taiwan has become a world leader in logic chip manufacturing, and how far China's domestic supply chain was behind TSMC at the time of the ban. We conclude by hypothesising how this will shape the future of China's industry and if the US will escalate this to other industries.
Part 2: The Growing Gap (30:26)
Bob Guterma discusses the likely responses by China to this ban, including a likely increase in investment into the domestic manufacturing industry and a likely increase in industrial espionage activities.
Guterma notes that the timing of the Party Congress simultaneously with this announcement has obscured some of the reaction domestically in China, but that it will likely be portrayed as 'final proof' that the US is in direct economic and strategic competition with China, following a long line of technology and industry-related interventions.
We analyse China's immediate response, including Xi Jinping's rhetoric towards innovation and further developing their industries. We discuss the potential towards China's efforts towards influencing US industry and legislators ahead of the 2022 midterms.
We conclude with questioning how things will develop from here now that the US has played this card and used its leverage to separate China's industries from the rest of the world.
Part 3: Losing Their Spark (45:38)
Jordan Schneider notes China's long historical fears about technological reliance on other nations, dating back to the Soviet Union in the 1950s. We discuss why semiconductors are one technology that China is not comfortable continuing to rely on importation from other economies.
Schneider unpacks the evolution of the US' stance, previously targeting firms and individuals, towards this solution in recognition of the integration between China's military and industry.
Building a semiconductor industry was one of the key policies behind the Made in China 2025 policy. We discuss how successful this policy has been and what trajectory it will take in light of this ban.
The rhetoric around seizing Taiwan for its semiconductor industry in a future conflict has escalated in recent years. Schneider unpacks why this would be a red herring, noting the sensitivity of the fabs creating these chips and that Taiwan and China in and of themselves would still not be a self-sufficient manufacturing chain.
We conclude by looking at the lower-tech Chinese manufacturing industry and how that will progress from this place.
Part 4: Conducting the Next War (57:03)
Chris Miller notes that the escalating risk of conflict with Taiwan would have significant global disruptions, at a time where both China and US forces have been committed to increasing their computing power and technological advantages.
We discuss other military and technology sanctions, including on Russia who are significantly smaller and less advanced than China's industry, and how this policy will be able to prevent subsidiary firms outside of China from buying and importing these chips. We also explore the possibility of China flooding the market with low-end chips in an attempt to hurt or remove other manufacturers from the market.
We unpack the challenges facing US attempts to relocate chip manufacturing to US soil, including the incredibly expensive process of building fabs and their relatively short half-life of cutting edge capacity. Conversely, China's zero-COVID policy may be an accelerating factor in pushing foreign talent in this sector away from China.
We debunk the possibility of wholesale relocation of the Taiwan semiconductor industry in the event of a conflict.
We conclude with trying to predict how the US position will evolve as the impacts of this ban become more clear.
Editor of International Affairs
Former Technology Editor at The Economist
CEO of The China Project, a China-focused news, data, and business services platform
He has previously worked in China in M&A-focused management consulting
Senior Analyst at The Rhodium Group, focusing on China's technological rise, US-China tech relations and the impact of Chinese technology policy on the broader economy.
Creator of the ChinaTalk podcast and newsletter
Fellow at the Center for a New American Security
Associate Professor of International History at Tufts University
His research focuses on technology, geopolitics, economics, international affairs, and Russia.
He is author of Chip War: The Fight for the World's Most Critical Technology
The Red Line's Semiconductor Reading List:
We’ve compiled a list of further reading to better understand the geopolitics of semiconductors.
Chip War: The Fight for the World's Most Critical Technology
Deciphering China's Microchip Industry
Fang Chen and Ruifeng Dong
The United States vs China: The Quest for Global Economic Leadership
C. Fred Bergsten
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This episode is dedicated to Patreon member Igor Stavchanskiy, Franck, and Andrew Burglass