The chip war between the US and China has reached another higher level. With both nations trying to become global suppliers, and implanting their protocols in most of the buyers’ markets, the race is how to rekindle and stoke domestic productions. In the US, private initiatives, like the recent tie-up between Nvidia, the largest chipmaker, and Oracle, a leading player in Artificial Intelligence (AI), are crucial. In China, nothing can be done without Government’s support, funding, and blessings. In the latest battle, Beijing has tightened the screw on imports of American chips, including those that are designed by Nvidia for China’s special needs.
Customs officials at the Chinese ports are conducting strict and rigorous inspections of semiconductor shipments. While earlier, they were restricted to Nvidia, they were expanded to include the advanced products from any foreign supplier, especially an American. Nvidia had designed chips for use in China to comply with the US export controls over technology, and retain a strong foothold in the Chinese market. Beijing wants local firms to reduce their dependence on America, and instead use local chips from Chinese vendors. This will boost domestic sales, and prepare the local chipmakers to prepare an exports foundation to emerge as suppliers to the world.
Over the past decade or so, America and China were engaged in epic battles to control the production, use, and supply of microchips, which has emerged, according to author Chris Miller, as the “world’s most critical resource.” In his book, Chip War, he explains that the US, which makes the fastest chips, and “still has a stranglehold on the silicon chips that gave Silicon Valley its name,” is realising that that its “position has weakened dangerously. China now spends more money each year importing chips than it spends on oil.” More importantly, it is making chips, and selling them to the world. Huawei, which is facing the heat in the US and India, is emerging as the missile through which China hopes to win the war.
Nestled between the two warring nations lie smaller ones like Taiwan and South Korea, and developed ones like Japan and Europe, which have begun to whip up chip dreams. They wish to link with America to become at least formidable players. The case of Taiwan’s TSMC, which is a major maker, shows the complexity. “Morris Chang (the founder) was born in mainland China; grew up in the World War II-era Hong Kong; was educated at Harvard, MIT, and Stanford; helped build America’s early chip industry while working for Texas Instruments in Dallas; held a top-secret US security clearance to develop electronics for the American military, and; made Taiwan the epicentre of world semiconductor manufacturing.”
Today, as China boosts its domestic production, and America does the same, while curbing exports to China, smuggling has emerged as a key issue. Earlier, the US feared smuggling of high technology products and patents to China. Today, China fears the entry of American chips via illegal routes. Hence, China, which routinely cleared shipments if the duties were paid, is more vigilant. Recent reports claimed that $1 billion worth of Nvidia’s top AI chips were smuggled into China between May and July this year. The trade violated the US laws, and forced the Chinese to be on their toes. It is ironic that illegal means are being adopted to push products.
Similarly, official bans have emerged as the new strategies to force the use of local chips, or deny a nation access to high-tech products. Earlier, the US asked Nvidia to restrict Chinese exports, and forced it to design specific chips for that country. In mid-September this year, Beijing asked local tech giants like Alibaba and ByteDance to stop the testing and orders of Nvidia chips. It is tit-for-tat, and an action-reaction game between the two nations. The US feels that China has no chip future without access to its technology. China thinks that it can match American chip prowess through local technology. Both have huge chips on their shoulders.
However, the fact remains that while the chip war engages America and China, the battles, or the short sparring, will happen in Asia. The reason is that the two superpowers know that the “concentration of advanced chip manufacturing in Taiwan, South Korea, and elsewhere in East Asia is not an accident. A series of deliberate decisions by Government officials, and corporate executives created the far-flung supply chains we rely on today,” writes Miller. He adds, “Washington’s foreign policy strategists embraced complex semiconductor supply chains as a tool to bind Asia to an American-led world (and away from China).” For China, which witnessed limited access to and from the West, Asia was the obvious territory. Hence, it is unlikely to give up the claims on Taiwan.
These supply chains are now in danger. Either superpower can cause massive disruptions to impact chip production and shipments. They can both hold global economies hostage in a bid to cut each other to size. This explains the fervour within America and China to boost local production, and improve local technology to achieve higher self-reliance. The US is forcing locals and foreigners to ‘Make in America’. China is doing the same, as the recent import curbs prove.
