Chip War: The fight for the world’s most critical technology

Microchips are at the heart of technological advancements in the 21st century. Any tech product requires a chip inside to run it – starting with home appliances like washing machines, refrigerators and vacuum cleaners to smartphones, computers and modern cars to satellites, fighter jets, hypersonic missiles and artificial intelligence.

Microchips – also known as silicon chips, microprocessors or just chips – are tiny, thin and rectangular tiles made of a crystalline semiconductor, typically silicon, that have been heavily packed with tiny transistors and other electronic components.

One single semiconductor chip contains the same number of transistors as all of the stones that make up the Great Pyramid of Giza, and more than 100 billion integrated circuits are in use daily across the globe. This figure is equal to the number of stars that make up our local region of the Milky Way galaxy.

Infographic: TBS

These chips are a fundamental component of electronic devices. They have enabled advancements in a wide variety of fields, including communications, computers, healthcare, military systems, transportation and renewable energy, to name just a few. 

In today's world, they have truly become the brains of modern technology. The last half-century has seen significant advancements in semiconductor technology, resulting in smaller, quicker and more dependable electronic gadgets. 

The little yet powerful semiconductor chip is also vital for the world economy. And chipmaking has lately become the new flashpoint in relations between the US and China. 

The global semiconductor business is undergoing a seismic upheaval because of the US' accelerated process of decoupling from Chinese technology. The two biggest economies seem to have engaged in a 'tech war' over microchips and other advanced technologies.

The United States traditionally held the lion's share of the worldwide semiconductor industry (37 % in 1990). However, its dominance has been steadily eroded by East Asian economies over the previous three decades. When compared to the US' 12% share of the global semiconductor manufacturing market in 2020, Taiwan (22%), South Korea (21%), Japan (15%), and China (15%) accounted for 73% of the market.

Even though the US does not have the greatest part of the worldwide semiconductor manufacturing market, it is home to a number of the most important semiconductor processing providers, such as Applied Materials, KLA Corporation and Lam Research. Moreover, while the US companies don't manufacture most chips, they are the ones who have almost all the patents.

In a move that may significantly escalate tensions between the two countries, the US Department of Commerce published its updated policy on artificial intelligence and semiconductor technology exports to China in October. 

The 139 pages of new export control rules established a de facto restriction on the exportation to China of the modern computer chips necessary for the operation of AI algorithms.

Because more than 95% of these chips used in China are designed and patented by American semiconductor firms and are thus subject to export regulations by the US, China's whole future as an AI giant is in peril if it loses access to chips made in the US.

Since artificial intelligence was the top technology aim outlined in the Chinese government's five-year economic plan for 2021-2026, this move makes it abundantly plain that the US intended to prevent China from accomplishing its top technical goal.

Over the years, China has been playing catch-up with the US in advanced technologies. Beijing has developed an ambitious initiative called 'Made in China 2025' to reorient its sectors and compete in areas like robotics, microchips, and self-driving automobiles.

As China's semiconductor market expands quickly, America is concerned about the implications for its national security of relying on Chinese processors and being exposed to Chinese cyberattacks. As long as America can deliberately stifle its companies, China's claims to be a superpower will appear false. China will eventually try their best to overtake its opponent, but America is determined to retain its lead.

As a preventative action, The Biden administration revealed a comprehensive set of export rules in recent months that prohibit Chinese firms from acquiring advanced semiconductors and chip-making machinery without a licence. The law also places restrictions on assistance that US people, such as Green card holders or US citizens may contribute towards the "development or production" of chips at specific Chinese industrial facilities.

In a recent study, Mark Williams and Zichun Huang, both analysts at Capital Economics, stated: "Chinese firms will lose access not only to advanced chips but to technology and inputs that might over time have allowed domestic chipmakers to climb the ladder and compete at the cutting edge." 

To address this, China may reduce exports of different electronic components, which would raise the price of a wide range of goods.

The US stance may also be detrimental to the global supply chain for all IT products. The Chinese government may impose export restrictions on lower-end chips, according to Christopher Gopal, a seasoned supply chain specialist who works at the University of Southern California. 

Even with the fastest timeline, it might take the US a minimum of two years to develop or buy in large quantities from allies. This would mean that "cars would go up in price, and down in functionality".