The year is 2024, and the world is on the brink of a new Cold War. The stakes are high, tensions are rising, and the battleground is the chip industry. The US and China are locked in a cutthroat race to dominate the semiconductor industry, the backbone of the modern world. From smartphones to missiles, everything depends on chips. Meanwhile, India is striving to join the chip race but faces numerous challenges and obstacles.
The chip war has its roots in the aftermath of World War II, when a group of American scientists invented the transistor, a device that could switch and amplify electrical signals. This breakthrough led to the creation of the microchip, a miniature circuit that could perform complex calculations and store information. The microchip unleashed a revolution in computing, communication, and electronics, that gave US a decisive edge in technology, economy, and security.
The US leveraged its chip advantage to win the Cold War against the Soviet Union, by developing superior weapons systems, such as precision-guided missiles, stealth fighters, and nuclear submarines. It also nurtured a vibrant chip industry, based on innovation, competition, and collaboration. US shared its chip technology with its allies and partners, such as Japan, South Korea, Taiwan, and Europe, who became major players in the chip market.
But soon, allies turned into rivals, and US faced challenges and threats from its chip competitors, who sought to catch up with or surpass the US in chip design and manufacturing. Japanese companies Fujitsu, NEC, Hitachi, Mitsubishi Electric, and Toshiba formed a formidable alliance, which developed 256K dynamic random-access memory (DRAM) in 1980, two years ahead of the US. They also excelled in the production of EPROMs, which is a type of memory chip that can be erased and reprogrammed. The Japanese semiconductor industry gained a significant global market share, especially in the memory chip segment, and challenged the US dominance in the chip industry.
The Korean semiconductor industry was born in the midst of the Cold War, when the government wooed foreign direct investment from US and Japanese companies, who set up factories to assemble low-tech, labor-intensive discrete devices. These devices were mainly used for consumer electronics, such as radios, TVs, and calculators.
In the late 1970s and early 1980s, the Korean government launched a bold and ambitious policy to develop strategic industries, such as steel, shipbuilding, petrochemicals, and semiconductors. The government showered subsidies, loans, tax breaks, and protection to domestic companies, such as Samsung, Hyundai, and Goldstar, who invested in cutting-edge technology, which enabled the production of more sophisticated and powerful chips, such as dynamic random-access memory (DRAM) and microprocessors.
In the mid-1980s and 1990s, the Korean semiconductor industry achieved astounding growth and innovation, by learning from and surpassing its Japanese rivals, and by focusing on quality, efficiency, and cost reduction. The Korean companies also capitalized on the global demand for memory chips, especially from the PC and mobile phone markets. They became a global leader in memory chips, and also ventured into logic chips, displays, and smartphones.
The US fought back by erecting trade barriers, investing in research and development, and forming strategic alliances, such as the Semiconductor Research Corporation and the Microelectronics and Computer Technology Corporation. But these measures were not enough to reclaim the DRAM market, as Japan kept innovating and improving its DRAM technology and manufacturing. By the mid-1990s, the number of major DRAM suppliers had decreased from twenty to just six.
And in the 2000’s US had conceded the DRAM race. Intel, Texas Instruments, Motorola, and Micron Technology were the last survivors on the battlefield who then retreated to wireless technology and other semiconductor devices, such as microprocessors, logic chips, and analog chips, which offered higher margins, more differentiation, and less commoditization than DRAM. The US also leveraged its strengths in software, systems, and services, which complemented its hardware capabilities. It became the leader of the wireless technology industry, which transformed connectivity, mobility, and social interaction. Microsoft and Apple were both born in the mid-1970s, as part of the personal computer revolution. US also developed satellite and fiber-optic technologies, which enabled global communication and broadcasting. Some of the prominent US companies in this industry are Motorola, AT&T, Verizon, and Qualcomm.
US also created and dominated various sectors that depended on logic and analog chips, such as entertainment, aerospace, and biotechnology. Some of the famous US companies in this industry are Texas Instruments (TI), Broadcom, Analog Devices, and Nvidia. TI today is the largest maker of analog chips.
Furthermore, by 1980s-90s Taiwan had become a key player in the US-Japan chip competition, as it turned into a hub for chip production and innovation. Taiwan benefited from the vision and leadership of several chip industry “godfathers”, such as Morris Chang, the founder of Taiwan Semiconductor Manufacturing Company (TSMC), the world’s first dedicated semiconductor foundry and now the largest and most advanced chip maker. Taiwan also received support and protection from the US, which recognized Taiwan as a crucial ally and a shield against communist China.
China, meanwhile, trailed behind in the chip industry, as it suffered from political turmoil, economic isolation, and technological backwardness. China relied heavily on importing chips from abroad, especially from the US and Taiwan, to power its growing economy and modernize its military. China realized that its dependence on foreign chips was a strategic weakness and a source of humiliation, and vowed to become self-reliant and dominant in the chip industry.
China launched a massive chip-building initiative in the late 1990s and early 2000s, by investing billions of dollars, attracting top talent, acquiring foreign firms, and stealing intellectual property. China also developed its own capabilities and alliances in chip design and manufacturing, such as Huawei, SMIC, and the China Integrated Circuit Industry Investment Fund. China aimed to challenge the US and its allies in the chip market, and to use its chip power to advance its geopolitical interests and ambitions.
The chip war intensified in the 2010s and 2020s, as the US and China clashed over trade, security, and human rights. The US accused China of unfair practices, such as dumping, subsidizing, and hacking, and imposed sanctions and restrictions on China’s access to advanced chip technology and equipment. China accused the US of hegemony, interference, and containment, and retaliated by banning or boycotting US chip firms and products.
The chip war also heightened the tension and uncertainty over the status and future of Taiwan, which became the epicenter and flashpoint of the US-China rivalry.
“Call forth the assault,” Xi Jinping declared. China’s leaders have identified their reliance on foreign chipmakers as a critical vulnerability. They’ve set out a plan to rework the world’s chip industry by buying foreign chipmakers, stealing their technology, and providing billions of dollars of subsidies to Chinese chip firms. The People’s Liberation Army is now counting on these efforts to help it evade U.S. restrictions, though it can still buy legally many U.S. chips in its pursuit of “military intelligentization.” For its part, the Pentagon has launched its own offset, after admitting that China’s military modernization has closed the gap between the two superpowers’ militaries, especially in the contested waters off China’s coast. Taiwan isn’t simply the source of the advanced chips that both countries’ militaries are betting on. It’s also the most likely future battleground.
The US reaffirmed its commitment and support to Taiwan’s security and democracy, and increased its military and diplomatic presence and cooperation in the region. The US also sought to strengthen its chip industry and supply chain, by boosting its domestic production, diversifying its sources, and enhancing its resilience. The US also encouraged its allies and partners, such as Japan, South Korea, and Europe, to join its efforts to counter China’s chip ambitions and aggression.
The chip war is additionally a war of light and shadow, it depends on the ability to project tiny patterns onto a silicon wafer, using a beam of light or electrons. A technique that requires the most precise and powerful machines ever created: the lithographic machines. These machines are the heart and soul of the semiconductor industry, the makers of the microchips that power the modern world. And the leader of these machines is ASML, a Dutch company that was born in 1984, when two giants of the chip industry, Philips and ASMI, decided to join forces and create a new company to develop the next generation of lithography systems. ASML has since become the largest and most advanced supplier of lithography machines in the world, and the only one capable of producing the most cutting-edge chips using extreme ultraviolet (EUV) technology. This was only made possible due to the most ingenious and innovative discoveries ever made like: the quantum dots.
And now in this war we now have a new contender — India. India was a newly independent nation in the mid-1970s, when the personal computer revolution began in the US. It had a mixed economy, with a large public sector and a small private sector. India also had a low level of industrialization, urbanization, and literacy. India faced many challenges, such as poverty, population growth, social inequality, and political instability.
India has been trying to catch up with the global technological and economic trends since then, by implementing various reforms, policies, and initiatives. India has a huge potential and opportunity to become a global semiconductor hub, and plans to leverage its market size, talent pool, innovation ecosystem, and policy support. India has a strong base of chip design companies, such as Wipro, HCL, and Infosys.
India has also announced several policies and initiatives to boost its semiconductor manufacturing capabilities, such as the to provide various incentives to attract domestic and foreign companies to set up semiconductor fabrication plants and production facilities in India. The Indian conglomerate Vedanta and the Taiwanese manufacturer Foxconn have also announced a joint venture to invest $19.5 billion in building semiconductor and display production plants in Gujarat. The US chipmaker Micron Technology has also announced that it will invest up to $825 million to build a semiconductor assembly and test facility in Gujarat.
For now no one knows the role India might play in the diversification of the chip war — will it be a friend or a foe, a leader or a follower, a winner or a loser?
The chip industry is at the mercy of a complex and global supply chain, which involves many steps, such as design, fabrication, packaging, testing, and distribution. Each step requires specialized equipment, materials, and skills, which are often concentrated in certain regions or countries. This means that any disruption in one part of the supply chain can have devastating effects on the entire industry, affecting the availability, quality, and cost of chips.
Chips from Taiwan provide 37 percent of the world’s new computing power each year. Two Korean companies produce 44 percent of the world’s memory chips. The Dutch company ASML builds 100 percent of the world’s extreme ultraviolet lithography machines, without which cutting-edge chips are simply impossible to make. OPEC’s 40 percent share of world oil production looks unimpressive by comparison.
The chip supply chain has faced several crises in recent years, due to various factors, such as natural disasters, geopolitical tensions, trade wars, and pandemic shocks. Some of the major crises include:
- The 2011 earthquake and tsunami in Japan, which ravaged several chip factories and disrupted the supply of silicon wafers, chemicals, and power.
- The 2016 earthquake in Taiwan, which crippled the operations of TSMC, the world’s largest chip foundry, and caused delays and losses for its customers.
- The 2019 US-China trade war, which imposed tariffs and restrictions on chip imports and exports, and cut off Huawei, a major chip customer and supplier, from accessing US technology and equipment.
- The 2020 COVID-19 pandemic, which caused supply shortages and demand shocks, as chip factories reduced their output or shut down, while chip demand soared for certain products, such as laptops, gaming consoles, and medical devices.
- The 2021 winter storm in Texas, which forced several chip plants, including Samsung, NXP, and Infineon, to halt their production, affecting the supply of chips for automotive, industrial, and consumer applications.
Moreover the chip industry also faces shortages caused by the rising demand for artificial intelligence (AI) applications.
According to Deloitte Insights the market for specialized chips optimized for generative AI is expected to be over US $50 billion in 2024. This sum is expected to make up two-thirds of all AI chip sales in the year. The total AI chip sales in 2024 are predicted to be 11% of the predicted global chip market of US $576 billion. However, the supply of these chips is limited by the capacity and capability of the chip manufacturers, who face challenges such as rising costs, technical complexity, and equipment scarcity. These crises have prompted the industry and the governments to take actions to mitigate them.
The chip war is far from over; it continues to rage and transform. This conflict demands strategy, innovation, and collaboration, pushing the limits and possibilities of both sides.
The chip war is the war of our time. It is the war of the century. It is the chip war. 🎬
Further Readings & References:
- Chip War: The Fight for the World’s Most Critical Technology — Chris Miller
- Trends in the Semiconductor history
- Japan’s chip development history relevant for China — Global Times
- THE KOREAN SEMICONDUCTOR INDUSTRY: HISTORICAL OVERVIEW
- ‘India has a big role to play’: New Delhi to turn the country into a chip powerhouse
- Quantum dot photolithography using a quantum dot photoresist composed of an organic–inorganic hybrid coating layer — Nanoscale Advances (RSC Publishing)
- Chip shortage: how the semiconductor industry is dealing with this worldwide problem | World Economic Forum (weforum.org)
- List of countries by silicon production — Wikipedia
- Global Silicon Wafer Shipment Growth to Bounce Back in 2024 After 2023 Decline, SEMI Reports | SEMI
- AI chip market | Deloitte Insights
