January 27, 2023

Eureka News

All the News All the Time

The great chip war – and the challenge for global diplomacy

On December 6, US President Joe Biden met with Morris Chang, founder of Taiwan Semiconductor Manufacturing Company, in Arizona for a symbolic “tool-in” ceremony to mark the chipmaker’s latest investment in a new factory in the US mark USA.

Chris Miller couldn’t have asked for a better way to show the timeliness of his book, Chip War. On the eve of Biden’s Arizona visit, Miller won the Financial Times Business Book of the Year award. His book is a cutting-edge history of the evolution of the semiconductor and how TSMC and a few other manufacturers came to dominate the world’s supply of advanced microchips.

Chang and Biden performed in Arizona alongside the CEOs of Apple and Nvidia, two of TSMC’s largest customers. “Companies like TSMC are faced with several reasons to rethink supply chain geography. And it’s not just politicians they call. . . but also their customers,” Miller told the FT this week.

Taiwan sits on geopolitical and seismic fault lines. Until recently, companies trusted that seamless globalized networks would underpin their chip supply. But boards of directors are suddenly concerned about “Taiwan risk.” They consider the possibility of a military confrontation between the US and China and grapple with the implications of a trade war over chip development and supply.

Academics call this situation “armed interdependence,” in which, writes Miller, “rather than defusing conflict and fostering cooperation,” the intertwined interests of economic powers create “new places for competition.” Encouraging more investment in local chip manufacturing, as the US, China and the EU are trying to do with subsidies and tax breaks, is one way to offset these risks.

That wasn’t the “unexamined assumption” with which Miller began work on his book five years ago. He believed the risk of “mutually assured economic destruction” would deter superpowers from using their position in the chip supply chain to pressure each other. “And then, over the five years that I’ve been writing it, it seemed like every day I was reading the Financial Times and a new horrible data point came along that suggested that wasn’t the case.”

For example, the pandemic had a whiplash effect on demand for chips used in automotive and other industries, creating shortages and underlining reliance on manufacturers like TSMC, South Korea’s Samsung. Russia’s invasion of Ukraine has undermined expectations for geoeconomic stability. In October, just as the chip war was hitting bookshelves, the US imposed export controls on China to slow its attempt to become self-sufficient in manufacturing advanced semiconductors.

Miller explains the key difference between the mutually assured destruction concept that kept nuclear peace during the Cold War and the economic version. “There is a very clear threshold for using nuclear weapons. [The weapons] are either used or not used, while in the realm of economic interdependence there is no threshold for it [shows] You have crossed the line. And indeed, there are many different boundaries that you can cross.”

An economic historian specializing in Russia, Miller first examined the rift that opened up between the US and Soviet militaries in the 1980s, in part due to the former’s semiconductor superiority. He changed the focus of his work when he realized that “the key technology that made possible the military systems that convinced the Soviets they had lost the arms race was also the key technology that structures today’s US-China competition.” . The fact that China spent more money importing chips than it did oil — a data point so startling that an incredulous Miller downloaded it from the United Nations trade database several times to verify — cemented his interest, though he deep technological knowledge began with no.

The great chip war – and the challenge for global diplomacy

But Chip War is more than a geopolitical and technological story. It’s also the story of notable innovators and entrepreneurs, like Chinese-born Chang, who fled to the US via Hong Kong and rose through the ranks at Texas Instruments, a pioneer of early chip technology. Chang proposed the world-changing idea of ​​a chip “foundry” in the 1970s that would make semiconductors for multiple customers. TI rejected the plan and later thwarted Chang’s ambitions to become CEO. As a result, in 1985, he was lost when the Taiwan government called and gave him a blank check to develop his foundry idea there. The success, sophistication and sheer size of his creation TSMC is now difficult for competitors to match.

Miller wonders what would have happened if Chang had instead become TI’s chief executive. “I think it’s easy to imagine how TSMC could do that [by now] stand for Texas Semiconductor Manufacturing Company,” he says. Another missed opportunity, Miller says, was US chipmaker Intel’s failure to build on its success in semiconductor innovation under another US immigrant, Andy Grove, its CEO. “Intel has been too powerful for too long and didn’t take some of the risks it had to take,” Miller claims. “For example, missing the smartphone, missing the early days [artificial intelligence] Industry change, and I think it’s missing a bit of the paranoia that made Grove such an effective, if frightening, manager.”

Companies like TSMC are faced with several reasons to rethink supply chain geography. And it’s not just politicians they call. . . but also their customers

Miller, associate professor of international history at Tufts University’s Fletcher School of Law and Diplomacy, places great emphasis on the importance of often underappreciated skills such as: They were just as important in the race to secure semiconductor supremacy as the original breakthrough innovations or the government support that encouraged them, he suggests.

As an example, he cites ASML, the Dutch manufacturer of highly complex chip-making tools. “They describe their job as managing a complex supply chain,” says Miller, which also includes sourcing parts from other manufacturers. “They are brilliant engineers. But in a way, the real brilliance actually lies in assembling components that, if you put it that way, sound like little added value.” In fact, ASML’s assembly expertise offers tremendous value: the company’s extreme ultraviolet lithography machines for etching the most advanced chips include Hundreds of thousands of precision parts cost $100 million each, according to Miller.

If anything, Miller says, over the past five years he has become less optimistic about how the world will reconcile the overlapping and sometimes conflicting interests of customers, manufacturers and governments when it comes to semiconductors.

In trying to increase pressure on China over chips, the “fundamental problem” for US politicians is that “our main customer [China] is our number one competitor”. Miller says the Biden administration’s biggest challenge in chip diplomacy is convincing its allies that it can “strike a balance between security considerations and economic considerations” when “there are voices on both sides on this issue — people, who are more concerned about security, people who are more concerned about maintaining open markets.”

It’s possible, says Miller, that the risks of economic self-immolation will keep the peace between China and Taiwan and between the US and China, but “if you ask me how confident I am about that, I don’t see much reason to be too optimistic.” “