The U.S. and China are in a 'new Cold War' — with chips at the center – Quartz
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For five years, the United States has wielded its trade and sanctioning powers to curb China’s advanced chipmaking efforts — and the situation has become a Cold War between the two nations, arguesthe first national security analyst to predict the Ukraine-Russia conflict.
In his new book World on the Brink, Department of Homeland Security adviser Dmitri Alperovitch argues that China is readying to invade Taiwan by the end of the decade, and the U.S. and its allies face dire consequences if the takeover is not stopped. “The estimates are that an invasion scenario over Taiwan would bring down the world economy to global depression, potentially wiping out as much as $10 trillion worth of economic value,” he tells Quartz. “[W]e should do whatever is possible to avoid it.”
Alperovitch was one of the first analysts to predict that Russian president Vladimir Putin would invade Ukraine three months before the war began — and says it’s just one stop in a modern day Cold War between the U.S. and China. He also sees an analogue further east: The causes of Russia’s invasion of Ukraine and China’s possible invasion of Taiwan “are very similar,” Alperovitch said.
And the very fate of the semiconductor industry could rest on the tiny island. Taiwan is home to the world’s largest semiconductor foundry, Taiwan Semiconductor Manufacturing Company (TSMC), which is estimated to produce 90% of the world’s advanced chips. A Chinese invasion risks China taking control of TSMC — securing it unbridled access to the valuable chips, and therefore the upper hand in the technology war developing between the country and the United States.
Alperovitch spoke with Quartz about China’s chip ambitions amid what he calls Cold War II, and offered his insight into what the U.S. should do to prepare ahead.
Technically no country in the world can make its own advanced chips alone, since no one country houses the entire semiconductor supply chain. Chip production includes a design process in the U.S., “printing” the chips with extreme-ultraviolet lithography machines made only in the Netherlands, integrating chemicals largely manufactured in Japan, and making use of chip fabrication sites (known as fabs) in Taiwan and South Korea, Alperovitch explained. Plus, advanced chips require putting tiny transistors on a silicon wafer, which is difficult enough.
“For China to reproduce that entire supply chain in-country is extraordinarily difficult, and will take many, many years — well over a decade, if not more,” Alperovitch said.
China, like other countries in the supply chain, are dependent on imports and technology from those countries to be able to produce chips, he added. “The United States woke up to this problem a couple of years ago, and it has started export controls — particularly on equipment — and convinced the allies to do the same, to deny China the ability to import the equipment they need to make chips. They’re trying to build their own equipment, but it is literally the most sophisticated equipment that man has ever built. Will they get there one day? Probably. Will it be anytime soon? No,” he said.
Alperovitch says the U.S. needs a “four-pronged approach to China” in the event it invades Taiwan. First, the U.S. needs to deny China the ability to produce chips, which it can do for the foreseeable future by denying China the ability to purchase, maintain, and operate equipment from the U.S., along with Japan and the Netherlands.
Second, Alperovitch says the U.S. should tell China that in the event of an invasion of Taiwan, China would not be able to take control of TSMC’s fabs — whether or not the U.S. decides to become involved. “There are numerous ways in which you can do that,” Alperovitch said, including sabotaging TSMC’s equipment, or stopping the maintenance and future sales of equipment and chemicals to those fabs if they are taken over.
The third step is diversifying chip supply and reducing overall reliance on Taiwan — but not eliminating it. Alperovitch said this is already happening with the U.S. CHIPS and Science Act, and other similar acts around the world.
Finally, the United States would have to convey to China that in the event of an invasion, it will not be able to buy chips from anywhere in the world. That also comes with a precedent: The United States has used a similar export control, the Foreign-Direct Product Rule, on Russia. That rule denies the export of any good to any country if it is manufactured with a certain percentage of U.S. intellectual property components. “Because every single semiconductor is produced in part with U.S. equipment, U.S. designs, and so forth, every U.S. chip in the world falls under the foreign direct product rule,” Alperovitch explained.
According to Alperovitch, the Biden administration’s U.S. CHIPS and Science Act is accomplishing its key goal to bring advanced chipmaking stateside. But it’s fomented unintended benefits, too: The act “stirred up a chips race all over the world,” he said. Once the United States began giving grants and incentives to chip development, nations like Japan, South Korea, and others in the European Union followed suit to stay competitive.
That’s ushered in a lot of money to the U.S.’s cause. This leg of the chips race has generated an estimated $1.2 trillion of public and private-sector commitments to chipmaking outside of China, Alperovitch said.
“The more capacity we build outside of China, and frankly, outside of Taiwan, the better off we’ll be in reducing China’s ability to threaten us, and reduce our dependence on China,” Alperovitch said. “It doesn’t all have to be here. If it’s in Europe, if it’s in Japan, if it’s in [South] Korea, if it’s in Singapore, that’s just fine. And that is producing more benefits than many people realize.”
Alperovitch says his work attempts to define a strategy for the U.S. amid the new Cold War with China, emphasizing that technology is an essential U.S. security interest. While it starts with deterring an invasion of Taiwan, Alperovitch says the United States’ strategy needs to look ahead to an ongoing relationship with China — not a war, and not a stalemate. The tech race, he says, continues on from chips and AI to space technology, biotech, green energy, and critical minerals.
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