America's Shaky Semiconductor Supremacy Over China – Forbes
China and the US try to take Taiwan’s semiconductors. In the background a stylized electric board
Like China, the US sees AI as a key to both a military and economic power in the 21st century. Both Republicans and Democrats in DC are concerned about the rate of Chinese advancement. In fact, the running joke on Capitol Hill is that the only thing they can agree on is The Chinese Threat.
Toward this end, Congress recently passed The CHIPS Act and the Executive Branch has been implementing trade controls to deny technology that they believe are critical for developing AI in China. While this desire is rational, it is unlikely to work in the mid- to long-term, and it will only increase geopolitical tension.
The US strategy of technology relies on seven realities that, while true today, are unlikely to all be true tomorrow.
Semiconductors require one of the most complex supply chains in the world. While the governments in these regions are aligned with the US today, this may not always be the case. Many of the key chokepoints are in regions that do more trade with China than the US.
One of the primary chokepoints in China’s path to semiconductor advancement is access to cutting-edge photolithography technology and test equipment, particularly from ASML in the Netherlands. US negotiation around trade controls with the Netherlands required intense pressure — pressure that may not be possible in the future. In fact, Dutch politicians are already questioning the deal.
As China’s economic ties with Europe, especially Germany, deepen. These larger trade relationships could potentially lead to Europe reassessing its alignment with U.S. priorities. This could be accelerated it there are shifts in the U.S.’s European security commitments, such as a reduced presence in Ukraine or a scaled-back role in NATO — desires that current presidential candidates have intimated.
Such developments could lead to a realignment of economic and security interests between Europe and the U.S., with deep implications for technology containment of China.
Japan is the other key purveyor of semiconductor production and test equipment. Today, Japan’s strategic alignment with the U.S. is rooted in a deep-seated security alliance. Yet, Japan is becoming less reliant on the US Navy for security.
If the United States limits its commitment to other security partners, Japan may well prioritize its economic interests over its security alliances. The US is a significantly smaller trade partner than China, which already exceeds a quarter of Japan’s total trade. This ratio will likely become more stark in time.
Beyond these key chokepoints, there are a number of questionable assumptions that must continue to be true for the US to sustain its technology dominance:
Taiwan’s semiconductor prowess is a linchpin for the industry, but like Japan, it must do a delicate dance of strategic alignment to balance its largest trade partner, China, and the U.S.
Xi has directed that the Chinese military be able to invade Taiwan by 2027. Today, the invasion of Taiwan and the ensuing destruction of its semiconductor facilities would be a disaster for all nations. As China nears parity with technologies the US and its allies have denied it, the destruction of Taiwan may have a far greater impact on the United States and Europe than itself.
The current technological superiority of U.S. and Taiwanese semiconductor production, especially in cutting-edge chips, is a significant factor in the global power balance. However, the slowing of cutting-edge manufacturers ability to increase transistor density — the end of what has become known as Moore’s Law — creates an opportunity for China to narrow the gap.
While it’s said that the west has a decade plus lead, a couple of the right break throughs could change the dynamic. China continues to progress as an innovator, as exemplified by the 7 nanometer chip in Huawei’s new phone. This ability to bring product from lab to market could change the race for technological dominance.
Today, Samsung, Intel, and TSMC lead in next-generation 3D semiconductor technologies, but Chinese competitors like SMIC are skilled fast followers.
These are the most complex devices ever built and there is no guarantee that non-Chinese companies will successfully scale up production. If increasing complexity and cost causes technological progress to slow, the leap may not be as vast for a government funded player, offering Chinese firms a more attainable target.
If the West sustains its lead on the highest end chips, in many applications, China will be able to make up for the shortfall by using a larger volume of less energy efficient equipment.
Generating a single image in Midjourney consumes as much electricity as charging your smartphone. A typical ChatGPT session requires 16 oz. (500ml) of water to cool the servers.
By 2030, data centers, the lifelines of AI, are expected to use at least as much electricity as the country of Argentina, possibly far more.
It will be difficult for America and its allies to power these data centers without Chinese support. China produces ¾ of the world’s solar cells and is the first to market on 4th Generation Nuclear technology.
The U.S. is highly reliant on Chinese companies for materials that are vital for semiconductor production, like gallium and germanium. Resource decoupling is hard. It will take over a decade if it is possible at all, according to Jensen Huang, founder of NVIDIA. This is a potential chokepoint for US semiconductor production and China has already started to put export controls on key materials.
The most obvious response of Western countries is to deny access to advanced refinement capabilities that the Chinese depend on. As long as this remains a trade dispute both the US and China may be able to move their efforts forward, just at a slower pace. If tensions accelerate, broader denial of strategic resources could be devastating for both countries.
Giant panda bear baring its teeth, eating bamboo
Given this level of uncertainty about how the future will play out, and the likelihood of eventual near technological and economic parity, it seems unwise for the US to seek conflict. The memories of the wronged are long.
This sort of short-sighted nationalist agenda echoes the decisions that drew the US into conflict with Japan and sucked it into WWII.
In the 1930’s and 40’s, the US engaged in tactical resource denial with Japan to slow its expansion. Japan saw this as a strategic threat and responded with the bombing of Pearl harbor. Much as Japan did, China will take the actions it deems necessary to thrive.
Unlike 1940 Japan, China’s challenge today is that its economy is over productive. Japan is an island country, but China’s lands and mineral resources are vast. If there is an escalation, its capabilities, resources and economy will continue to grow.
Treating China as a strategic threat, instead of a strategic peer, is a shortsighted approach to statecraft. We share a small planet and limited resources. While the US should assert its right. It’s foolish to limit strategic cooperation and increase rivalry. Our world depends on it.
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