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The “Semiconductor Wars”: Why China and the US are Fighting Over Chips

China and the United States have been engaged in a trade war for years, with both countries imposing tariffs and trade barriers on each other’s goods. However, in recent months, the focus has shifted to the semiconductor industry, with the US moving to block China’s access to the most advanced semiconductors and the equipment and talent needed to make them, citing national security concerns.

China has dismissed these concerns and accused the US of “technological terrorism” and unfairly hindering its economic growth. As a result, China has sought to counter the US containment measures, which has led to what some are calling the “semiconductor wars.”

So, why are semiconductors so important? Microchips are the lifeblood of the modern global economy. The tiny slices of silicon are found in all types of electronics, from LED lightbulbs and washing machines to cars and smartphones. They are also critical to core services such as healthcare, law and order, and utilities. Globally, semiconductors are forecast to become a $1-trillion industry by 2030, according to a McKinsey report published last year.

Nowhere is the essential nature of semiconductors more visible than in China, the world’s second-largest economy, which relies on a steady supply of foreign chips for its huge electronics manufacturing base. In 2021, China imported semiconductors worth $430 billion, more than it spent on oil.

So, why is the US targeting China in this way? Beyond iPhones, Teslas, and PlayStations, the most potent chips are crucial to the development of advanced technology such as artificial intelligence, as well as cutting-edge weapons, including hypersonic missiles and stealth fighter jets.

Washington imposed a series of export controls last year, saying they were meant to prevent “sensitive technologies with military applications” from being acquired by China’s armed forces and its intelligence and security services. The Dutch government followed suit in March this year, citing national security while imposing controls on foreign sales to prevent military use.

The same month, Japan unveiled similar measures aimed at preventing “the military diversion of technologies.” The restrictions target the most advanced chips and chip-making tech that can be used for, among other applications, supercomputers, high-end military equipment, and AI development.

The production of chips is fiendishly complex and typically spans numerous countries. However, many stages depend on US inputs, while the other major players are Japanese companies and the Netherlands’ ASML, which dominates the production of lithography machines that print patterns on silicon wafers. This gives the trio an outsized influence on the global semiconductor industry.

“It will take years for China to develop domestic alternatives that are equally capable of the tools it is losing access to,” Chris Miller, author of “Chip War: The Fight for the World’s Most Critical Technology,” told AFP. “If it were easy, Chinese firms would already have done it.”

Chinese chip companies stockpiled components and machines ahead of US export controls in October last year to soften the blow. However, one major chip firm told AFP that once that inventory runs out or needs repairs, the controls will start to hurt. Some Chinese companies that were suddenly left unable to guarantee access to chips saw lucrative foreign contracts evaporate, forcing them to slash jobs and freeze expansion plans.