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Chip War: Inside the US Bid for Chip Supremacy

By Meng Zhe and Xu-Pan Yiru | chinadaily.com.cn | Updated: 2023-02-08 17:11

"Chocolate, you're pardoned. And so are you, Chip." The US president Biden joked at the event that "we could have named them Chips and Science", after signing the $280 billion CHIPS and Science Act into law in 2022.

Semiconductors, or chips, are basically the foundation of modern life. Virtually everything from missiles to microwaves, fighter jets to refrigerators, smartphones to the stock market, run on semiconductors. "The chip war is another form of warfare by the US, like the many oil wars the US has launched in Iraq and Afghanistan, but without firearms." China Daily Media Unlocked Studio reporter Meng Zhe commented.

In the 1960s, the US chip companies started offshoring some production to Asia. Japan became the Asian factory for American chip designers. But in the 1980s, American businesses found themselves under siege, because Japanese electronics companies (like Hitachi and Fujitsu) could make memory chips faster and cheaper than US companies.

The US launched a trade war with Japan. And the US picked China's Taiwan and South Korea as substitutes. They overtook Japan to become the world's leading chipmakers. In 1990, 37 percent of the world's semiconductors were made in the US, now the US market share is down to 12 percent.

America is caught in a bind — being strong in design but far behind in manufacturing. During the same period, China's share of the sector rose from almost zero to 15 percent. That was an unexpected development. The US has started to take action similar to what it did to Japan in the 1980s.

A set of regulations came out. The CHIPS Act and export control rules. From $52 billion in industry subsidies, and an investment ban on China, preventing China from acquiring advanced semiconductors and equipment.

But here is a report from the American consulting firm BCG saying "Restricting trade with China could end US semiconductor leadership". The consequences go far beyond ending US semiconductor leadership, "The United States, Europe, Japan, South Korea, and China, each country has an advantage on some point of the supply chain. If you remove one country or area, it will have a serious impact on the entire supply chain", Gartner VP analyst Roger Sheng told Media Unlocked Studio.

Design, front-end fabrication, back-end assembly, testing, and packaging are main stages. It takes more than 1,000 processes for a single chip to get into your iPhone. The complex and expensive processes of making chips led America to offshore its production in previous decades. $52 billion looks small when it is compared with the trillions of dollars involved in creating a self-sufficient semiconductor supply chain. It runs contrary to the capitalistic impulse to find the most cost-efficient suppliers.

"There is no single country that can really realize self-sufficiency for the semiconductor product supply. Globalization is the key factor, to support the semiconductor industry growth in the past 30 to 40 years." Sheng Added. TSMC founder and former CEO Morris Chang expressed similar idea in October, "If you want to reestablish a complete semiconductor supply chain in the United States, you will not find it to be a possible task."

The chips ban will have devastating consequences, but why does the US want it?

Here's who will really get rich from the chip ban: CEOs of US chip companies, politicians in Congress, and arms dealers.

Patrick Gelsinger from Intel, Cristiano Amon from Qualcomm, and a group of CEOs formed the Semiconductor Industry Association to facilitate lobbying on the CHIPS Act. The top US chip companies have spent about $20 million during the first half of 2022 alone.

Intel Corp shelled out a record sum of $2 million during the third quarter in 2022 to deploy lobbyists to Capitol Hill, the Pentagon, the Commerce Department, and President Biden's office. That's roughly double the sum Intel spent during the same period in 2021. Intel is expected to be the biggest beneficiary of the Act, raking in up to $15 billion. Media Unlocked Studio obtained a secret file of Charles Schumer's lobbyist contributions. Look at Allen Thompson, Intel's vice-president of US government relations. The name we also see in the filing. The senate majority leader who was leading the passage of the CHIPS Act is favored by K Street. More than three dozen of his former aides reportedly work at lobbying firms. "In other countries, it would be described as bribery and corruption, but in the US they call it lobbying." Meng Zhe pointed out.

Arms dealers also celebrated the passage of the act. In a recent blog post, the Center for Strategic & International Studies, said that US defense depends on semiconductors and should take on the challenge from China in the semiconductors sector. Why bother countering China when China's technology is lagging behind? If we take a look at who pays their bills, it will give us a clue: CSIS is funded largely by arms dealers such as Raytheon, Boeing, Northrop Grumman, and others.

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