Why semiconductors are central to world economy, geopolitics

For years, semiconductors have been crucial to everything from fridges to ballistic missiles

The Chinese Communist Party Congress opens in Beijing on October 16, a week after Washington imposed tight restrictions on exports of invaluable semiconductor technology to China in a bid to stop it from surpassing the US economically and militarily. As semiconductors emerge as a key battleground, FRANCE 24 spoke to the author of a new bestseller on these all-important pieces of silicon.

For years, semiconductors have been crucial to everything from fridges to ballistic missiles. But only recently have they captured public attention.

Washington demonstrated the US semiconductor industry’s almighty power in 2018 when Donald Trump’s Commerce Department banned Chinese telecoms firm ZTE from buying chips designed in the US. These measures nearly drove the company to collapse before the erratic then-president reversed the measure.

But semiconductors only came to dominate the headlines in early 2021. A constellation of factors – notably Covid lockdowns warping consumer demand – sparked a chip shortage crisis, which pushed up inflation and caused shortages of goods from cars to mobile phones.

Now the spotlight is on semiconductors once more ahead of the Chinese Communist Party Congress, after President Joe Biden’s Commerce Department unveiled on October 7 sweeping new measures curtailing US exports of semiconductor technology to China. This was part of Biden’s response to President Xi Jinping’s plans to wean China off US-designed chips and make it a world leader in the sector.

To look more closely at how semiconductors rose to the forefront of international economics and politics, FRANCE 24 spoke to Chris Miller, author of the recently published bestseller "Chip War" and associate professor of international history at Tufts University, visiting fellow at the American Enterprise Institute and Eurasia Director at the Foreign Policy Research Institute.

What are semiconductor chips and how did they become so central to the world economy and daily life?

Semiconductors are small pieces of silicon with millions and billions of tiny circuits carved into them. These circuits provide the computing power inside almost any device with an on-off switch: smartphones, computers, datacentres, automobiles and dishwashers.

The typical person will interact with dozens if not hundreds of semiconductors each day, though we almost never see them.

How important was the US’s advantage in semiconductors to its victory in the Cold War?

The US advantage in computing was crucial. From the earliest days of the missile race, the Pentagon was fixated on applying computing power to defence systems. The first major application of chips was in missile guidance systems, but today they are used in everything from communications to sensors to electronic warfare.

Just as the typical person will interact with dozens of chips each day, militaries are crucially reliant on chips' processing power and signals processing capability. What’s more, as militaries begin to experiment with increasingly autonomous systems, they’ll be even more reliant on advanced chips.

How did Taiwan – specifically the Taiwan Semiconductor Manufacturing Company (TSMC) – come to nearly dominate chip manufacturing? And what would happen to the world economy if TSMC’s facilities in Taiwan are damaged in war?

TSMC is the world’s most advanced maker of processor chips, thanks to its enormous scale and extraordinary manufacturing precision. Today, TSMC produces 90 percent of the most advanced processor chips, which go into everything from smartphones to PCs to datacentres.

If a war were to knock their production offline, the cost to the global economy would be measured in the hundreds of billions of dollars.

In Europe there’s this perception that we are behind when it comes to high-tech industries, but Dutch company ASML is the big exception to this. How did it come to play an invaluable role in chip manufacturing?

ASML produces the machines without which advanced chips can’t be made.

ASML’s specialisation is in lithography, and it has 100 percent market share in the production of the most advanced lithography machines. It has honed these capabilities over many years and today is a critical supplier to companies like Samsung, TSMC and Intel.

Do you think China has what it takes to match or supersede the US when it comes to semiconductors?

For several years now, Washington has been worried about the national security implications of China catching up in the semiconductor business, especially in light of Xi Jinping’s Made in China 2025 initiative making chips a top priority.

China has been investing many tens of billions of dollars into government chip-development programs. These programmes have delivered substantial progress in some spheres, notably chip design.

However, across the board, China remains far behind capabilities in the US, South Korea or Taiwan in terms of fabricating chips. In addition, all chip fabrication in China today relies on machine tools imported from abroad, largely from the US, the Netherlands and Japan.

Do you think President Joe Biden’s plans to bring more chip production back to the US are a good idea, given the security implications of the overwhelming majority of manufacturing of advanced processor chips being based in Taiwan?

Today 90 percent of the world’s most advanced processor chips are produced in Taiwan. Given China's growing military might and Xi Jinping’s aggressive nationalism, this is a risk to the global economy that has grown too large.

Efforts to diversify the geography of advanced chipmaking are a smart move from this perspective. This explains why the US, Japan and Europe are all trying to bolster their countries’ position in the semiconductor supply chain.