WHY CHINA IS LOSING THE MICROCHIP WAR

WHY CHINA IS LOSING THE MICROCHIP WAR…

In 2012, Zongchang Yu left his job at ASML. ASML is the only company that makes a special machine for advanced semiconductor chips. After leaving ASML, Yu started two new companies, one in the US and one in China. US lawyers later claimed that Yu recruited other ASML engineers for his US company. They said these engineers brought stolen information about ASML’s machine. They believed the Chinese government supported this. This situation is part of China's effort to improve its semiconductor industry. However, this effort has created tension with the United States. It's not just about money or tariffs. It's about security.

So how did China and the US get into a conflict over computer chips? The first semiconductor chip was created in the 1950s in the US. It was a silicon piece with four transistors. More transistors mean more power. By 1960, engineers created a chip with four times more transistors. Since the early 1960s, chips have been getting better very quickly. Chris Miller, who wrote Chip War, mentions that Gordon Moore predicted in 1965 that chip power would double every year. This has been true for many years.

In the beginning, US chip companies only had one main customer: the US government. These chips were used in NASA's spacecraft and missile systems. The US government believed that strong partnerships with chip companies would keep it in the lead. Many reviewed history notes on how computing helped in wars and spying. They thought this was vital for national power.

Initially, chip companies managed every part of chip-making in the US. But by the late 1960s, they sought profits in civilian markets. They moved manufacturing to Japan, Taiwan, South Korea, and Hong Kong, where labor was cheaper. The US government encouraged this to build stronger economic ties. At the same time, it prevented sharing technology with rivals like the Soviet Union and China. The goal was to keep those countries behind the US in chip development.

Soon, allied nations started creating their own chip companies. By the 1970s and 80s, companies like Toshiba and Samsung began making competitive chips. In the 1990s, TSMC from Taiwan became so good at making chips that US companies stopped manufacturing them. This meant that the US was no longer the sole producer of advanced chips. All nations became dependent on each other for materials and technology.

Meanwhile, China struggled with chip production. The US blocked China from accessing chips during the Cold War. Many skilled Chinese scientists and engineers left the country due to Mao Zedong’s regime. But new leaders in China sought to catch up in the 1990s. The Cold War ended, and the US became friendlier with China, lifting many export controls. Consequently, many chip companies moved their operations to China. By the 2000s, China became a major player in assembly operations.

However, China relied heavily on imports for its chip industry. The Chinese government realized it could not keep depending on other countries for chips. So, they invested heavily in local design and manufacturing companies. China wanted a self-reliant chip supply chain. They managed to produce some older chips on their own. However, they were still years away from producing the most advanced chips.

China learned to design chips with many transistors, but none matched the highest technology. Only a few companies worldwide make advanced chips, and none are in China. Three American companies make the necessary software, but only ASML produces the machine needed to create chips. This machine needs other US-made equipment. Taiwan and South Korea are the only nations capable of assembling the most advanced chips. As a result, China was heavily dependent on these countries.

In 2019, US police tried to arrest Zongchang Yu but couldn't find him. Eventually, he became a CEO of a company producing similar software to ASML's in China. With support from the Chinese government, his company thrived. Yu's story illustrates broader issues of intellectual property theft in the chip industry. The Chinese government has shown varying levels of support for such actions, knowing that their tech industry is weaker. They tried to copy critical technology, but the plan did not go as intended. This angered the US and its allies and changed the view of Chinese subsidies from economic concerns to security issues.

In recent years, tensions between the US and China have risen. There were accusations of market distortions and intellectual property theft. In 2018, the Trump administration banned US sales to the Chinese company ZTE. In 2019, Huawei faced similar restrictions, which almost led to its collapse. The Biden administration further targeted China’s chip industry. It banned all advanced chip sales to China, blocking the use of American technology for Chinese companies.

These actions represented a shift in thinking about trade with China. The US government began investing heavily in its chip manufacturing and partnered with TSMC to build plants in the US.