Chip War: The Fight for the World’s Most Critical Technology

In contrast, China’s principal chip manufacturer, the Semiconductor Manufacturing International Corporation, is constrained by the country’s centralised and state-driven policies, which seem unlikely to be loosened anytime soon. Without access to advanced innovations, SMIC will be hard-pressed to catch up.

The strategic significance of microchips has long been underrated. In 2018, as US President Donald Trump was escalating his trade war with China, the question of sanctioning the Chinese telecommunications company ZTE came up. In negotiations to have earlier sanctions lifted, ZTE had provided US officials with false information, aggravating Commerce Secretary Wilbur Ross, who wanted to restrict US firms’ ability to sell to ZTE. The restrictions would have cut off ZTE’s access to American semiconductors, leading to the company’s eventual collapse.

As a traditional ‘trade warrior’, Trump saw the issue as a way of gaining leverage over Chinese leader Xi Jinping. When Xi proposed a deal, Trump agreed to help keep ZTE in business. Eventually the firm paid a hefty fine in exchange for regaining access to US suppliers. Trump patted himself on the back for winning a battle in the trade war, but in fact his decision demonstrated just how poorly he—and parts of his administration—grasped the significance of the emerging technology war.

The US, under President Joe Biden, has since woken up to the magnitude of the challenge. In October last year, the administration effectively banned trade with China in advanced semiconductor technology, manufacturing equipment and the related human resources. It also prohibited foreign companies from exporting microchips that incorporate US technology. The move is widely seen as being designed to choke China’s semiconductor industry. China has already taken the matter to the World Trade Organization. And these are just the first salvos in what looks set to be a long and acrimonious conflict.

Russia’s war of aggression in Ukraine is a stark reminder of the vital role played by semiconductors. As Russia’s munitions stocks dwindled, its heavy dependence on microchip imports quickly became an Achilles’ heel. Had Russia been able to access more semiconductors, the situation in Ukraine today might look very different.

Miller also reminds us how easily a conflict in Taiwan could disrupt the global chip industry. This would not require a D-Day-style amphibious assault. A partial blockade and a single missile hit on TSMC’s most advanced production facility would be enough to halt supply chains. The cost of the knock-on damage could run to hundreds of billions of dollars, sending shock waves around the globe.

Miller’s book is timely, well researched and written for the generalist. Chip war is essential reading for anyone who would like to understand an issue that will be at the heart of geopolitics for years to come.

Robert Wihtol is an adjunct faculty member at the Asian Institute of Management and former Asian Development Bank country director for China and director general for East Asia.This article is published courtesy of the Australian Strategic Policy Institute (ASPI).