The Biden administration has introduced sweeping new rules that would severely limit China’s ability to make semiconductor chips — the tiny devices found in every tech gadget from cell phones and video games to spaceships and military missiles. The goal is to hurt China’s tech and military progress, and boost the U.S.’ semiconductor manufacturing.
The U.S. government is thinking about this in the context of war, says Chris Miller, an economic historian at Tufts University and author of “Chip War: The Fight for the World's Most Critical Technology.”
“When you think about the future of warfare, autonomous drones or advanced electronic warfare systems, all of them will be critically dependent on access to advanced chips and the computing power that they enable. And the U.S. government believes that now more than ever, it's important to increase the gap in terms of the technology that the U.S. has access to and the technology that China does.”
He says that right now, China spends more money importing chips — mostly from the U.S., Korea, or Taiwan — than oil. But it’s also heavily trying to domesticate its own chip-making industry.
One part of Biden’s regulation restricts the transfer of advanced chips to China, particularly those used in artificial intelligence in data centers, he explains. Another halts the transfer of chipmaking equipment, which is capable of producing billions of tiny circuits, to China.
Miller notes that five companies predominately manufacture chip-making machines — three are in the U.S., one is in the Netherlands, and one is in Japan.
“China's got a lot of work to do to even catch up anywhere close to the cutting edge in … the chip-making industry — unless they can buy these tools from abroad, and right now that's looking very unlikely.”
He notes that this is the most complicated manufacturing today. “Even if you were to copy the blueprints or hack into the systems, there's really really complex knowledge that the engineers who have built these have that simply can't be straightforwardly copied.”
Taiwan plays a key part too.
“The U.S. has a really strong position in the software and the tools that make chips. But in terms of actually using these tools in a factory to churn out the most advanced chips, the Taiwanese are second to none. Today, 90% of the most advanced processor chips can only be made in Taiwan — that chip in your iPhone, for example, or on a third of PC processors. Most of the chips designed for artificial intelligence applications and data centers, these chips can only be made in Taiwan. And so if something were to go wrong in Taiwan, or the Chinese were to attack, it would have massive consequences, not only for the tech sector, but actually for the entire global economy, the cost will be measured in the trillions of dollars.”
Miller says China will build more ships and missiles than the U.S., so Biden wants to ensure we have smarter missiles that can be guided more accurately, communicate more effectively, and have more advanced sensors. “All of that means we've got to keep our advantage in semiconductors.”
To help, Biden has signed into law the CHIPS and Science Act, which provides new incentives for building advanced semiconductor facilities in the U.S.
He says chip-making shifted to East Asia over the past decades partly because governments there offered generous tax incentives, looser regulation, and more access to land and electricity.
“It’s just been easier and cheaper to build chip-making facilities in Asia, not because labor costs are different, just because of the government regulatory approach. And now that's going to start changing.”