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US v China

The US China chip ban signals a new geopolitical era

While war in Ukraine, inflation and political chaos in Britain have dominated the headlines, relations between the US and China have cooled to the point where the great supplier of everything is increasingly seen as a threat, says Jason Walsh
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Shutterstock via Dennis

20 October 2022

While all eyes are on Russia, the US government has made a move that suggests that, in the long term, the country sees China as its chief geopolitical rival, and technology is at the centre of the storm.

Earlier this month, the US Department of Commerce tightened export controls controls on chip-making processes, notably on cutting-edge 3nm processes. In addition, 31 Chinese companies have been placed on an “unverified” list, including Yangtze Memory Technologies Company, and may go on to form the basis for an even stricter ban.

Interestingly, while the move has attracted a fair amount of attention from US media, particularly the business press, European eyes appear to be elsewhere. This is not particularly surprising given the febrile atmosphere in Europe right now with rocketing inflation, currency uncertainty, political chaos in Britain and, most of all, war in Ukraine.

 

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And yet, there has already been a knock-on effect in Europe: ASML, the Netherlands-based company that manufactures the photolithography systems used to produce chips has had to tell employees who are US citizens to stop working with Chinese clients.

Today, ASML said that the impact was not significant. Speaking to the Financial Times, ASML’s chief financial officer Roger Dassen said “The direct implication for us is fairly limited […] as you know we are a European company. So there is not a lot of US technology in our tools.”

That may be so, but the wider issue, and the context of fears of conflict over Taiwan, cannot be ignored. First of all, the pandemic-era chip shortage demonstrated that silicon is essential for everyday life, not just for its obvious uses in computers and phones. Secondly, China, despite its recent stuttering economic performance, is well aware of the so-called ‘middle income trap’ and, having spent the last two decades as the workshop of the world, is keen to develop its own technology rather than continue to bash out US designs. China’s goals for technological self-sufficiency are no secret, and the government crackdowns on online gaming, ride sharing and e-commerce providers can be understood as an attempt to redirect investment into hard tech.

The stakes around semiconductors could not be higher. Indeed, the renewed US export controls demonstrate that silicon’s role in everyday items is not the only consideration: computing has an obvious, and increasing, role in military activity, and one of the key goals appears to be to hamper China producing advanced weaponry.

The geopolitical context for this, of course, is the West’s reliance on semiconductor manufacturing in Taiwan, in fact on one company, Taiwan Semiconductor Manufacturing Company.

The US CHIPS Act and its European equivalent notwithstanding, the West has a long way to go when it comes to rebuilding its chip-making capacity. In 1990, the vast majority of semiconductors were manufactured in the US and Europe, and while the US remains home to the majority of chip design, manufacturing is now largely performed in Asia.

At the risk of looking foolish, it seems to me that a US-China war over Taiwan is unlikely. While the US has long committed to defend Taiwan in the event of Chinese military action, the two countries’ economies are just too enmeshed for a hot war to break out. For now at least.

It does appear that a new dawn is breaking, however.

If the liberal reforms of the 1980s, including offshoring and outsourcing, signalled the end of the Post War boom and its attendant social democratic politics, events today – including demands to restart manufacturing at home but also general political uncertainty and a widespread sense of rudderlessness in the West – seem to point to an end of the certainties of the post-Cold War era. And if computing technology is at the forefront of that it is only because information technology is at the centre of everything in our lives today.

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