The US Is Cheating to Stop China Achieving Tech-Supremacy

If Russia’s invasion of Ukraine marked the end of a form of geopolitical globalisation, already eroding since 2008, then the unfolding ‘chip war’ between the US and China is its technological equivalent. In October, the United States imposed wide-ranging restrictions on the export of advanced computer chip technology to its east Asian rival, in an unprecedented attempt to impede its tech capabilities. In the emerging world of AI, the strategic importance of cutting edge microprocessors is a rival to fossil fuels. While more workaday chips, already mastered by Beijing, are inside almost every electronic device – from smartphones to washing machines – any proficiency with more advanced technology is now off limits.

For the United States there are two fronts in this clash – the first at home, the second abroad.  Central to the former is the Chips and Science Act. Ratified by the Biden administration last year, it will see more than $52bn of public funds directed toward America’s semiconductor industry. That may sound a gargantuan investment but in the world of chip fabrication, where a new foundry can cost $15bn, it is a middling sum. For context, Samsung recently announced $230bn of investment over the next two decades. 

While the US accounts for only 12% of global chip supply, the ambition is not to bring supply chains home but to secure them. More than anything else, this means reducing an overwhelming reliance on Taiwan. The island nation produces 90% of the world’s most advanced chips but is in the cross-hairs of Beijing. The potential for conflict in the South China Sea, be it an invasion or simply the destruction of Taiwanese microchip manufacturing plants (known as fabs), leaves the US – and the wider global economy – more vulnerable than widely recognised.

The second front is abroad, and consists in the restriction of not only advanced microprocessors to China, but the machinery to produce them. While Taiwan is home to the most efficient fabs on Earth, the equipment inside them is produced by firms in the Netherlands, the US and Japan. One is Eindhoven-based ASML. It builds around fifty of its ‘extreme ultraviolet lithography’ machines a year. Without access to them, production of the world’s smallest chips is impossible.

As a result of a recent US initiative, companies like ASML will no longer permit the export of their technology to China. That leaves the development of chips smaller than five nanometres, critical for cutting edge AI, out of the question. Already Chinese foundries have either postponed or abandoned development of chips below 14 nanometres. For a nation with ambitions of global leadership in digital technologies, this is a catastrophe.

Beijing’s response appears decisive. The recent report from the 20th Congress of the Chinese communist party identified the emerging rift with the US as the “main economic battlefield”, and called for self-sufficiency in advanced technology. Accordingly, Xi Jinping has committed $143bn to develop the country’s chip industry. 

None of this will be easy. Even the most basic smartphones require chips between 14  and 16 nanometres. Yet the smallest microprocessors presently made by a Chinese manufacturer, SMIC, come in at 28 nanometres. There have been claims that Huawei has developed a new generation of chips but, for now, this remains uncertain.

But is any of this possible? Can the United States, through dirigisme at home and starving China of critical resources, retain its technological, and therefore economic and military, supremacy?

When it comes to technology trends, there are few figures more authoritative than Bill Gates. In 1995, when he co-wrote an updated version of The Road Ahead, Gates foresaw how the internet would remake not only computing but commerce and culture too. Other predictions include the arrival of smartphones, social media and, in a 2014 TED talk, a global pandemic.  

So when he says the US has little hope of obstructing Chinese development in the long term, he deserves a hearing. In a wide-ranging conversation with the Financial Times’ Gideon Rachman, Gates was emphatic such efforts were likely doomed. “I don’t think the US will ever be successful at preventing China from having great chips,” he said, adding that while it might require a massive re-allocation of resources by Beijing, any gap would likely be plugged. When Rachman probed further, claiming the export of such technology to a rival was an issue of US national security, Gates responded with alacrity. “If you really think there’s gonna be a war in the next decade, then you shouldn’t have warned them that you were gonna cut their chips.” 

Unlike almost every other dispute there is no off-ramp from this conflict, meaning there are three foreseeable outcomes. Either China simply accepts technological subordination, and with it military and economic inferiority; the US prevails despite China’s best efforts; or, finally, and according to Gates most likely, China overcomes a series of hurdles and catches up with the US, or even surpasses it.

Whatever happens, the wider implication is that both China and the US are moving from a market-based system of technological development, to one directed by the state. For the latter this represents a return to the historic norm. As Mariana Mazzucato has highlighted, the major technologies inside an iPhone were developed by defence agencies and funded by the US taxpayer. But the absence of an American champion in the realm of 5G, an area where the world’s leading companies are Chinese, Swedish and Finnish, has reaffirmed the importance of an interventionist state, something largely forgotten in Washington since the end of the Cold War. As one French official told the Financial Times about the Chips Act: “If we were doing this in France, we would be described as communists.”

Running in parallel to all of this is deglobalisation, a process only liable to further intensify. As Gates told Rachman, sanctions on China could impel others to “de-Americanise” their supply chains. If it can happen to the world’s second largest economy then why not India, Brazil or Indonesia? It’s hard to believe the emerging powers of the Global South will leave their development in the hands of the US state department, or a maverick occupant of the Oval Office.

Finally, there’s the fact the US is trying to smother the economic growth of a competitor. Larry Summers described such a policy as ‘seismic’ presumably because, in its absence, China would see its technological and economic development continue to out-perform the West. The implicit point here is that, according to the ‘common sense’ of the last 40 years, Beijing would have prevailed. Therefore the old common sense must go. The US, for so long the world’s great evangelist of free markets and globalisation, is suddenly preaching a very different gospel.