Tech wars Fishing for chip supremacy
Following an apparent easing of tensions on the fringes of the G20, the US gave some trade concessions to China. But the looming war of technology – and ideology – between the two global giants was barely mentioned. Nicholas Nugent reports
Several centuries ago it was rivalry for spices such as nutmeg and cloves that fuelled trade in the East. In recent centuries it was, successively, reserves of coal, oil and gas that determined a nation’s wealth.
Now, in the 21st century, it is crucial metals and the skills to build ‘high tech’ electronic apparatus that are most in demand, and which lie behind an emerging ‘tech war’ in the East.
Take electric vehicles (EVs). Their batteries depend on metals such as lithium, cobalt and nickel. While these are not rare, they are produced only in a small number of countries. Lithium comes from Australia, Chile and Argentina, cobalt from the Democratic Republic of Congo (with reserves also in Australia and Indonesia), while Indonesia is the main source of nickel, which is also found in Australia, Brazil and Russia.
But China is the overwhelming leader in processing these metals, giving it the global lead in battery technology.
Beyond fuel, vehicles also need sophisticated electronics, for, as the Economist notes, ‘Cars are becoming increasingly defined by software’(Nov. 19, 2022).That involves semiconductors and in these Taiwan is the dominant global source, producing in excess of 90 per cent of advanced semiconductors, or ‘chips’, used in vehicles as well as mobile phones, communications networks andnumerous other applications.
In October the United States passed into law the Chips Act, which seeks to limit the export of advanced semiconductors to potentially hostile nations, including China. Taiwan, whose main semiconductor manufacturer, Taiwan Semiconductor Manufacturing Company (TSMC), is controlled by America, is in no position to flout this law.
Sophistication of ‘logic’ chips (which make things work) is measured by their ‘smallness’: how many transistors can be crammed onto ever tinier silicon chips. In the latest iPhone 14, around 17 billion transistors are etched onto a 5nm chip. (Five nanometres means five millionths of a millimetre.)
This has given rise to a stand-off between China and the self-governing island of Taiwan to which it lays claim, sometimes characterised as a technological war between Huawei and Apple. The Chinese firm of Huawei led the world in 5G telecommunications using chips produced in Taiwan, but risks losing its lead as it can no longer count on Taiwanese chips. Its own chip industry is some way behind: so far, ithasnot produced chips commercially smaller than 7nm.
Apple also depends on Taiwan for the chips used in its phones, tablets and laptops which until now have mainly been assembled in China. Production of its most advanced phones, the iPhone 14 and iPhone Pro, is now being shifted from China to other Asian countries such as Vietnam and India.
Since America banned Huawei telecommunications equipment ‘for security reasons’, victory in round one has gone to the US. But China’s superiority in battery technology is vital for electric vehicle manufacture as well as for solar panels, both needed globally if climate change targets are to be achieved. And it is not just Huawei and Apple affected by this ‘tech war’; all electronics manufacturers are.
Meanwhile, Taiwan relishes its superiority in semiconductor production because it strengthens the small nation’s resistance to attempts by China to ‘reunite’ it with the mainland. Taiwan’s President Tsai Ing-wen speaks of a ‘silicon shield’ protecting the island, suggesting China would not dare to risk destabilising its semiconductor manufacturing hub by invading. It may even strengthen US willingness to defend its ally in the event of such an attack.
A contrary argument posits that Taiwan’s chip manufacturing foundries, or ‘fabs’, make it attractive to a potential invader, who might make the Science Park around Hsinchu in the north-west of the island a target. It’s an argument rejected by columnist Courtney Donovan Smith in the Taiwan News,who writes that ‘even if [the Chinese] were successful it would take time to get the ports, power supplies, water and basic infrastructure back online to restart the fabs’.
Chip manufacture depends on many things beyond a stable power supply. Most chip design is carried out in the US, while Netherlands companies make the lithography machines which Taiwan manufacturers use to etch circuits onto ever smaller silicon wafers, using Carl Zeiss mirrors from Germany. ‘Deep’ ultra-violet lithography (DUV) has been superseded by ‘extreme’ ultra-violet technology (EUV),in which the Dutch firm ASML is a world leader.
China has some way to go to catch up with this high tech chip fabrication, though it can try to lure Taiwan’s skilled labour force, who drive its semiconductor industry, to come and work in China by offering attractive salaries. The two countries literally speak the same language.
This ‘tech war’ has sharpened the dispute between Taiwan and China over the former’s status, probably to Taiwan’s advantage. No longer does it see itself as the weakling David to China’s Goliath, a minnow against a giant, portraying itself instead as a democratic power in no way inferior to China’s autocracy 150km across the Taiwan Strait. This feeds into a global narrative of democracy versus authoritarianism which Taiwanese officials emphasise by littering presentations with the ‘D-word’.
‘We see democracy itself as a form of technology,’ says digital affairs minister Dr Audrey Tang, as she boasts how her government has ‘widened the bandwidth’ of decision-making with an on-line referendum system. She says the people’s access to broadband internet is a ‘human right’, while the island’s progressive president, Tsai Ing-wen, describes her country’s output of semiconductors as ‘democracy chips’
The US finds itself competing against Taiwanese production skills and the incentives provided by other Asian nations. TSMC is building fabs in Japan and the US, as is Samsung of South Korea. TSMC is also reported to be considering constructing a fab in Germany.
US-based electric vehicle manufacturer Tesla has been buying chips from Samsung and is reported to be placing orders with TSMC for its new Autopilot technology. But it also needs components for batteries, which China is currently best placed to provide. To complicate matters, President Biden’s climate change legislation provides subsidies for electric vehicles – provided most of the components originate from the US. Nothing is clear cut in this ‘tech war’.
The United States started this ‘war’ by banning Huawei and then imposing controls on the export of chips to China. Washington is now trying to manage it by forming the ‘Chip-4 alliance’, linking the US, Taiwan and the other Asian chip manufacturers South Korea and Japan. The USChip Act commits US$52m towards the building of fabs in the US.
China has countered US technological diplomacy – or commercial rivalry – by pledging a similar sum for research and development of advanced chips to reduce its dependence on imports. The country’s leadership is said to be frustrated at its manufacturers’ failure so far to match Taiwan’s technological advances. Also, China’s zero-covid lockdown policy has significantly disrupted iPhone production at Zhengzhou, popularly dubbed ‘iPhone city’.
Other nations including Japan, EU countries and India have committed state funds to boost domestic chip production, demonstrating that, apart from its commercial value, the industry is ‘in the national interest’ with infrastructure, security and defence imperatives. Britain has ordered its major chip manufacturer to divest itself of Chinese ownership.
This ‘tech war’ between West and East – or democracy and autocracy – risks overshadowing the conventional warfare that until now has been the main security feature of the Taiwan Strait.
Nicholas Nugent was recently in Taiwan looking into the semiconductor business