Written by Szymon Ficon
The future of the ever-accelerating technological revolution relies on a product which can fit on the tip of a finger: the advanced microchip. The microchip (semiconductor) is the building block of every piece of technology produced, ranging from phones and medical equipment to missiles and tanks. Consequently, the race to dominate the global semiconductor industry, whose market size is projected to explode to $1 trillion by 2030, is further intensifying between the two global powers, the United States and China. On October 7th, in an effort to stall China’s push towards semiconductor dominance, the Biden administration rolled out an unprecedented export control policy which “[bars] China from accessing technology essential for producing advanced chips” (Yoon 2022). The Biden administration’s main objective with its export controls is to impede China’s efforts in developing advanced semiconductors necessary for developing artificial intelligence and supercomputing (Schuman 2022). Through impeding their efforts, the United States hopes that it can prevent China from becoming the world’s leading technological superpower, a goal which Chinese leader Xi Jinping has flagged as a priority. However, this aggressive move is not without its costs. In the short term, consumers in both countries are expected to face higher costs for technology with producers experiencing market disruptions. Over the long term, this move attempts to grow the United States’ market share in the industry but may very well lead to sustained supply chain disruptions.
The power of the microchip comes from the width of the nodes, or the space between the transistors. Transistors conduct electrical signals and power, thus completing the chips’ operations. Modern technological growth has allowed for producers to lessen the spaces between the transistors, allowing for more of them to be placed on the chip, consequently improving the chip’s capability. As a result of the ban, China will not be allowed access to chips with nodes smaller than fourteen nanometers, effectively denying them from using the most modern chips which are necessary for technological and military development.
Denying China access to the most up to date of chips will greatly stunt progress in achieving their goal of becoming the world leader in producing semiconductors, severely limiting their ability to dominate the market and use it as geopolitical leverage. This chip ban comes at a precarious time for China, who for the last three decades has enjoyed a rapid ascent of global market share, increasing from 0% in 1990 to 15% in 2020. As of 2020, China was one of three nations with a growing global market share, the others being Taiwan and South Korea, both stiff and far more advanced competitors in the industry.
Additionally, the chip ban may also bolster the domestic US semiconductor chip manufacturing industry. As opposed to China, the United States’ market share has sizably shrunk over the last three decades, from a 37% global market share in 1990 down to an embarrassing 12% in 2020. The United States views the semiconductor market as not only an economic priority, but one significant to national security as well. This priority for the Biden administration also is represented through the recent passing of the CHIPS and Science Act, which will provide $280 billion to expedite research and microchip manufacturing within the United States. The United States is doubling down on efforts to regain their foothold as the worldwide leader in producing semiconductor chips. These steps are also being taken in response to ever-growing demand, which is soaring due to the massive transition to remote work, which stimulates demand for laptops and other electronics; the growing presence of artificial intelligence; and the surging popularity of electric vehicles, which are dependent on advanced chips.
Although global technology prices have steadily declined for decades, consumers should prepare to feel the consequences of the chip ban at registers. Primarily, revenues at the two largest Chinese chip manufacturers, Semiconductor Manufacturing International Corporation and Yangtze Memory Technologies Corp, will reduce drastically. These two chipmakers are already experiencing top US firms, such as Apple, canceling lucrative contracts with them due to their inability to further acquire the chips necessary for iPhones. The damage does not stop at the top Chinese firms. US company NVIDIA, who “has been the single driving force behind China’s rapid progress… for years”, will no longer be able to supply chips to many Chinese technology companies (Yoon 2022). In order to maintain a similar production capacity, China must purchase a greater amount of older, slower chips, at an increasing pace over time. As a result, the prices of technology which run on old chips, mostly home appliances, are expected to increase as Chinese firms face greater and greater costs. These costs are expected to be steep, as China already spends 16% of the total value of its imports on chips themselves (He 2022).
In response, China is spending $143 billion in a move to counter the US export ban. Chinese officials describe this spending as “financial subsidies and incentives to help China’s chipmakers develop technology” (Dasgupta 2022). However, this move may not be enough to alleviate the effects of the ban, and analysts warn of long term supply chain issues. The semiconductors are made out of rare earth metals, which China holds a global monopoly over. If tensions continue to rise, China could possibly leverage their dominance of the rare earth metals industry, leading to shortages in supply, and rising prices worldwide.
Citations
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Rao, R. (2022). The U.S.-China Chip Ban, Explained. IEEE Spectrum.
He, L. (2022). US curbs on microchips could throttle China’s ambitions and escalate the tech
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Schuman, Michael. “Why Biden’s Block on Chips to China Is a Big Deal.” The Atlantic, Atlantic Media Company, 26 Oct. 2022, https://www.theatlantic.com/international/archive/2022/10/biden-export-control-microchips-china/671848/.
“Fact Sheet: Chips and Science Act Will Lower Costs, Create Jobs, Strengthen Supply Chains, and Counter China.” The White House, The United States Government, 9 Aug. 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/09/fact-sheet-chips-and-science-act-will-lower-costs-create-jobs-strengthen-supply-chains-and-counter-china/.
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John Feng On 11/2/22 at 6:51 AM EDT, et al. “China’s Rare Earth Metals Monopoly Could Be Coming to an End.” Newsweek, 2 Nov. 2022, https://www.newsweek.com/china-monopoly-rare-earths-critical-minerals-market-green-clean-energy-1756042.
Dasgupta, Saibal. “China Trying to Fight Back US Ban on Its Chip Industry.” VOA, Voice of America (VOA News), 16 Dec. 2022, https://www.voanews.com/a/china-trying-to-fight-back-us-ban-on-its-chip-industry-/6878990.html.