Is The Chip War Already Lost?
An update from the front lines.
“Take away winning, and you take away everything that is strong about America.” – Tom Landry
In the weeks since Donald Trump’s election victory, all manner of geopolitical skullduggery has unfolded in various hotspots around the globe. With most Americans suitably distracted by the murder of a healthcare executive and drones flying over the US Northeast, the outgoing administration of President Joe Biden has authorized Ukraine to fire long-range precision missiles made by the US and Britain into Russian territory, is sending as many weapons and as much funding to the Kyiv regime as possible, and even signed off on a $20 billion loan to the besieged country backed by frozen Russian reserve assets.
Moving to the Middle East, the US, Turkey, and Israel have carved up Syria at record speed following the collapse of former President Bashar al-Assad’s rule. We are led to believe that a terrorist on the Federal Bureau of Investigation’s watchlist—Abu Mohammed al-Julani, or Ahmed al-Sharaa, or whatever nom-de-jihad this mythical figure is currently using—is the man in charge. Fear not, however, because the media has dutifully rebranded him as a “rebel” committed to building a “diversity-friendly” state. How a man can go from spending five years imprisoned by US forces to this new position is not to be questioned in polite circles. He is certainly dressed for the part, and it seems clear how events will unfold from here.
Beyond these adventures, the Biden administration has significantly ramped up the sanctions war against China, with specific emphasis on its burgeoning semiconductor sector. There are now 218 individuals and 620 entities from China in the US Treasury Department’s sanctions database, an incredible figure given the size and importance of the trading relationship between the two countries. In tandem, the US Department of Commerce has placed significant export controls on numerous high-technology products. The latest salvo was fired in early December:
“The US Department of Commerce introduced a sweeping package of export controls on Monday designed to weaken China’s domestic semiconductor ecosystem and undermine the country’s ability to manufacture advanced chips locally. The new regulations prevent China from accessing 24 types of chip-manufacturing equipment and three software programs, and place restrictions on the sale to China of high-bandwidth memory, or HBM, an advanced kind of 3D-stacked computer memory component that is often used in customized AI chips.
‘They're the strongest controls ever enacted by the US to degrade the PRC’s ability to make the most advanced chips that they’re using in their military modernization,’ Commerce Secretary Gina Raimondo said on a call with reporters. The measures are likely to enrage Beijing, which has given tens of billions of dollars’ worth of subsidies and tax breaks to semiconductor firms in the hopes of building out its own chips sector.”
China swiftly responded with export controls in kind, pressing its leverage in areas where the US is strategically quite vulnerable:
“On Tuesday, December 3, China announced stringent export restrictions on ‘dual-use’ technologies for both civilian and military use, specifically targeted at the United States. These restrictions double down on previously announced controls on these metals, going so far as to ban shipments of antimony, gallium, and germanium to the United States. The new restrictions marked several firsts in the trade war—the first time Chinese critical minerals export restrictions were targeted at the United States rather than all countries and the first time restrictions on critical minerals were a direct response to restrictions on advanced technologies. Critical mineral security is now intrinsically linked to the escalating tech trade war.”
While it might be tempting to dismiss recent events as traps set for a rival administration undergoing a transition of power, we find China’s readiness to aggressively reciprocate noteworthy in light of other recent developments in the semiconductor space. Taken together, a strong pattern emerges signaling that China has made significant progress in building its home-grown industry, perhaps even to the point of self-sufficiency. Let’s connect a few dots.