Analysis | How 'Chip War' Puts Nations In Technology Arms Race – The Washington Post

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The incredibly complex, high-stakes business of making semiconductors has always been a battle of corporate giants. Now it’s also a race among governments. These critical bits of technology — also known as integrated circuits or, more commonly, just chips — may be the tiniest yet most exacting products ever manufactured. And because they’re so difficult and costly to produce, there’s a worldwide reliance on just a handful of companies, a dependence that was brought into stark relief by shortages during the pandemic. Access to chips has also become a geopolitical weapon, with the US ratcheting up curbs on exports to China to contain the rise of an economic rival. Tens of billions of dollars have been committed in a dash to expand production in the coming years, just as a looming recession has begun to drastically curb global demand.
1. Why the war over chips? 
Chipmaking has become an increasingly precarious business. New plants have a price tag of more than $20 billion, take years to build and need to be run flat-out for 24 hours a day to turn a profit. The scale required has reduced the number of companies with leading-edge technology to just three — Taiwan Semiconductor Manufacturing Co. (TSMC), South Korea’s Samsung Electronics Co. and Intel Corp. of the US. Chipmakers are under increasing scrutiny over what they sell to China, the largest market for chips. National security concerns, shifts in the global supply chain and shortages have governments from the US and Europe to China and Japan rushing to subsidize new factories and equipment.
2. Why are chips so critical? 
They’re the thing that makes electronic gadgets smart. Made from materials deposited on disks of silicon, chips can perform a variety of functions. Memory chips, which store data, are relatively simple and are traded like commodities. Logic chips, which run programs and act as the brains of a device, are more complex and expensive. And as the technology running devices — from rockets to refrigerators — is getting smarter and more connected, semiconductors are ever more pervasive. That explosion has some analysts forecasting that the industry will double in value this decade. Spending on research and development for chips is dominated by US companies, with more than half the total.
3. Is the world short of computer chips? 
Pandemic lockdowns and supply chain disruptions made many types of chips scarce for about two years. With demand for phones and personal computers cooling off post-pandemic — and much of the world at risk of falling into a recession — the cycle has turned. Chipmakers warned of a glut in certain areas, though some customers including carmakers were still struggling to get enough. Yet for political reasons chipmakers were still poised to add capacity at a time of shaky demand, which could further upend the industry.
4. How’s the competition going?
• In October, the US imposed tighter export controls on some chips and chipmaking equipment to stop China from developing capabilities that could become a military threat, such as supercomputers and artificial intelligence.
• China’s chipmakers still depend on US technology, and their access is shrinking. A huge Chinese spending spree hasn’t succeeded at creating sufficient domestic supply of vital components.
• US politicians have decided that they need to do more than just hold back China. The Chips and Science Act, signed into law on Aug. 9, will provide about $50 billion of federal money to support US production of semiconductors and foster a skilled workforce needed by the industry. All three of the biggest makers have announced plans for new US plants.
• The key test of the US’s containment policy around China comes with efforts to get allies to apply similar restrictions to their local companies. In late 2022, negotiations to bring the Netherlands and Japan into alignment were dragging.
• Europe has joined the worldwide race to reduce the concentration of production in East Asia. European Union officials are wooing TSMC and other chipmakers to meet a goal of doubling production in the bloc to 20% of the global market by 2030. Intel has already committed to building a plant in Germany.
5. How does Taiwan fit into all this?
The island democracy emerged as the dominant player in outsourced chipmaking partly because of a government decision in the 1970s to promote the electronics industry. TSMC almost single-handedly created the business of building chips designed by others, one that was embraced as the cost of new plants skyrocketed. Large-scale customers like Apple Inc. gave TSMC the massive volume to build industry-leading expertise, and now the world relies on it. Matching its scale and skills would take years and cost a fortune. Politics have made the race about more than money, though, with the US signaling that it will continue efforts to restrict China’s access to American technology used in Taiwan’s foundries. China has long claimed the island, just 100 miles off its coast, as a renegade province and threatened to invade to prevent its independence. Recent military exercises by China have reignited concerns about the world’s dependence on Taiwan for chips.
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