All Chips In: Navigating The Global Chip War

Today's world is an electronic one. Electronics have become essential to the modern lifestyle; one cannot imagine a world without phones, speakers, TVs, etc.? The backbone of this important industry is the semiconductor chip, whose advancements have driven this industry’s growth over the last few decades.

Introduction:

Chips are crucial because they provide storage, processing, and computational abilities to electronics. Phones, vehicles, coffee makers, or even ACs anything that can be wireless or smart, needs chips. Chips are also required for advancements in AI since computational abilities can be a limiting factor when training models. Chips become even more crucial when you consider the modern defense industry as modern weaponry relies heavily on electronic components and depends on chip availability and price.

Throughout the entire timeframe of the prolific rise of the chip, countries and corporations have vied for influence and control over this industry. This struggle has given birth to a technological race, akin to the space race of our times, a conflict for dominance and power, the Chip War.

The Current Status of the Chip Industry:

The industry is composed of companies that manufacture chips, companies that design chips, and hybrid companies that do both. A lot of major tech giants prefer outsourcing production to companies that manufacture since setting up a manufacturing plant for chips requires massive capital investment, for example, Apple. Apple designs its chips and processors (like the recent M4 chipset) for its devices but outsources their production to other companies. One of the major chip suppliers to Apple is TSMC (Taiwan Semiconductor Manufacturing Company).

Recent global events like the pandemic, the US-China trade wars, and many other unforeseen calamities have caused a global chip shortage. Many industries have had to slow down (like automobiles, phones, etc.). This has convinced most nations that giving up control of chip supply lines can be a serious threat. Due to this, there has been a global shift towards self-reliance.

Many nations want to capitalize on this opportunity to become key members of the global supply chain. Many nations also recognize that chips are a key resource, and that self-reliance is necessary.

Major Players, Their Interests, and Strategies:

USA

For some time, the US has been concerned about IP infringement by Chinese companies that are copying key US technology.

Hence, the US wants to eliminate the role of China in its chip supply line and hence has been pushing for self-reliance through laws, economic policies, and even sanctions. One such move was the CHIPS Act. The act allocates about $280 billion in new funding to boost domestic research and manufacturing of semiconductors in the US, for which it allocates $52.7 billion. It includes $39 billion in subsidies for chip manufacturing on U.S. soil, along with 25% investment tax credits for the costs of manufacturing equipment, and $13 billion for semiconductor research and workforce training. Apart from this act, the US and its allies have blacklisted Chinese chip networks, even blacklisting them to curtail Chinese chip ambitions. The US even asked its allies to stop their companies from getting chip service done in China. The US’s main aim is to have a chip supply line that is stable, secure, and based in nations friendly to the USA.

The USA has also introduced an alliance, the “Chip 4 Alliance,” consisting of Japan, the US, South Korea, and Taiwan, in a bid to further its aims.?

There is a second aspect, though, and that will become clearer as we understand China.

China

Although China produces a considerable share of global chips, semiconductors are a very significant import item for China. China purchases more than 50% of the chips produced globally. The electronics manufacturing industries that are based in the country require these chips to function. China perceives the sanctions and other measures that increase chip prices as an attempt to reduce China’s access to semiconductor chips.?

The measures have pushed China to try to become more self-reliant. They have created a chip development fund along with releasing tax credits for chip R&D companies.

It is important to note that China currently dominates crucial portions of the global supply chain, like packaging and the production of legacy chips.

China too has massive leverage over the west, which is its control of rare earth resources. China has 80% of the world's capacity to refine rare earth resources, which are by themselves crucial to various technologies like screens, batteries, defense tech, etc. China has been putting export restrictions on these rare earth metals in response to Western sanctions.

Taiwan

Taiwan currently makes 90 percent of the world's most advanced semiconductors and is considered a chip giant.?

The company behind this dominance is TSMC. It was founded in 1987 as a joint venture primarily between the Taiwanese government and electronics giant Philips. Morris Chang, a graduate of MIT, was hired by the Taiwanese government to become TSMC’s first chairman. He is widely regarded as the founder of the Taiwanese chip industry. Historically, Taiwan’s efficiency has given it a massive edge, leading to its dominance.

TSMC, recognizing that the recent moves globally towards self-reliance will eventually erode its share in the market, is now creating partnership foundries in nations like Japan and India to maintain their dominance over the chip game. They know that over time, other nations will catch up due to massive investments being made in nations much larger than themselves. They want to tap into the potential of other nations and utilize their large workforces, infrastructural capabilities, etc.

India

India has been pushing for self-reliance for quite some time, especially when it comes to the defense sector. Naturally, they now want to capitalize on the shortage and become part of the global chip supply chain. They have planned partnerships with various giants, like TSMC, and have created a 10,000 crore rupee chip fund to promote local chip component manufacturing.

One of India’s public sector companies, BEL (Bharat Electronics Limited), plans to enter chip fabrication to reduce annual chip-related imports.

South Korea

Samsung, based in South Korea, is one of the biggest players in the chip game. In response to the global chip war and shortage, they must try to close the gap between themselves and TSMC. The South Korean government announced a 19-billion-dollar fund to promote chip production in the nation. They are trying to focus on designing and manufacturing parts of the business. The South Koreans acknowledged the “global warfare” over chips and hence wanted to increase their market share and compete. They want to catch up in fields like contact manufacturing, which they had previously fallen behind in.

Malaysia

Malaysia has always been involved in the back end of the chip business. With rising global tensions, European companies are seeking alternatives to China. They have found their solution in Malaysia. With rising FDI, Malaysia is all set to become a key player in the chip game.

Japan

Historically, Japan was the chip leader. They had their own chip-related tensions with the USA back in the 1980s. Although no longer as powerful, Japan still occupies and dominates crucial portions of the supply chains, like base materials, chemicals, tools, and packaging. Japan controls almost half of the 6 most crucial semiconductor materials.?

Today, though, Japan is firmly in the US block and is eying its original place in the chip world. Japanese giants like Sony and external companies like TSMC are now making massive investments in the chip business. The government itself is targeting a 64.2-billion-dollar investment in the industry.?

The Consequences:

China losing Chip Share-?

“Export controls are like throwing a wrench in the gears of China’s chip industry,” the statement by a senior advisor of China shows how these controls and sanctions have significantly hampered China ‘s ability to access advanced semiconductor manufacturing equipment and software. Despite all its robust investments and policies, China’s share in the global market is continuously facing its downfall. As China struggles, other Asian countries like Taiwan, South Korea, and Japan are expanding their market presence and benefiting from the disruptions in China’s semiconductor ambitions.?

The Aggravation of Shortage-

When the two leading economies are in a war, how can one expect the world not to be affected? The semiconductor shortage has become a critical issue, affecting various industries and leading to production delays and increased costs. Consumers face longer wait times and higher prices for electronics as the scarcity of chips disrupts supply chains. This chip shortage is causing a global economic slowdown. As the chips have brought about the revolution, each and every industry is connected to it, and there is no doubt that the chip industry is proportionally affecting their growth as well.

?The statistics clearly reveal that countries struggling with chip demands are also facing trouble in their other related industries.?

The shortage is delaying AI research and development, hindering progress in fields like healthcare and finance. The electric vehicle market is also affected, with production delays threatening the momentum of the green transport revolution. Telecommunications, aerospace, and consumer electronics are all reeling from the chip crunch, delaying new products and technological advancements. Businesses are adjusting strategies to cope with the shortage. Tech giants like Apple and Samsung are rethinking their supply chains, investing in new semiconductor plants, and forging partnerships to secure chip supplies. Small and medium-sized enterprises (SMEs) face existential threats due to limited bargaining power and financial resources, struggling to compete for the scarce chip supply.?

The chip war is reshaping the landscape of various industries. Let’s have a look at them -?

Among all these industries mentioned, telecommunication, AI, and automobiles are facing the hardest hits. AI innovation is facing delays, further affecting fields like finance and healthcare. Data centers are suffering from online operations and the growth of the digital economy. The faster deployment of 5G networks and their expansion are slowing down. The production of smartphones, laptops, tablets, and gaming consoles is being delayed because companies in search of profit are depending on their trustworthy products instead of experimenting with new ones. Chips are essential, from the engine to the management system in car entertainment. For consumers, this means fewer options and a price hike.?

Overall, the chip war is more than a supply chain issue. Semiconductors are seen not only as an important technology but as a balance of power in the global landscape. So, it’s become important to see how this race will look in the future. Is the chip shortage a longer event or are we going to get advanced technologies as an outcome of this race.

Future Trends: ?

The semiconductor industry is all set for transformative changes with advancements in manufacturing technologies, AI integration, quantum computing, etc. Expected future technologies in the industry like quantum dot transistors, 3D integrated circuits, and neuromorphic computing are creating possibilities for a technical revolution that will drive the next generation of computing and communication. The current scenario assures us of certain growth in chip manufacturing and thus accounts for the scalability of dependent industries.?

1) 5G - Future advancements will lead to faster networks, lower latency (delay between the user's action and the network's response), and enhanced user experiences like gaming, AR/VR. Advanced modulation and massive MIMO (multiple input, multiple output) technologies will extend network coverage and capacity, supporting a vast array of IoT services. Furthermore, the technical revolution will extend to the connected fields of healthcare, autonomous vehicles, and telecommunication.?

2) AI - Advanced future technologies in the semiconductor field also include AI chips. It will incorporate features like neural processing units (NPUs) and tensor processing units (TPUs), optimized specifically for AI workloads. The evolution will help to deploy the AI models directly rather than relying on centralized cloud servers. This trend toward more powerful AI promises to drive innovation across industries and personalized digital experiences.

3) Quantum Computing - Advanced semiconductor-based control electronics will enable precise manipulation of qubits, essential for efficient quantum operations. Additionally, the development of hybrid quantum-classical systems will optimize quantum computations. These advancements will make quantum computing more reliable, powerful, and commercially viable.

The future trends are very exciting and give a new perspective on global advancements, but is the current context exactly going to be the same, or will there be an unexpected trend that will transform and reshape the world in a way that is quite different from our thoughts?

Definitions of some important terms

Fab:? Refers to fabrication and the process of making chips.

Fabless Companies- refer to companies that design chips but outsource manufacturing. Example- Apple.

Foundry: Refers to the factories that produce these chips.

IP: intellectual property. It is the technologies or processes that are patented and are available for exclusive use by the company that applies for the patent.

IP Infringement:?It happens when a country or company uses the intellectual property of another country or company.

Neuromorphic Computing:?Neuromorphic computing involves designing chips that mimic neural networks.?