US hurts own industry as chip war against China seen to fail
- Markets no longer have priority over national security, and economic interdependence with Beijing is considered a threat at the very least
After US Secretary of Commerce Gina Raimondo landed in Beijing in late August, Huawei Technologies unveiled its now bestselling Mate 60 smartphone with a 7-nanometer processor made by Semiconductor Manufacturing International Corp (SMIC). The timing could not have been a coincidence.
Having seen its global business battered by US sanctions, the Chinese telecoms giant has not only made a comeback that is giving Apple’s new iPhone 15 a run for its money, but also has shocked Washington’s China containment brigade and chip warriors.
The response from the United States was predictable: close supposed loopholes in global chip sales restrictions, and add more sanctions.
Apparently, US policymakers think they can enhance national security while protecting and promoting American industry and economy. The two goals may be incompatible. The worst scenario, now increasingly being realised, is that Washington’s misguided policy – call it de-risking or decoupling – will end up weakening both.
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On the economic front, you don’t need to look far. Insiders in the chip industry from the US, Britain and Taiwan have said as much. Their warnings, though, will likely fall on deaf ears as they are now fighting already entrenched government foreign and industrial policies. Good luck trying to reverse those!
Lin Burn-jeng doesn’t mince words. The former vice-president of Taiwan Semiconductor Manufacturing Co (TSMC) and an early champion of photolithography, the widely used method for semiconductor fabrication of integrated circuits that once transformed the island’s chip industry, knows a thing or two about making advanced chips.
“What the US really should do is to focus on maintaining its chip design leadership instead of trying to limit China’s progress, which is futile,” he said, “as China is adopting a whole-nation strategy to boost its chip industry, and hurting the global economy.”
He was speaking last week at the National Tsing Hua University in Hsinchu City, where he is dean of the semiconductor research college. Lin predicts SMIC will be able to produce 5nm chips soon, despite US sanctions.
What we do know is that the chip war is already hurting the US chip industry. An informal alliance has been formed between three of America’s biggest chip makers – Nvidia, Intel and Qualcomm – to lobby policymakers and educate policy think tanks on the wisdom of scaling back crackdowns on chip sales to China.
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According to the companies, losing China’s business, which accounts for a third of the global chip market and generates more than US$50 billion in combined annual revenue for the three, will mean job losses and cuts in research and development. Ultimately, the chip war could backfire on US industry.
“What you risk is spurring the development of an ecosystem that’s led by competitors,” Tim Teter, Nvidia’s general counsel, was quoted as saying. “And that can have a very negative effect on the US leadership in semiconductors, advanced technology and AI.”
The pleas from insiders may have slowed the pace of the chip war, but are unlikely to reverse or stop it. The problem is that they are now fighting already established policies. US National Security Adviser Jake Sullivan has even lauded how “restrained” the chip war has been with its “small yard, high fence” approach to technology control, that is, with strong measures targeting only a limited set of hi-tech products and techniques.
The new policy no longer prioritises markets over national security, but considers economic interdependence a threat, or, at the very least, a source of vulnerabilities. However, as those industry insiders have shown, the chip war may have ended some vulnerabilities, but created worse ones.
Sullivan is considered a policy wunderkind. But, from Henry Kissinger (Vietnam) to Paul Wolfowitz (Iraq) and now Sullivan (China), how many times have we seen the grand plans of brilliant policy conceptualisers flounder in the face of reality? That has never stopped the US from trying though, despite the vast resources and lives wasted.
