Without them, no sensors, processors or RAM. Nor, consequently, of smartphones, computers or the latest generation supercomputers. Despite a very slight decline in 2022, the strategic semiconductor market should reach 1,000 billion dollars by the end of the decade, according to McKinsey. These components became as coveted as oil during the 20th century. “The comparison is quite fair, according to historian Chris Miller, author of the essay Chip War (“the flea war”, in French). With the difference that the semiconductor sector is much more concentrated than that of black gold.” A few countries indeed share the value chain. “Taiwan, the United States, South Korea, Japan, the Netherlands and China”, lists Asma Mhalla, specialist in geopolitics of technologies, professor at Science Po and Columbia. And even within these States, only a handful of actors are able to produce the most most advanced – notably judged by their fineness of engraving – to date of 3 nanometers (nm): the Taiwanese TSMC and the South Korean Samsung.
Here is a summary of the great battle around semiconductors. This woke up about ten years ago, when China decided to invest tens of billions of dollars to support its own production. By 2025, the communist regime intends to manufacture the equivalent of 70% of its annual national consumption and, by the end of the decade, to be identified as “the main center of innovation in artificial intelligence in the world”. (greedy in high quality semiconductors). All this for multiple reasons, including military ones: autonomous weapons, drones, satellites do not escape these technological requirements either. The United States has understood this. Curbing Chinese ambitions has been a fundamental principle since Obama’s second term. The Covid-19 crisis, tensions around Taiwan and the war in Ukraine have since escalated tensions between the two rivals. The sanctions against Chinese telecom companies ZTE and Huawei, and the outcry around TikTok, are part of this same conflict. And the big maneuvers around semiconductors are accelerating.
At the end of January, the American authorities obtained from Japan and the Netherlands a new limitation on the export of equipment aimed at producing semiconductors in China. Japan, through its companies Tokyo Electron and Nikon, is expected to penalize China for importing high and mid-range engraving equipment. The Netherlands, through their company ASML – leader in the sale of photolithography machines – deprives the communist regime of the latest advanced technologies (engraving below 12 nm). “The Chinese situation was complicated, it is becoming extremely complex, explains Jean-Christophe Eloy, head of Yole Group, which specializes in consulting and expertise in the semiconductor markets. These sanctions delay five to ten years, at the very least, their production of the most sophisticated components.” If not more, taking into account the very old Moore’s law, according to which chips can double their capacity in transistors (or semiconductors) every two years. TSMC is already working on engraving at 1 nm, a million times smaller than a millimeter.
American consistency
Details of the agreement are not yet known. “What is the ceiling imposed on the restrictions, what level of engraving is concerned? The second thing is to know which American arguments have weighed in the balance…” wonders Mathilde Velliet, researcher in geopolitics of technologies at the French Institute of Relations international (Ifri). Be that as it may, the specialist recognizes the “coherence” with which the United States is advancing on this file. First part of the American tactic: “run faster”. In short: relocate production. The United States was for a long time the first semiconductor factory in the world, before seeing Asian countries catch up with them at the beginning of the millennium. Joe Biden passed a Chips and Science Act this summer worth more than $52 billion. The Taiwanese behemoth TSMC will also build no less than two factories in Arizona.
Like a boa with its prey, the United States is struggling in parallel to suffocate China. “Keep it at a distance”, to use the terms used by Washington. The White House first proposed, in mid-2022, an alliance called Chip 4 in Asia, with Tokyo (Japan), Seoul (South Korea) and Taipei (Taiwan). De facto excluding Beijing. Before sanctions directly attack, at the beginning of October, the American exports of semiconductors among the most pushed towards China. A matter of “national security”, solemnly warned the Biden administration. At the beginning of December, around thirty Chinese companies, including the giant YMTC, were placed on the famous Entity List of the American Department of Commerce. The coup de grace was not long in coming with the extension of these prohibitions in terms of trade and the supply of equipment from the Netherlands and Japan.
That’s not all. In the middle of last week, the United States also concluded an agreement with India in order to facilitate the production of semiconductors on its soil. Europe, on this point, is not forgotten. The Americans GlobalFoundries in France, as well as Intel and Wolfspeed have announced in recent months investments in the Old Continent, which has its own Chips Act endowed with 45 billion euros in order to produce more chips locally. . “The objective is to keep the ability to produce computer power in their hands or at least those of their partners”, notes Chris Miller. Double hit. In addition to keeping China out, Washington lets its allies maintain “their military power and their future intelligence capabilities” against possible threats, continues the historian.
Jean-Christophe Eloy (Yole Group)
The American strategy nevertheless imposes some short-term sacrifices. “American manufacturers Intel, AMD, Nvidia no longer sell their processors in China,” says Jean-Christophe Eloy. This situation also impacts his allies. China represents 15% of Dutch ASML’s business. “The economic impact of American decisions is enormous. But the United States has this capacity to brutalize, to weaponize interdependencies, so as to leave no choice”, summarizes Asma Mhalla. A passage in force which risks making people cringe a little in Europe.
China has not said its last word
The Chinese response will be keenly scrutinized. Mirroring the United States, the communist regime announced in December the implementation of a plan of 143 billion dollars over five years, accompanied by new massive subsidies for its companies in the sector (already under infusion for years). A complaint against the World Trade Organization (WTO) has also been filed. According to Beijing, Washington “threatens the stability of the global industrial supply chain”. The communist regime has finally undertaken some reprisals, such as the recent suspension of short visas for South Koreans and Japanese, penalizing employees of multinationals Samsung or SK Hynix present on the spot. And plans to pose obstacles to the export of material for the construction of solar panels, a market very largely dominated by China. Reprisals, it is true, with limited repercussions. “They can’t really go any further so as not to make the situation worse,” points out Mathilde Velliet.
However, China has three tricks up its sleeve. First, the country remains a leader in the packaging and assembly of semiconductors, since the majority of electronic devices are still assembled there. Still economically, it retains great activity on “less advanced semiconductor nodes, up to 14 nanometers”, delivers Jean-Christophe Eloy. Enough to satisfy many industrial needs, such as in the automotive industry. The last asset is political. “Americans are progressing unevenly depending on the power in place. China, by nature, looks at things over a longer period of time, with massive investments, national and regional, IPOs of strategic companies to allow them to access to capital, and a debauchery of talent from Japan and Taiwan. This long-termism, particularly in this sector, ends up paying”, assures the leader of Yole Group. It is thanks to this that the Middle Kingdom can boast of having caught up some of its delay on the military level (and in particular naval), as well as on the technological aspect compared to the United States. According to a recent study published by NikkeiChina is now the undisputed champion of research papers on artificial intelligence, surpassing its rival in quantity and quality.
And after ? The United States has just played a lot of cards. “They should logically focus, over the next two years, on enforcing their restrictions rather than expanding them dramatically,” said Chris Miller. According to the historian, the most interesting movements to come are rather on the side of companies, led (or quite simply forced) to diversify their supply chains and review their risk tolerance. “Having a belt and suspenders”, as summarized by Jean-Christophe Eloy. “On investments, we are dazzled by the billions deployed by the United States and China. But this is not much compared to the giants of the sector, which invest 70 to 80 billion dollars a year. alone, represents 35 billion dollars”, continues the latter. Recently, the American Micron invested a colossal amount of 100 billion dollars for the construction of a new factory near New York; a state record. Beyond the geopolitical quarrels, the future is more than ever in their hands.