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Silicon semiconductor chips have been a cornerstone of technological growth and innovation in the last 2 decades. These small integrated circuits are the base of most modern electronics, primarily used in many applications such as smartphones, computers and communication devices. In essence, it is a small chip with a pivotal function for the next generation of all industries, ranging from automotive to retail. As the growth in demand for these devices increases, so does the demand for the subsequent chips. This is causing tension between the global manufacturing hubs of the United States and China, but why is this the case?
After Joe Biden’s arrival in 2021, the view that the American government had on silicon semiconductors pivoted; rather than aiding the US’ development, they saw the export of semiconductor chips as hindering it. Silicon semiconductor chips are necessary for China to strengthen and modernise its military, above all in the field of AI. This was deemed a threat by the Americans, hence Biden banned the export of this component to China in 2022.
Check out author of "Chip War" Chris Miller, a widely celebrated American authority on the issue, explain how this tension might look in the years to come
Although some may argue that the US proposal violates the principles of the market economy and fair competition, the incumbent president has suggested otherwise. This initiative has caused major setbacks to the US. Firstly, the US has been accused of ‘Resource Nationalism’, a concept which signifies when governments hoard critical materials to exert influence over the economic development of other nations. In addition, the USA has been critiqued for revenue losses incurred by leading chip manufacturers such as NVIDIA. Cutting ties with China, in regards to this commodity, has resulted in a major loss of NVIDIA revenue for data centre chip sales, with China accounting for 25% of their data centre revenue. The SIA (Semiconductor Industry Association), the leading trade association for the semiconductor industry, demonstrated in a statement that the measures are overly broad and risk harming the US semiconductor ecosystem, encouraging customers to look abroad. Although there have been major losses in the US, Japan and the Netherlands have been home to key chip makers which have too, imposed export restrictions on China, indicating this may not be a fault of the US, but rather a market trend that is yet to be followed.
On the parallel however, China retaliated by reducing their exports to the US of gallium and germanium, two metals that serve as a major component of the silicon semiconductor chip itself. ‘Quite simply, if you won't give us chips, we won't give you the materials to make those chips’ (Colin Hamilton, BMO Capital Markets) is the approach China adopted.
Germanium has also been used to produce vision goggles, which are significant to the military, and is profound in the supply chain of space-related inventions. Although similarly to the US, China has been accused of ‘resource nationalism’, there is no doubt that this endeavour will push Western nations to adopt a more sustainable way of producing these precious chips and metals. This is because if there is less imported germanium than previously, firms and governments will have to prevent the future supply of this metal from diminishing by using methods such as recycling to expand the lifecycle of the commodity.
In conclusion, the intricate interplay between the United States and China over silicon semiconductor chips underscores the profound implications of technological advancements on global economic and political dynamics. The US export ban on semiconductor chips to China, driven by national security concerns and the desire to bolster domestic production, has yielded mixed results, causing economic setbacks and inviting significant criticism, particularly from leading manufacturers like NVIDIA, and has been labelled as resource nationalism, reflecting a broader trend of protectionism in the global market.
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