Blog Post

The Microchip War: global semiconductor struggle and its impact on AI, blockchain and geopolitical dominance

August 2, 2024 Artificial Intelligence, Blockchain, Geopolitech, Tech by kescoda

In the silent corridors of power and the bustling cleanrooms of high-tech fabrication plants, a new kind of war is being waged. It’s a conflict fought not with bullets and bombs, but with silicon wafers and nanometer-scale transistors. Welcome to the global semiconductor struggle – a high-stakes battle that’s reshaping geopolitics, revolutionizing technology, and redefining the balance of power in the 21st century.

Article originally prepared in Italian for my personal podcast Disruptive Talks (read it here).
This content is also available as a self produced video documentary, here, and in audio podcast, available here.

Semiconductors, the unassuming heroes of our digital age, have transcended their role as mere components. They’ve become the lifeblood of modern civilization, powering everything from smartphones in our pockets to supercomputers unraveling the mysteries of the universe. But as their importance has grown, so too has the fierce competition to control their production and distribution.

This article delves into the heart of this technological Cold War, where nations vie for supremacy in the production of chips measured in mere atoms. We’ll explore how the race for semiconductor dominance is not just about economic prosperity, but about shaping the future of artificial intelligence, quantum computing, and even national security.

From the sun-drenched industrial parks of Silicon Valley to the high-tech corridors of Taiwan, from the ambitious tech hubs of China to the precision engineering powerhouses of Europe, we’ll take you on a global journey. We’ll unravel the complex web of alliances, rivalries, and strategies that define this new battleground.

As we stand on the brink of technological revolutions in AI, quantum computing, and beyond, the question looms: who will emerge victorious in this silicon-based struggle, and what will it mean for the future of global innovation and power dynamics?

The context

The semiconductor industry has emerged as a critical battleground in the geopolitical and economic competition between world superpowers. At stake is not only control of a market exceeding $500 billion but also technological leadership in key sectors such as artificial intelligence (AI), 5G, quantum computing, and numerous others.

In an increasingly digital world, the ability to design and manufacture the most advanced chips is fundamental to national security, economic development, and scientific progress of every nation. This explains why the United States, China, and Europe are investing massively in this sector with multi-billion dollar initiatives.

The balance of power in the semiconductor industry is currently being challenged by China’s rise and American countermeasures. Washington fears that Beijing could erode U.S. technological leadership and is limiting the export of advanced technologies. A new technological cold war is underway.

The nature and importance of semiconductors

Semiconductors, commonly referred to as chips or microchips, are electronic components fundamental to most modern technological devices. They are fabricated using semiconductor materials such as silicon, germanium, and gallium arsenide, and contain miniaturized integrated circuits that process and compute data and signals.

These components are ubiquitous: smartphones, computers, home appliances, automobiles, industrial and military systems. They are essential for the digital economy and enable key technologies such as artificial intelligence, 5G, and the Internet of Things (IoT).

Their strategic importance stems from several factors:

They are crucial for almost all modern high-tech products.
Their production requires extremely high levels of expertise and R&D investment.
It takes years to establish new fabrication facilities.
They facilitate advancements in key sectors like AI, cloud computing, blockchain and robotics.

For these reasons, control over the production of the most advanced semiconductors has become a battleground between superpowers like the USA and China.

The superpower competition

A veritable technological trade war is underway, with reciprocal export restrictions and billion-dollar investments from both sides to gain leadership in this strategic sector. The objective is to secure dominance in the production capacity of cutting-edge semiconductors, essential components for a multitude of military and civilian technologies. The stakes are global technological hegemony in the coming decades.

Timeline of key events in the high-tech trade war

December 2020: the USA adds SMIC and other Chinese companies to a blacklist, effectively banning the export of advanced chip-making technologies to them.
February 2021: president Biden extends Trump’s executive order prohibiting American investments in Chinese companies linked to the military.
April 2021: the USA introduces new controls to limit the export of semiconductor software and technologies to certain Chinese companies and entities.
October 2021: Washington imposes further restrictions on the export of machinery and equipment for chip production to Chinese giants like SMIC.
June 2022: China responds by adopting a law threatening to limit the export of rare earth elements to the USA, essential materials for producing advanced chips.
October 2022: the United States enacts broad controls on technology exports to limit Chinese access to the most advanced chips.
November 2022: Washington pressures allies like Japan and the Netherlands to impose similar restrictions on machinery exports to China.
January 2023: the Netherlands confirms the introduction of strict controls on the export of chip-making machinery to China.

Key players in the field

The global semiconductor industry involves several key actors, each with a specific role within the complex production supply chain. Let’s analyze the main players in this battle for technological leadership.

Taiwan: the heart of global chip production

Taiwan is the epicenter of global chip production, with Taiwan Semiconductor Manufacturing Company (TSMC) at its core. TSMC commands over 50% of the semiconductor foundry market share and is the go-to supplier for tech giants like Apple, Nvidia, Qualcomm, and AMD. The company’s technological prowess is evident in its successful production of 3nm chips, with plans for 2nm chips by 2025.

Beyond TSMC, Taiwan boasts a robust semiconductor ecosystem. Companies like MediaTek, a leading fabless semiconductor company, and UMC, another significant foundry, contribute to Taiwan’s dominance. The island’s semiconductor industry accounts for over 15% of its GDP, highlighting its critical economic importance.

United States: design and commercialization leader

The United States leads in chip design and commercialization, home to industry giants like Intel, Nvidia, Qualcomm, AMD, and Micron Technology. These companies are at the forefront of innovation in areas such as AI accelerators, high-performance computing, and mobile SoCs.

The U.S. is actively working to boost its domestic manufacturing capabilities. The CHIPS and Science Act, signed in 2022, allocates $52.7 billion for semiconductor research, development, and manufacturing. Intel’s commitment to investing $20 billion in new chip factories in Ohio is a direct result of this push for self-reliance.

Japan: chemical materials and design software

Japan’s strength in the semiconductor industry lies in its mastery of high-purity materials and precision equipment. Companies like Shin-Etsu Chemical and SUMCO Corporation control over 50% of the global market for silicon wafers, the foundation of chip manufacturing.

In the realm of semiconductor manufacturing equipment, Tokyo Electron is a key player, second only to Applied Materials globally. Japan is also investing heavily in next-generation semiconductor research, with initiatives like the Rapidus project aiming to develop 2nm chip technology by 2027.

The Netherlands: EUV lithography equipment

The Netherlands’ ASML holds a monopoly on extreme ultraviolet (EUV) lithography machines, critical for producing chips at 7nm and below. These machines, costing over $150 million each, are marvels of engineering, focusing light to create nanometer-scale circuit patterns.

The Dutch government, in coordination with the U.S. and Japan, has implemented export controls on advanced chip-making equipment to China. This move significantly impacts global semiconductor supply chains and geopolitical dynamics in the tech sector.

South Korea: Memory Chip Specialist

South Korea’s semiconductor industry, led by Samsung and SK Hynix, controls over 70% of the global DRAM market and a significant portion of the NAND flash market. Samsung, in particular, is pushing the boundaries of memory technology with its HBM3 (High Bandwidth Memory) chips, crucial for AI and high-performance computing applications.

The country is also making strides in logic chips. Samsung’s foundry business is the closest competitor to TSMC, with capabilities in 3nm chip production. The South Korean government has announced a $450 billion investment plan to strengthen its semiconductor industry over the next decade.

China: Striving for Self-Sufficiency

China’s push for semiconductor self-sufficiency is evident in its massive investments and policy support. The country aims to produce 70% of its chip demand domestically by 2025. SMIC, China’s leading foundry, has reportedly achieved 7nm chip production, though challenges remain in scaling this capability.

The country is also focusing on memory chips, with YMTC making significant progress in NAND flash technology. However, U.S. export controls have hampered China’s access to advanced manufacturing equipment and design software, presenting significant challenges to its ambitions.

Impact of the semiconductor battle on emerging technologies

The ongoing global semiconductor struggle is not merely a competition for technological supremacy; it’s a conflict that’s profoundly influencing the trajectory of crucial emerging technologies, particularly artificial intelligence (AI) and blockchain. As nations and corporations vie for control over advanced chip production, the repercussions are reverberating through the tech world, creating both opportunities and challenges.

The development of AI is inextricably linked to advancements in semiconductor technology. The most sophisticated AI models, such as large language models like GPT-4, require enormous computational resources, often demanding thousands of high-performance GPUs or specialized AI accelerators. These advanced chips, particularly those at 5nm and below, are the lifeblood of AI innovation.

However, the current semiconductor landscape is creating significant hurdles for AI development:

Innovation bottleneck: the scarcity of cutting-edge chips is slowing the pace of AI research and development. As demand outstrips supply, even well-funded tech giants are facing delays in accessing the latest hardware. This bottleneck is particularly acute for startups and academic institutions, potentially stifling breakthrough innovations that often emerge from these sectors.
AI Divide: the chip shortage, coupled with export controls, is exacerbating an “AI divide.” While top-tier tech companies and advanced economies can still access state-of-the-art chips, many researchers, startups, and developing nations are left behind. This disparity could lead to a concentration of AI capabilities among a few powerful entities, raising concerns about the democratization of AI technology.
Shift to edge AI: the push for more efficient chips is driving innovations in edge AI, where processing occurs on-device rather than in the cloud. This trend is crucial for applications like autonomous vehicles, IoT devices, and privacy-preserving AI systems. The semiconductor struggle is accelerating research into more energy-efficient AI chips, potentially leading to breakthroughs in edge computing capabilities.

The dynamics of the semiconductor industry are also significantly impacting blockchain technology and the broader cryptocurrency ecosystem.

Bitcoin mining, once accessible to individual enthusiasts with GPU-based setups, has now evolved into an industry dominated by specialized ASIC (Application-Specific Integrated Circuit) miners. This shift has been driven by the increasing computational demands of mining and the scarcity of advanced chips. The concentration of ASIC production in a handful of countries has led to a concerning centralization of mining capabilities, potentially undermining the decentralized ethos that underpins many blockchain networks.

The role of advanced semiconductors extends beyond mining, playing a crucial part in enhancing the overall performance and scalability of blockchain networks. Innovations such as sharding and layer-2 solutions, which aim to improve the throughput and efficiency of blockchain systems, rely heavily on high-performance computing capabilities. The availability and continued advancement of cutting-edge chips directly impact the scalability of blockchain technologies, a factor that will significantly influence their potential for widespread adoption across various industries.

Finally, security remains a paramount concern in the world of cryptocurrencies and digital assets. The development of more sophisticated hardware wallets and secure elements for cryptocurrency storage is intrinsically tied to advancements in semiconductor technology. Progress in areas such as secure enclaves and trusted execution environments is critical for enhancing the security of digital assets. These technological improvements are key to building trust and facilitating the broader adoption of cryptocurrencies and blockchain-based solutions. As the semiconductor industry continues to evolve under geopolitical pressures, its trajectory will play a significant role in shaping the security landscape of the blockchain ecosystem, influencing everything from individual asset protection to the integrity of entire blockchain networks.

OCTOBER 2024 UPDATES

Since this article was originally written in 2023, several significant developments have occurred in the global semiconductor landscape:

TSMC’s Arizona plant progress: TSMC’s $40 billion investment in Arizona has faced delays but is now on track. The first fab is expected to begin production of 4nm chips by 2025, with a second fab for 3nm chips planned. This move significantly boosts U.S. domestic chip production capabilities.
China’s technological advancements: despite export controls, Chinese firm SMIC has reportedly developed 5nm chip technology, narrowing the gap with global leaders. This development has raised concerns about the effectiveness of current export restrictions.
European Chip Act Implementation: the EU has made significant progress in implementing its €43 billion Chip Act, with several new semiconductor fabs under construction across member states. This initiative aims to boost Europe’s share of global chip production to 20% by 2030.
India’s Semiconductor Push: India has successfully attracted major investments in its semiconductor industry, with a $10 billion fab joint venture announced between an Indian conglomerate and a leading global chip manufacturer.
AI-Specific Chip Innovations: new AI-optimized chips have emerged, promising significant improvements in efficiency and performance for AI applications. These developments are accelerating the pace of AI research and deployment across various sectors.

My two cents

The global semiconductor struggle is more than just a technological race; it’s a complex geopolitical chess game with far-reaching implications. As an industry expert and tech advisor, I’ve observed how this battle is reshaping not only the tech landscape but also global power dynamics. The control over advanced chip production will undoubtedly be a decisive factor in the future of artificial intelligence, quantum computing, and blockchain technologies.

However, we must not view this struggle in isolation. The broader geopolitical context, including events like the ongoing Russia-Ukraine conflict and the political shifts in the United States, will inevitably influence the semiconductor industry’s trajectory. These global events can impact trade relations, technological collaborations, and investment patterns, potentially altering the balance of power in the semiconductor sector.

As we move forward, it’s crucial to monitor how different nations navigate this high-stakes terrain. The decisions made today in boardrooms and government offices will echo through our digital future, affecting everything from smartphone capabilities to the pace of AI research and the security of our digital transactions.

In my view, the key to progress lies not in isolation or protectionism, but in strategic collaboration and diversification. Nations and companies must find a delicate balance between protecting their interests and fostering global innovation. The future leaders in this space will be those who can navigate these complex waters, forging alliances while maintaining technological edge.

As an observer and indirect participant in this dynamic field, I remain committed to tracking these developments closely. The semiconductor industry’s evolution will continue to be a critical indicator of global technological progress and geopolitical shifts.

For further inquiries or assistance with technologies, feel free to reach out.

Notes and further reading

For those interested in delving deeper into the global semiconductor struggle and its implications, here are some valuable resources and recent articles:

TSMC’s Arizona Plant: