Latest news with #ChipWar
Mint
3 days ago
- Business
- Mint
Resource war: How commercial assets turned into front line weaponry
Chennai: Recently, J.D. Vance, the US vice president, confirmed what the world feared. He termed the competition between the US and China in developing artificial intelligence (AI) as an 'arms race'. Policy makers in both the countries believe that whoever wins this race will dominate the world, going forward. At the core of this battle is computing power and this has given a fresh impetus to the chip war that began between the US and China five years ago. In May 2020, during his first term as the president of the US, Donald Trump fired the first salvo. The US commerce department added Chinese tech giant Huawei Technologies to the 'Entity List', a measure which prevented the company that sells smartphones, telecom equipment and cloud computing services from accessing advanced computer chips produced or developed using US technology or software. The reason? The US feared that Huawei's attractively priced products, backed by Chinese government subsidy, would soon dominate the next generation telecom networks, ending American clout in the field. The move had a debilitating impact on Huawei. Its global expansion took a hit and revenue crashed. 'A corporate giant faced technological asphyxiation," Chris Miller, in his book Chip War, wrote. According to him, this development reminded China of its weakness. 'In nearly every step of the process of producing semiconductors, China is staggeringly dependent on foreign technology, almost all of which is controlled by its geopolitical rivals—Taiwan, Japan, South Korea or the US," he wrote. China began investing billions of dollars to develop its own semiconductor technology in a bid to free itself from America's chip choke, he added. But the US is in no mood to make this endeavour easy for China. It has progressively tightened restrictions on China's semiconductor sector. The 'Entity List' has since grown to include over 140 Chinese companies—fabrication units, semiconductor tool companies and even investment companies that operate in the sector. Restrictions have extended from chips with high bandwidth memory to semiconductor manufacturing equipment and software tools. China, which sees US restrictions as an attempt to deny it the technological greatness it deserves, has retaliated. It began imposing restrictions on export of critical and rare earth minerals that are crucial for production of weapons, semiconductors and electric vehicles. There are 17 rare earth minerals and China has absolute control on most of them (see chart). In October 2023, it introduced export permits for graphite needed to produce lithium ion batteries. In December that year, it banned transfer of rare earth minerals extraction and separation technologies and the technology to make magnets. China, over the years, has mastered these technologies. In the same month, it banned the export of antimony, gallium and germanium apart from imposing stricter review of graphite exports to the US. In February 2025, in response to Donald Trump imposing 10% tariffs on all Chinese products, the middle kingdom added five more critical minerals— tungsten, indium, bismuth, tellurium and molybdenum to the export control list. This meant that companies require special export licenses to export the minerals. On 4 April, after Trump's Liberation Day tariffs, China further added seven more minerals and magnets to the export restrictions list. There is no clarity whether these restrictions have been suspended after the recent US and China trade talks in Geneva. The US is now scrambling to find alternate sources for these minerals. All of a sudden, economic resources which were till recently seen predominantly as commercial assets, have acquired new edge as strategic instruments. They are no longer controlled just by the market— geopolitics has a greater say over them. A short history Demand for resources began to rise after the Industrial Revolution in 1760 which introduced the use of metals such as iron and steel. The rise of mechanized factory systems increased output and thus, demand for resources. As the demand rose, countries such as Great Britain, France and Belgium began colonizing the world in search of resources. 'Colonization was all about exploitation of natural resources," said S. Gurumurthy, writer and a corporate advisor. The British empire met its demand for cotton, tea, leather, coal and iron ore from India for almost two centuries, he added. Post World War II, resources were seen as market instruments. They were freely traded for a price. According to the World Trade Organization, between 1950 and 2024, global trade volumes grew by 4,500%. 'It was also a period when countries used trade to increase co-dependence in the hope that it would enhance peace and welfare," Dhruva Jaishankar, executive director, Observer Research Foundation — America, said. Europe bought gas from Russia in the hope that the latter would leave them alone. The US built a strong economic relationship with China on the assumption that the Asian nation could integrate with the global economy, eliminate poverty, and embrace democratic principles. Of course, trade in resources has not been entirely free. Nations have imposed restrictions. In the last 75 years, the US is the biggest culprit. As a sole super power, it denied various countries technology and resources that it deemed were dual use—for both civil and military applications. As the US-China rivalry intensifies, the weaponization is spilling beyond dual use technologies. China, it appears, is not loath to leveraging the domination it has built in the global economy. The new normal China accounts for more than 30% of global manufacturing output. This is the highest concentration of manufacturing in one place," said Jaishankar. The US had a similar share for a short period of time immediately after World War II when the protracted war had destroyed much of production facilities in mainland Europe and Japan. 'China has managed to achieve this without a war," he said, adding 'it is now trying to use its manufacturing power as a strategic leverage." It is not just manufacturing. Consider China's domination in the shipping space. It controls over 100 ports across 63 nations. As of 2022, it had 96% share in container production, 48% of global ship building orders and 80% of ship-to-shore cranes. It has similar domination across many sectors. 'What is worrying is that China has revealed its intention to weaponize goods, logistics or the entire supply chain," said an Indian government official who did not want to be identified. There is a conscious attempt by China to make the world depend on it. Simultaneously, it is reducing its dependence on the world. The restriction on export of rare earth minerals is just a beginning, he added. The resentment For more than four decades, China had silently focused on growing its economy. It eased rules to attract manufacturing taking advantage of its low wage costs. It invested in infrastructure—power, roads, ports and airports. It enabled building factories at unheard of scale which substantially reduced the cost of production. Global brands rushed to China to take advantage of it. Until a few years ago, 85% of all iPhone produced by Apple were assembled in China. At one point in time, almost all of Nike's shoes were produced in China. There were warnings within the US about this excessive dependence. Michael Pillsbury's book, The Hundred-Year Marathon, detailed China's secret desire to upstage the US as a global superpower. He, indeed many others, pointed out that China harboured a deep resentment and a sense of injury for losing its status as a middle kingdom when it dominated the world—economically, culturally and militarily. In the early 1700s, China (and India) had a large share of the world economy. On the eve of the Industrial Revolution, in 1760, it accounted for a third of the global economy. In the two centuries that followed, it lost out significantly. By 1979, China's share of the global economy was just 2%. Chinese consider the period between 1839 and 1945 a 'century of humiliation' that saw political fragmentation, decline and subjugation by foreign powers such as Russia, Japan and the West. The Chinese yearned to regain this lost glory. Today, China has 19% share in the global GDP, fast catching up with the US' 27%. Late wakeup call Policy makers in the US, for years, took a benign view of China's growth. Pillsbury pointed out that they saw their China policy as a commercial win and ignored the strategic dimension. Only when China began to assert itself, did they realise the depth of US' dependence on China and its real motive. It is not a surprise that Pillsbury, as Trump's advisor, is the architect of US' China policy now. Today, the US and China are engaged in a contest. The US is playing to its strength by denying advanced technology to China. By focusing on the massive $295 trade deficit (in 2024) and imposing massive tariffs, the Trump administration wants to reduce its dependence. China, for its part, is thinking long term to upstage the US. Lizzi Lee, a fellow at the Asia Society Policy Institute's Centre for China Analysis, best described its strategy in a recent Financial Times article. He wrote: 'Xi is not looking to win the trade war in a conventional sense. He's positioning China for a drawn-out, grinding, contest by building domestic capacity, hardening supply chain and rooting out perceived vulnerabilities to foreign pressure." India play As the US and China fight for supremacy, India needs to have a strategy to deal with the fallout. 'Countries, be it China or the US, have exclusive rights over their resources. Weaponizing such resources is the new normal," said Ajay Srivastava, founder, Global Trade Research Initiative, a trade focussed think tank. India needs to put in place policies to minimise the impact of such decisions. India should identify and develop resources that the world would need and use it as a bargaining chip, he added. 'India may lack such resources now but we need to identify those and invest now," Gurumurthy added. China, Jaishankar said, does not have all the resources within its nation. It had worked assiduously to tap these critical minerals across the world, especially from African nations. China's strength, he added, is in developing the ability to process them in an effective manner. 'India needs to follow a similar strategy. We should strike deals with nations which have these resources and import the mineral for processing in India. That will give us control over it," he explained. India has already drawn up a list of critical minerals and has taken steps to secure them. It is part of the Mineral Security Partnership, a multi-nation initiative led by the US comprising 40 countries. It has struck, or is close to striking, a few deals in Latin America and Africa. But processing the minerals is easier said than done. It is capital intensive and requires a long lead time. Investors don't support such projects unless there is a strong business case. Experts have also suggested that India should frame policies to suit its strengths. Some have questioned pushing electrification of vehicles in a big way. With India lacking the raw material to make batteries, the rise in electric vehicles will shift India's energy dependence from West Asia to China. Others have recommended that India should invest heavily in taking a lead in green hydrogen. India is blessed with abundant sunlight and focus on storage systems can help it use solar power to drive green hydrogen efforts. India's efforts, such as production-linked incentives, have cut its dependence on China for solar cells and modules. More needs to be done if India has to become self-sufficient. To make all this possible, the country, particularly its private sector, would need to invest in research and development. If there is one thing that can come in India's way is its hubris, warned experts. 'What is needed is a long term vision and a step-by-step approach to achieve it," GTRI's Srivastava said.
CNBC
12-05-2025
- Business
- CNBC
Chris Miller: The Trump admin. believes tariff threats have led to more chip investments in the U.S.
Chris Miller, Tufts Fletcher School associate professor and 'Chip War' author, joins 'Squawk Box' to discuss the U.S-China trade breakthrough, impact on the chips sector, what the tariff rates for chips will be, semiconductor investments in the U.S., and more.
WIRED
04-03-2025
- Business
- WIRED
Trump Still Considering Tariffs on Taiwanese Chips, Despite $100 Billion TSMC Deal
Mar 4, 2025 3:27 PM Enforcing the tariffs on Taiwan would be difficult, and they wouldn't necessarily be enough to meaningfully increase semiconductor manufacturing in the United States, experts told WIRED. People walk out of the Taiwan Semiconductor Manufacturing Company (TSMC) Museum of Innovation at its headquarters in Hsinchu. Photograph: I-Taiwan Semiconductor Manufacturing Company, the world's top producer of advanced computer chips, said Monday that it was planning to invest $100 billion in the United States to fund five new fabrication plants in Arizona. TSMC Chief Executive Officer C.C. Wei shared the news at the White House alongside President Donald Trump, who characterized producing chips in the US as 'a matter of economic security.' 'By doing it here, he has no tariffs,' Trump told reporters, referring to Wei and TSMC. But the deal has not ended deliberations inside the Trump administration about potentially imposing tariffs as high as 100 percent on TSMC and other Taiwanese chip makers, according to a person familiar with the matter. One version of the plan, the person says, would involve placing import duties not just on Taiwanese chips themselves, but also on electronic devices that contain them, such as Apple iPhones. The White House and the Department of Commerce did not immediately respond to requests for comment. TSMC declined to comment. In January, Trump told House Republicans that in 'the very near future, we're going to be placing tariffs on foreign production of computer chips,' in order to 'return production of these essential goods' to the United States. Wide-ranging chip tariffs like the ones Trump's team have been considering have not been carried out in the past, and the unique way semiconductor supply chains work raises serious questions how effective they would be as a trade policy. Raising tariffs could also increase costs for tech firms in many countries and make a range of finished products more expensive for Americans. 'TSMC might make a bit less money, the fabless company that designs the chips might make a bit less money, and the end company that actually sells the products that the chip is assembled into might also find their product margin squeezed,' says Chris Miller, a history professor at Tufts University and the author of the book Chip War . Experts say that actually enforcing the tariffs would also be an incredibly difficult and potentially impossible task for the US government. The semiconductor industry is so distributed and globalized that there are many potential workarounds firms could use to try to dodge them. 'I'd expect a fair amount of pushback from the industry against these tariffs. Not only the chip industry, but probably more so the companies that use chips,' Miller says. Unique Supply Chain No matter how high they are, there are two main reasons why US tariffs on Taiwanese chip imports might not be very impactful and probably won't succeed in increasing manufacturing in the US the way that Trump hopes. First, TSMC chips are typically not imported to the US by themselves, making it hard to tax them directly. For example, when TSMC produces iPhone chips for Apple, those smartphones are typically assembled in factories located in China or India. When they eventually arrive at US Customs, they are taxed as electronic devices arriving from those two countries. Secondly, tariffs can only make foreign companies start producing chips in the US if it becomes cheaper than doing it somewhere else. But higher American labor costs and the country's lack of a sophisticated semiconductor supply chain means moving manufacturing there will take years, if not decades, and there's little guarantee that such US outposts will be profitable. Faced with US tariffs, it could make more sense for Taiwanese companies like TSMC to simply move production to a third country instead to avoid paying them. But the Trump administration could choose to expand the tariffs to all countries, effectively making production in the US the only viable alternative. It could alternatively apply the tariffs to any end products that contain Taiwanese chips. The latter idea would constitute a significant disruption to the semiconductor industry. A single smartphone can have dozens of chips inside responsible for a range of different functions; a car can potentially have thousands. Figuring out which of them have components from Taiwan, how much those components should be taxed, and how difficult it might be to find replacement products would put a heavy burden on end product companies. Semiconductor companies are likely unprepared for such a scenario, especially since their products have been mostly spared from tariffs in the past. 'The industry around the world has never dealt with chip tariffs like this before,' says a Taiwan-based semiconductor industry insider who publishes public commentary under the alias Hsu Mei-hu. 'It's theoretically possible, but nearly impossible in practice.' The policy would force companies like Apple to ask every one of their suppliers about the cost of the many kinds of chips it uses, just to determine the appropriate amount of tariffs to declare. 'And after it's declared, how does the customs inspect it? If I just put a random value down, how would the customs know?' Hsu says. The Biden administration had previously discussed using component tariffs against Chinese chip makers to weaken the country's semiconductor industry and protect US national security. But one of the main arguments against the idea was that it would be logistically difficult to implement, says Miller. Miller says component tariffs are certainly under consideration in Washington again this time, but it would be even more challenging to enforce them on Taiwanese chip imports because they play a much wider and more important role than Chinese chips do. 'If you were concerned about the administrative complexity of component tariffs solely vis-a-vis China, you ought to be even more concerned about the administrative complexity vis-a-vis Taiwan,' he says. Biggest Losers TSMC stands to lose less from potential US tariffs than other companies due to its unparalleled weight in the industry. TSMC currently makes roughly 90 percent of the most advanced chips worldwide, and its production lines are currently operating at full capacity. If Trump raises tariffs and that forces TSMC to increase its prices, the company could lose some orders to competitors, but experts say that isn't really a big concern. But it will likely be hard for TSMC's clients to quickly find alternatives. Even though companies like Samsung and Intel have achieved comparable knowhow in high-end chip manufacturing to some extent, it would be time-consuming, pricey, and risky to move mature production processes out of TSMC factories. So rather than going for another chip maker, American companies like Apple and Nvidia are likely to keep footing the bill for TSMC products, and eventually pass on the higher costs to their customers. But other, smaller Taiwanese companies that work in chip design, manufacturing, packaging, device assembly, and related sectors are less able to pass down the costs to their clients, and therefore are more vulnerable to tariffs. Arisa Liu, a researcher and director at Taiwan Institute of Economic Research says there's a mismatch between what the tariffs are meant to achieve and which companies would actually feel the heat. 'What the US wants is for TSMC to invest in manufacturing in the country—they don't have much interest in other Taiwanese companies. But these companies will feel the ripple effect,' she says. What Matters to TSMC President Trump has repeatedly framed the threat of tariffs as a negotiating tactic, including in discussions about TSMC and Taiwan. TSMC's announcement on Monday shows that the company can't afford to ignore pressure from the Trump administration. 'The majority of TSMC's clients are American companies, the US government is the most powerful government in the world, plus the core semiconductors technologies mostly come from the US,' Hsu says. But TSMC's $100 billion investment isn't entirely unexpected. The company has already opened one Arizona factory, which started production last year. There are also reportedly other potential deals on the table that don't involve tariffs, including TSMC forming a partnership with Intel to help revive the struggling US company. Hsu says if TSMC could get its American clients like Apple, Nvidia, AMD or Qualcomm to also invest in the deal, it could achieve a high level of control without spending much money. She points to TSMC's joint ventures in Europe and Japan as examples, where the company holds over 70 percent stakes in local manufacturing plants. But partnering with Intel would come with a multitude of challenges too, says Liu. TSMC would need to worry about protecting its trade secrets, preventing Intel from becoming a strong competitor one day, and also avoiding alienating TSMC's established partners in chip design. For now, what's clear is that TSMC will need to continue finding the best ways to navigate the chaos of the Trump administration while preserving its own interests. Additional reporting by Louise Matsakis.
Bloomberg
22-02-2025
- Business
- Bloomberg
Can the Supply Chain Keep Up with AI?
As AI's capabilities grow, so does demand. The supply chain is under pressure to keep up with the rapidly improving technology. We talk to Nobel Laureate Geoffery Hinton and "Chip War" author Chris Miller. (Source: Bloomberg)
