#068 US vs China: The Escalating Battle for Semiconductor Dominance.
Fresh & Hot curated AI happenings in one snack. Never miss a byte 🍔
This snack byte will take approx 5 minutes to consume.
AI BYTE # 📢: US vs China: The Escalating Battle for Semiconductor Dominance
⭐ Semiconductors, the building blocks of modern technology, are at the heart of the ongoing trade war between the US and China.
Both countries are vying for dominance in this strategic sector1. The US has long been the global leader in semiconductor innovation and production, but China has been catching up fast, investing billions of dollars in developing its own chip industry.
Recently, the US imposed new export restrictions on China that significantly constrict sales of advanced semiconductors to the Chinese market.
These rules require US companies to obtain a license before exporting certain types of chips to China, especially those made with American technology or equipment.
The rules also apply to foreign chipmakers that use American technology or equipment, such as Taiwan’s TSMC, a major supplier to Chinese tech giants like Huawei and SMIC.
The US government says these rules are aimed at preventing China from acquiring sensitive technology that could be used for military purposes or human rights violations.
However, some analysts argue that these rules are also motivated by economic and geopolitical interests. The new rules have already had a significant impact on China’s semiconductor industry, which relies heavily on imports of foreign chips and equipment.
According to a report by IC Insights, a market research firm, China’s chip imports fell by 12% in the third quarter of 2023, compared to the same period in 2022. The report also estimates that China’s chip production will grow by only 4% in 2023, down from 14% in 2022.
The new rules have affected some of China’s leading chip companies, such as Huawei and SMIC. Huawei has seen its smartphone sales plummet as it struggles to find alternative suppliers.
SMIC, which is China’s largest chipmaker and a national champion, has been added to a US blacklist that restricts its access to American technology and equipment.
The new rules have not only hurt China’s chip industry but also raised concerns among some of its trading partners and allies. Some countries, such as Japan and South Korea, have expressed worries that the rules could disrupt their own chip supply chains and hurt their exports to China.
Some European countries have also voiced their opposition to the rules, arguing that they violate the principles of free trade and multilateralism.
The new rules have sparked a debate among experts and policymakers about the implications of the US-China rivalry in semiconductors for the global economy and security.
Some argue that the rules could lead to a bifurcation of the global chip market into two incompatible camps: one led by the US and its allies, and one led by China and its partners. This could result in higher costs, lower efficiency, and reduced innovation for both sides.
Others contend that the rules could incentivize both sides to invest more in their own chip industries and foster more cooperation among like-minded countries. This could enhance their competitiveness, resilience, and diversity in the global chip market.
The new rules are likely to remain in place for the foreseeable future. The US has indicated that it will continue to use export controls as a tool to protect its national security and economic interests. On the other hand, China has vowed to retaliate against any unfair trade practices and accelerate its efforts to achieve self-reliance in semiconductors.
In response to these restrictions, Intel and Qualcomm are among top US semiconductor companies with high revenue exposure to China (combined $45 billion in 2022).
Their sales’ share in China declined by 2-3 percentage points from 2021-22. Most non-Chinese semiconductor companies have a double-digit revenue share exposure to the country, which may experience a decline over 2023.
In the US, the supply chain crisis, which can be traced back to the last decade, has led to a shortage of semiconductor chips. This shortage is crippling the world’s economy and leaving Americans short on personal electronics and cars.
The US government policy is oriented around making these exact chips harder for China to manufacture. This has resulted in hundreds of thousands of ships full of imported goods from Asia being piled up outside of Los Angeles and other major ports.
For Chinese consumers, the rules have led to dramatic consequences. For instance, they prevented Huawei and ZTE from licensing Google’s homegrown version of Android, significantly hobbling Huawei-made smartphones sold in The West, because they couldn’t offer the Google Play app store or access to other Google services.
In general, when the cost of semiconductors rises, the cost of electronic circuits is also likely to go up. This makes it likely that consumer electronics would become more expensive to produce and to buy.
In other words, the average consumer may not see an immediate change, but in the long-term, the prices on consumer electronics could very well trend upward.
The new trade rules come at a time when the US is getting increasingly worried about China’s growing geopolitical power and will affect not only computer equipment but many consumer products built on the restricted semiconductor technology. They also signals the slowdown of the ever-expanding globalization.
As we move forward into this new era of technological competition, it is crucial for all stakeholders - governments, businesses, researchers - to understand these dynamics and navigate them strategically.
The outcome of this contest will have far-reaching consequences for the future of technology and world order.
