Backbone of Technological Developments: Chips - Competition and Sustainability

28.05.2024

The chip industry is one of the cornerstones of modern technology and the global economy. Devices ranging from smartphones to cars, from F-35 jets to personal computers, rely on these tiny chips for functionality. Therefore, chip production and supply are at the center of international politics and economic power balances. We are living in an age where we are gradually moving away from oil and gaining momentum with electrification and digitization. In this process, our dependence on another critical element, chips, is increasing. States have recognized the importance of controlling chip production to gain a competitive advantage in the race for technological dominance. Mastery of chip technology has become not only crucial in shaping the future of technology but also a leverage point in the broader geopolitical landscape and a highly vulnerable point of weakness. This analysis delves into the impact of the chip industry on global competition and its future direction, focusing on how competition and sustainability will be shaped. These dynamics are factors that influence both technological innovations and international relations, and these interactions are fundamental elements that will determine the future of global technology and economic policies.

Competition Dynamics: New Battlefield for Major Players

In the increasingly unstable and chaotic environment of global technology and international trade, the competition between the United States (US) and China in the context of the chip industry is crucial. Historically, the US has been a leader in chip design technology with an ecosystem of companies such as Intel and GlobalFoundries. Traditionally, Washington had only restricted the export of cutting-edge chips for military applications to China. However, in its efforts to lead in chip technologies, the US has taken steps to restrict the sale of advanced chip technologies to Chinese companies, regardless of whether they are for civilian or military purposes and has supported the local chip industry with the $280 billion CHIPS and Science Act.

With these steps, the US has pushed China towards localization by adopting blockade strategies instead of “free trade,” and subsequently, China, recognizing the strategic importance of chips, has embarked on an ambitious mission to develop its domestic chip capabilities. Under initiatives such as “Made in China 2025,” China has allocated significant resources to chip research, production, and skill development. Following this initiative, concerns have arisen that China’s military and economic power is growing faster than expected, and there are concerns that the US is using its commercial technologies for this purpose.

In addition to the CHIPS Act, which is one of the concrete steps of US-China chip competition, there are also US sanctions, and it is observed that the US is forcing allies such as Japan, South Korea, and the Netherlands to impose sanctions on China. In particular, Advanced Semiconductor Materials Lithography (ASML), the most valuable company in the Netherlands and a chip-producing machine supplier, has been prevented from providing maintenance and repair services for chip production equipment to Chinese customers. Such restrictions aim to limit China’s acquisition and production capabilities of advanced chips, especially products or technologies used for supercomputing and artificial intelligence training.

In response, China continues its efforts to localize every stage of its production as an alternative path in chip competition. Many critics have argued that China has lagged behind in chip production from the most advanced technologies for years. This is because until very recently, China believed it could purchase this equipment from other countries. However, now, due to US sanctions, China, which is forced to follow the localization path, is interpreted as eventually being successful. When that time comes, it is likely that the decisions of states such as the US, Japan, Korea, and the Netherlands to regret will come when they lose their Chinese customers completely. Indeed, it is observed that allies who do not want to lose the Chinese market are resisting US pressure. On the other hand, South Korea emerges unexpectedly as the one suffering from US pressure. With more than a 20% decline in chip exports to China, South Korea faces the harsh realities of conflicting with US hegemony in global trade dynamics. It brings to mind Henry Kissinger’s saying, “Being an enemy of the United States is dangerous, but being its friend is deadly.”

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    ‎مركز الشؤون الدبلوماسية والدراسات السياسية

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