The United States and its allies, Taiwan, South Korea, Japan, and the Netherlands, are engaged in an existential battle for semiconductor supremacy. Chips are at the heart of the artificial intelligence revolution. Semiconductors enable the computation that powers data centers and the physical infrastructure required for AI.
At the center of the struggle is access to advanced manufacturing machines and associated technology. Here, the U.S. enjoys a large advantage over China, with full access to the technology of the Dutch company ASML. The most sophisticated chips, those with the smallest features measured in nanometers, require ASML’s extreme ultraviolet lithography systems, which are essential for leading-edge semiconductors.
Taiwan Semiconductor Manufacturing Company, by far the world’s most advanced chip manufacturing company, is fabricating 2-nanometer chips, with ASML’s EUV technology, while China’s leading semiconductor manufacturer, Semiconductor Manufacturing International Corporation, SMIC, is struggling to fabricate 5-nanometer chips. Smaller chips are faster and consume less energy.
Due to export controls imposed by the U.S. and the Netherlands, China is barred from accessing ASML’s most advanced equipment and technology. Importantly, each ASML EUV machine weighs about 330,000 pounds and costs in excess of $380 million. Machines of this size cannot be smuggled across borders.
Recent media reports suggest that China managed to steal trade secrets from ASML, which will help China develop better chips. But China will not be able to deploy the stolen intellectual property until 2030 or later. In the meantime, ASML is aggressively investing in more advanced EUV technology. Some experts argue China is a decade behind in fabrication technology.
The U.S. is also far ahead of China in semiconductor design. American engineers invented semiconductors 65 years ago, and the U.S. semiconductor industry remains the global leader, commanding just over 50% of global chip revenues. American engineers design the most advanced chips, and TSMC makes the chips.
The economic power of Nvidia illustrates the technology advantage that the U.S. maintains over China in semiconductor technology. Nvidia has a 90% share of the global market for accelerated computing chips. China goes to extreme lengths to obtain chip technology designed by Nvidia. China resorts to economic espionage to obtain Nvidia’s intellectual property. China sets up shell operations in countries such as Singapore and Malaysia to get access to Nvidia’s technology. China deceives when it says it does not need Nvidia’s chips.
Beyond equipment, China suffers from deeper systemic deficiencies that cannot be solved through espionage or subsidy spending. Semiconductor design and fabrication demand specialized human capital, decades of experience, and a culture of iterative learning. Despite China’s strong universities, the country still lags in developing and retaining highly skilled engineers required for cutting-edge chip design and manufacturing. Skilled talent tends to flow toward established technology hubs, such as Silicon Valley, Taiwan, South Korea, and Europe.
China’s domestic industry also faces efficiency and management challenges. A number of ambitious fabrication facilities, sometimes termed “zombie fabs,” have stalled or failed outright, burning tens of billions of dollars without producing competitive results. China’s state-controlled economy destroys capital.
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Now China’s AI and semiconductor industries face another challenge. Chinese President Xi Jinping is worried that AI technology could undermine his authority and the power of the Chinese Communist Party. The apparatus of the party is beginning to impose controls on the development of AI. This will hobble innovation in China while benefiting the U.S. and its allies.
As long as the U.S. remains committed to free market capitalism and technological innovation, the country will remain well ahead of China in semiconductor technology and AI for many years.
James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He publishes a daily Substack on financial markets, politics, and society. He can be followed on X and reached at [email protected].
