As Chris Miller observed, semiconductors are to the 21st century what oil and steel were to the 20th century.
Between 1937 and 1941, Japan’s war against China influenced U.S. relations with Tokyo. After 1940, the United States began to impose export controls on the trade of all items useful to the Japanese military. This motivated imperial Japan to lash out before it lost the means of waging effective war. The U.S. is now imposing similar controls on Communist China. And although necessary, the Biden administration‘s restrictions on semiconductor exports to Beijing bring a war with China closer.
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Last week, the Department of Commerce’s Bureau of Industry and Security announced new export controls that are designed to restrict China’s ability to obtain, design, and fabricate advanced semiconductors. BIS observed that “China has poured resources into developing supercomputing capabilities and seeks to become a world leader in artificial intelligence by 2030. It is using these capabilities to monitor, track, and surveil their own citizens, and fuel its military modernization.”
The export restrictions are a significant escalation in Sino-American tensions. Today, the U.S. has almost a 50% market share in research and development, design, and process technology. South Korea and Japan follow with market shares of 20% and 10%, respectively.
The Achilles’ heel of U.S. policy toward China is Taiwan’s position as semiconductor fabrication king. Taiwan Semiconductor, TSMC, has a 53% share of the global semiconductor fabrication market. U.S. companies design the semiconductors, and TSMC fabricates the chips. Other Taiwan-based manufacturers claim a further 10% of the market.
Only TSMC and Samsung in South Korea can make the most advanced semiconductors. U.S. national security is at risk because of dependence on semiconductor fabrication facilities located near China.
In turn, the U.S. is rushing to build domestic semiconductor facilities. TSMC is building a facility in Arizona. Intel is building a fabrication facility in Ohio, which would be the world’s largest. And Micron has announced that it will construct a large fabrication facility in upstate New York. Unfortunately, the three fabrication facilities won’t be operating before 2024 at the earliest.
China is very aware of America’s window of semiconductor fabrication vulnerability. The drumbeats of war are growing louder.
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James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He writes a daily note on finance and the economy, politics, sociology, and criminal justice.
