Understanding Why Chip Manufacturing Started An Arms Race

Today, electronic devices and gadgets play a significant part in our lives. Nations worldwide are making electronic appliances to gain an edge and capitalize on the ever-evolving market. One of the most important components in electronics manufacturing is chips or semiconductors, which have started a chip war worldwide. These are small transistors situated on the circuit board and allow the different components of electronic devices to communicate. These small chips are the most important part of any gadget or appliance. However, the recent shortage of chips has emerged as a big problem for companies that deal in electronics. For this reason, nations are fighting to manufacture more chips and become an industry leader. The high stakes and incredibly competitive nature of the semiconductors market have always been a battle group for manufacturers, but now, even the governments are joining in. So, in the blog, we will talk about how the race to manufacture semiconductors transformed into a chip war. 

Why Is There A Chip War?

There is a semiconductor chip in every electronic device, whether it is an AI model, electric vehicle, or guidance system for supersonic missiles. This is why chips are extremely important for every country, ensuring that it can develop advanced technologies. Today, most of the chip technology innovations and manufacturing equipment come from the USA. However, the biggest consumer of those chips in the world is China because most of the tech in the world is manufactured there. For this reason, China has been making strides to manufacture more and more chips. This is why Washington is keen to control chip technology. Congress is trying to limit the technology the USA gives to China, mostly to stay clear of any potential national security threats. 

However, China is no slouch and has been pumping billions of dollars into the chip war and making state-of-the-art facilities so that it can reduce its dependency on the USA. Another reason for China looking to reduce its reliance on the West is that the USA has been placing sanctions on China and its companies, which makes acquiring the tech much more difficult. The USA and Europe are also pumping a lot of money into establishing chip manufacturing facilities to win this chip war. Moreover, this will decrease the reliance of the West on Asian manufacturers. 

Who Controls The Global Chip Supply?

The only way to win this chip war is by controlling the global chip supply. Currently, chip manufacturing units are very expensive and require a robust infrastructure and power supply to run and produce chips. For this reason, the number of chip manufacturing countries has reduced to a mere few, such as Taiwan Semiconductor Manufacturing Co. (TSMC), South Korea’s Samsung Electronics Co., and Intel Corp. 2 of these countries are in China, and one is in North America.  This shows that the global supply chain of chips is currently in the hands of the Asians, hence the chip war. When it comes to super advanced, AI-capable chips, TSMC is at the top. According to various sources, TSMC makes around 90% of all advanced chips, making it the go-to company for OEMs (Original Equipment Manufacturers)  like Nvidia, Microsoft, and Google. This is another reason why China takes this chip war very seriously: Taiwan is China’s arch-nemesis, and China, at all costs, wants to take the chip business from Taiwan. As mentioned below, China is pumping billions of dollars into the chip manufacturing industry. However, the technology is still out of its grasp due to sanctions by the USA and soured relations with Taiwan. 

How Is The World Reacting To It?

Now, the question is, if this chip war is so paramount, why aren’t more countries participating? Also, what are the countries doing to win this arms race?

Let’s find out. 

  • The US imposed strict sanctions on importing chip-manufacturing technology and equipment to China to prevent China from developing capabilities that would threaten the US, such as supercomputers and AI infrastructure. Moreover, countries like Japan and the Netherlands have also partnered with the USA to ensure that China doesn’t acquire cutting-edge technology. 
  • China is also not very behind, though. After the USA banned China’s biggest tech company, Huawei, from getting the latest chip technology, things were looking dire for the company. However, Huawei has recently announced its Mate 60 Pro phone, which has its flagship SoC, Kirin 9000 chip. However, the twist was that the processor had 7nm chips in it, which Huawei shouldn’t have on paper, considering that it’s an American technology and Huawei is banned from acquiring it. 
  • So, after the sanctions were rendered useless, Congress devised another plan. They are planning to  provide $50 billion of federal money to support semiconductor manufacturing in the USA. This is under their Chips and Science Act. 
  • Similarly, the European Union (EU) has also released around $46 billion to jump-start semiconductor chip manufacturing in Europe and gain a foothold in this chip war. 
  • Japan has also followed suit and introduced $26 billion in funding to revitalize its semiconductor manufacturing. It plans to provide this money to government and private sectors; if needed, the funding can go up to $65 billion. 

Where Will This Chip War Go?

The chip war is on and only time will tell which country will lead the world in chip manufacturing. These chips are the most important thing in the world right now. Some people even compare it with crude oil, in terms of money and influence over the world. We hope you enjoyed our blog. Tradeflock brings you the best and most accurate blog to stay up to date with the business landscape of the USA. So, stay tuned and comment to let us know what you’d like to read next.

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