The Fight for the World’s Most Critical Technology

“The smarter the world gets, the more the need for semiconductors.”

“Modern life depends on semiconductors – similar to our dependence on oil.”

“Semiconductors are the economic backbone of the 21st century.”

“The raw materials for semiconductors (rare earths) are fast becoming more important than oil and gas.”

What does Greenland, Ukraine, and Taiwan all have in common? Semiconductors or the raw materials needed for semiconductors. Why are rare earths now important enough to leverage the end of a war? Semiconductors.

Steel and aluminum decided World War II, which was followed shortly thereafter by the Cold War, which was defined by atomic weapons. The rivalry between China and the United States may well be decided by computing power.

During the crises of the Cold War, the US military had used threats of brute nuclear force. Today, it relies on microelectronics and precision strikes.

Cold War 2.0 is in session, and it’s not an arms race but a semiconductor race. 

When did it start? Likely 2017/2018 under the first Trump administration; however, on August 18th, 2020, everything changed dramatically when an (until then) obscure US Commerce Department regulation called the Entity List was dramatically tightened. The Entity List limits the transfer of American technology abroad. Up until August 2020, the Entity List had been used primarily to prevent the sale of military systems like missile parts or nuclear materials. The US government was drastically fastening the rules governing computer chips, which had become omnipresent in both military systems and consumer goods.

The target was Huawei, China’s tech giant. Huawei had discovered that, like all other Chinese companies, it was fatally dependent on foreigners to make the chips upon which all modern electronics depend.

China now spends more money each year importing chips than it spends on oil, devoting its best minds and billions of dollars to developing its own semiconductor technology in a bid to free itself from America’s chip choke.

Most of the world’s GDP is produced by devices that rely on semiconductors. This is an extraordinary ascent for a product that didn’t exist seventy-five years ago.

In the 1960s, Gordon Moore, the co-founder of Intel, an early chip manufacturer, noticed that the company could double the number of “transistors” it packed onto a given silicon area every year. Moreover, since computing power seemed to be correlated with chip density, he formulated Moore’s law, which indicated that computing power would double every two years – a compound annual growth rate of 41% -which explains why the A15 processor in any Apple iPhone ( has 15bn transistors) has vastly more computing power than the room-size IBM computer students used in the 1960s ad 70s. There are now 12 to 12 semiconductors in every smart phone.

Inescapably, then, computers need chips. However, what that increasingly means is that nearly everything needs chips. Why? Because computers are embedded in almost every device we use—and not just in things we regard as electronic. One of the things we learned during the pandemic was that cars and tractors need chips simply because their engine-control units are small, purpose-built computers.

Once COVID-19 hit car sales, semiconductor manufacturers switched their production lines to serve other—much more significant—customers. And then, as things started to return to normal in 2021, car manufacturers discovered that they had slipped to the back of the semiconductor queue—and their production lines ground to a halt. The same goes for microwave cookers, washing machines, and refrigerators.

Making chips is a phenomenally demanding and expensive business. It requires enormous capital investment, extreme cleanliness, quality control, and formidable expertise. Most of those ingredients are concentrated in one organization—the Taiwan Semiconductor Manufacturing Company (TSMC), a silicon “foundry” – a contract manufacturer. In other words, TSMC designs chips for other organizations like Apple, Qualcomm, Arm, and Nvidia. Moreover, without TSMC, these corporations would have difficulty turning their leading-edge circuit designs into products.

In the decades when the West was still high on the globalization drug, the fact that things we relied on were manufactured elsewhere did not bother us. Apple could cheerfully boast that while its phones were designed in California, their processors were made in Taiwan and assembled in China. The fact that there was no alternative to TSMC in the West likewise seemed unproblematic.

The US has imposed a wide range of swinging export controls on tech products, including a measure to cut China off from semiconductor chips made with US tools anywhere in the world. The aim is to slow down Chinese progress towards high-end chip fabrication. At the same time, a genteel stampede is underway to build chip fabrication plants in the US and continental Europe. TSMC is even building one in Arizona, possibly lured by more than $50bn (now $100 billion) in incentives offered by the US government. However, it will not be ready for prime time for quite a while.

Underpinning all these developments is a geopolitical nightmare. Like the West, China lacks its high-end chip fabrication capability, and TSMC is in Taiwan, which the Beijing regime considers part of the motherland – and just across a narrow body of water. As the economist put it, TSMC makes 84% of the most advanced chips, and “were production at TSMC to stop, so would the global electronics industry, at incalculable cost. The firm’s technology and know-how are perhaps a decade ahead of its rivals, and it will take many years of work before either America or China can hope to catch up.” In that editorial, the paper described Taiwan as: “The most dangerous place on Earth.”

In the age of AI, data is often said to be the new oil. However, the fundamental limitation we face is not the availability of data but processing power.

Producing semiconductors is mind-bogglingly complex and horrendously expensive. Unlike oil, which can be bought from many countries, computing power production depends fundamentally on a series of choke points: tools, chemicals, and software often produced by a handful of companies.

No other facet of the economy is so exposed, so dependent on so few companies. 

Contact us if you’d like to learn more about the benefits of owning the raw materials needed to produce semiconductors as physical assets.

Sources – The Guardian –  Chip Wars