How the Semiconductor Became a Dominator on the Geopolitical Stage
A cutthroat global rivalry between America, the world’s largest economy, and China, the second-largest economy since 2010, has been unfolding over the past decade. Although this century-defining contest between these two powerful nations is fought on many fronts, the U.S. has proven to be especially concerned about China’s access to semiconductors. These chips run computations inside every sort of computer, from smartphones to entire data centres. Semiconductors are essential for many of China’s technologies and therefore economic growth as well. Perhaps more pressingly, these chips are also indispensable for both nations’ military operations. With Xi Jinping’s rising aggressions toward Taiwan and potential alignment with Moscow in the war against Ukraine, the U.S. deems it crucial to hinder China’s military technologies.
This is why president Joe Biden introduced new limits on the sale of semiconductor technologies to China in October of 2022. American companies are no longer allowed to supply computing chips or chip-making machinery to China. Although America leads the design of chips, most of the production actually takes place overseas. Taiwan, for example, is home to a large portion of America’s chip production. The East Asian country produces 90 percent of the world’s technologically advanced chips. The American companies in Taiwan and other U.S. corporations that conduct operations outside of the U.S. are also subject to Biden’s new measures.
Biden, however, hasn’t stopped there and is expanding his China policy beyond America. Earlier this year, he cut deals with both Japan and the Netherlands. Both countries agreed to impose export controls, although the Japanese government has yet to release an official statement.
Dutch Prime Minister Mark Rutte and President Joe Biden had a meeting on January 17th in Washington D.C. Although neither the White House nor the Dutch government disclosed any official details about the meeting, the Dutch government released an official statement on March 8th that it is imposing new export controls on “most advanced” microchips manufacturing equipment. This is economically very costly for the European nation. For example, Roger Dassen, the Chief Financial Officer of Dutch company ASML, one of the world’s largest chip manufacturers, stated that China represents 18 percent of their order book. The Dutch government had already forbidden sales of extreme ultraviolet lithography systems, a very advanced form of chip fabrication, but the U.S. continues to pressure and encourage Rutte to also limit deep ultraviolet lithography, a slightly less advanced system.
Notably, the Netherlands’ hard stance against China goes against the European Union’s rather mild China policy. In January at the World Economic Forum in Davos, European Commission president Ursula von der Leyen said, “The European Union needs to work and trade with China on clean tech and push for a level playing field rather than seek to decouple from the world’s second-largest economy.” The 27-country bloc is economically dependent on China, with China being the third-largest buyer of European goods. The war in Ukraine sent the continent into economic hardship and it simply cannot afford to be as anti-China as the United States.
The U.S. pressure on the Dutch government also reveals that the Netherlands might be too small of a country to negotiate about a gigantic multinational like ASML. However, the E.U., which undoubtedly would have had more negotiation power in the White House than a singular European country, is apparently unable to act as a unified geopolitical force on this matter. In response to the Dutch chip ban, the Chinese foreign minister Qin Gang urges Europe not to cooperate against China with the U.S. and tells it not to worry about their involvement with Russia: “The China-Europe relationship is not targeted at any third party, nor is it subjugated to or controlled by any third party.”
Although export bans are certainly effective, China still owns 85 percent of the processing of rare-earth minerals that go into semiconductors. Europe, which lacks these minerals due to geography, is looking to alternative countries for supply. Von Der Leyen discussed it with Biden and Canadian Prime Minister Trudeau during her visits last week.
Joe Biden wants to limit America’s dependency on these minerals as well, among other objectives and introduced the “Chips for America program”back in February. He announced there would be $50 billion in federal funding that will go to the chip industry. $39 billion will go into domestic chip manufacturing facilities and $11 billion into research. Biden’s program has received some domestic backlash among conservatives since companies that receive the funding are required to implement certain socially progressive company policies, e.g free child-care plans.
The battle for semiconductors is far from over. Whatever future alliances with Europe, Taiwan, or Japan might look like, computer chips will remain indispensable for economic prosperity and military success. Thus, China and the U.S.– nations amidst a century-defining contest– will continue the race for semiconductors for the foreseeable future.
Photo Credit: ASML