A History of the “Microchip War”

With the recent CHIPS Act coming out of the Biden-Harris administration that prioritizes private sector investment, many are concerned about the security of the U.S. and China’s rapidly advancing microchip ecosystem. What was once merely a concern over market values and tariffs has become a major international security issue. Understanding the history of what has become known as the contemporary “Microchip War” illuminates attitudes that parallel that of the Cold War and dictates the future of many international security issues. 

The First Microchips

The first microchip was invented in 1958 by Jack Kilby, an American engineer at Texas Instruments. Archived as the “birth certificate of the modern era of information technology,” this microchip was a small piece of silicon with four transistors made to minimize the size of electronic devices. By the 60s, U.S. engineers had already made a microchip that had four times the amount of transistors– each year this number grew exponentially. All of the first manufacturers of these chips were U.S. companies with only one customer: the U.S. government. At this time, the U.S. government believed that computing was the main determinant of a nation’s military and security prowess. Considering the pervasive ways that computing was used to crack codes in World War II or to track Soviet submarines during the Cold War, the U.S. naturally continued to invest resources into stronger computers and missile-guidance and surveillance systems– all of which relied on the microchip.

At first, these U.S. companies owned the entire microchip supply train from design, manufacturing, to assembly. But as the U.S. found more uses for the microchip, it was quickly realized that the chain could become more profitable if the chips were manufactured and assembled in factories in South Korea, Hong Kong, Taiwan, and Japan, where labor was cheaper. These gradual overseas shifts were encouraged by the U.S. government, as most were U.S. allies– this was a way to not only support their economies, but to strengthen ties. In trying to maintain microchip superiority amidst the backdrop of the Cold War, the U.S. banned these partnering companies from sharing technology or information with its rivals: the USSR and China. But it wasn’t long before these contracted ally companies invested in their own microchip technology. In the 70s and 80s, Toshiba in Japan and Samsung in South Korea began designing and manufacturing their own chips, effectively creating and substantiating their own microchip chain that rivaled that of the Americans. 

By the 1990s, the Cold War was over and China’s relationship with the U.S. was friendlier as the U.S. had lifted most of its export controls. As a result, China enticed many of these chip manufacturers to move their assembly operations within its borders. By the 2000s, China had swiftly become the dominant end of the supply chain. But as the Chinese government began to invest more in their microchip industry, it became apparent that the chain relied too heavily on overseas silicon imports, most of which came from China’s geopolitical adversaries. Chinese manufacturers began to invest heavily in creating a microchip supply chain that could start and end entirely within its borders. 

The Inception of the Current War 

In 2012, Zongchang Yu, a product engineering manager, left his job at ASML– the only company in the world that was able to produce the semiconductor necessary to create the most advanced microchips. Zongchang founded two new companies soon after, one in the U.S. and one in China. ASML lawyers alleged that Zongchang recruited other ASML engineers to his newly founded U.S. company and with them, brought over stolen ASML intellectual property. In 2019, U.S. police were unsuccessful in locating and arresting Zhongchang. He reappeared only later in China as the CEO of his company, Dongfang Jingyuan Electron, which successfully makes software like that of ASML. This story is just one among many “heists of American chip design” or IP theft in the microchip industry, all of which are part of a monumental effort by China to transform the landscape of the competition. Put generously, the Chinese government has been at least passively supportive of IP theft in the microchip industry. Put harshly, the Chinese government has advocated for IP theft as its companies become increasingly aware of their own weakness to critical “choke points” like that of the Netherlands which has a monopoly over crucial silicon exports. 

The U.S. has taken action by treating China’s subsidies as security-focused issues. Notably, these tensions were exacerbated during the Trump administration where public remarks became inflammatory. In 2019, the government banned U.S. companies from doing business with China’s biggest tech company: Huawei. When the Biden administration came into office, a broader approach was taken banning all U.S. companies from selling advanced chips to China and blocking Chinese design companies from using U.S. design software. The Biden administration banned other international companies from selling software design information to China as well. The U.S. has effectively exploited these crucial “choke points” to halt China’s chip industry from expanding exponentially. Attitudes have shifted to a zero-sum view of microchip innovation, much like during the Cold War. 

Implications for Taiwan

There are some serious repercussions for Taiwan who sits in the middle of this microchip war. China has threatened the invasion of Taiwan to reimplement the country within its borders, whereas the U.S. has vowed to protect Taiwan from China. This entanglement is highly consequential as Taiwan currently is the largest “choke point” in the chip supply chain. In fact, Taiwanese companies manufacture 63% of all chips and about 92% of all advanced chips. Taiwan has built itself some insulation by being incredibly important to both the U.S. and China in regard to the microchip chain. But in the face of harsher U.S. bans on trade, Taiwan has been forced to make a decision: comply with the U.S. ban and cut trade with China, or to signal its defense and continue trade. So far, Taiwan has signaled compliance with the U.S. ban. Increasingly, the microchip war will corner many countries– especially choke points– to make decisions and choose sides in what is starting to mirror another Cold War. 

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