China’s push to transform the semiconductor industry has resulted in a struggle with the US. This struggle is not just about market share or tariffs, but security. China is now dominating the assembly end of the supply chain while being reliant on imported silicon from its geopolitical adversaries and the US, from Japan, and Taiwan.

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The Rise of Semiconductors

In 2012, Zongchang Yu left his job as an engineer at a company called ASML, the only company in the world that can make the machine that produces the most advanced semiconductor chips or microchips in the world. After leaving ASML, Yu started two new companies, one in the US and one in China. US and ASML lawyers would later allege that Yu recruited other ASML engineers to his US company, and that they brought with them stolen information about ASML’s machine, backed by the Chinese government.

China’s Transformation of the Semiconductor Industry

This story is just one small piece of China’s monumental effort to transform one of the world’s most global and significant industries: semiconductors. But China’s effort has increasingly locked it in a struggle with the United States. This isn’t about market share, or tariffs. This is about security.

The Cold War over Computer Chips

So how exactly did China and the US enter into a Cold War over computer chips? This is the first semiconductor chip invented in the 1950s by engineers in the US. The founder of Intel, Gordon Moore, predicted in 1965 that the computing power produced by a single chip would double every year or so, and that rate has held true roughly up to the present. The first companies dedicated to making chips were in the US, where they really just had one main customer: the US government.

The US and its Allies in the Chip Industry

At first, these chip companies handled the entire supply chain. They designed the chips, manufactured them, and assembled them into a package for installation into a product, all within the US. But by the late 1960s, they realized they could make a lot more money designing chips for civilian products like corporate computers. They just had to make a lot more of them and a lot less expensively. So many chip companies moved their manufacturing and assembly to factories in Japan, Taiwan, South Korea, and Hong Kong where labor was cheaper. And the US government encouraged them.

The Advancement of Other Countries in the Chip Industry

It wasn’t long before these allied governments began investing in their own chip companies. In the 1970s and 80s, Toshiba in Japan and Samsung in South Korea began designing and manufacturing chips that rivaled the Americans’. In the 1990s, a Taiwanese company, TSMC, got so good at manufacturing chips that many companies in the US stopped doing it.

China’s Struggle to Catch Up

While the US and its allies were pushing the limits of chip technology, China was lagging behind. Many of China’s brightest scientists and engineers had been driven out of the country by the dictator Mao Zedong during the 60s and 70s. But over the next few decades, new Chinese leaders pushed to catch up. By the 1990s, the Cold War was over, and the US had become friendlier with China and lifted most of its export controls.

China’s Domination of the Assembly End of the Supply Chain

And so China enticed many chip companies to move their assembly operations to China. And by the 2000s, China dominated this end of the supply chain. But China was importing more and more chips to feed its assembly industry and it put them in a tricky position. The Chinese government had studied the tech supply chain and realized the entire Chinese tech ecosystem relied on a foundation of imported silicon from China’s geopolitical adversaries and the United States, from Japan, and from Taiwan.

By Duderinaldi

I'm an all-rounded digital strategist, currently heading Digital Innovation at the iconic luxury brand Versace. Since 2018 I've extended my scope beyond Marketing supporting both Industrial Operations and Corporate in complex digital transformation projects with a strong track record of efficient, sustainable and business value-increasing initiatives.
My background includes over 12 years in globally-renowned integrated agencies with focus on planning, strategic execution, digital communication and consumer experience for a wide range of brands and product categories such as Ford Motor Company, Toyota, Adidas, Jaguar & Land Rover, Mattel, Sony Playstation, Vodafone, Sky, Procter & Gamble and Microsoft.

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