By Kyra Pugsley
At the heart of all technology lies one central component: microprocessing chips. They serve as the fundamental basis for all functions of technology. As the world has increasingly become electronic, with technology invading every available space, the need for these microprocessing chips has risen dramatically. With that, a new yet longstanding war has emerged between the US and China, a Chip War dominated by an intensification on both sides, leading to a shift in strategic US policy.
The Chip War is not an entirely new phenomenon. It has existed since the Cold War, originating as another proxy war between the US and USSR. Only in the post-Soviet era, when China began to emerge as a hegemonic power challenging the authority of the US, did the West begin to retaliate. In recent years, with the intensification of tensions between the US and China as they compete for global dominance, this Chip War faced dramatic changes, with China quickly gaining supremacy. In short, China is quickly winning this war. Due to their high levels of production facilities, and global dominance in trade with other nations, it is no surprise that the US is lagging. Additionally, in recent years the CCP has begun to push techno-nationalism. Fueled by longstanding conflict and sanctions placed by the US, China has increased funding into the science, technology, and education fields to advance their technological prowess against the US. As the US stopped attempting to invest in chips, China saw an opportunity to gain strategic advantages, and now the US is struggling to fight back, and in fighting back, they accelerate growing tensions between democratic and socialist governments.
Beginning in the 1990s, the US chip fab (fabrication foundries) began its decline, with America’s peak involvement being 37%. Today, it has dramatically declined to 12%, as China continues to rise, posing an issue to the world order. The US is well aware of their relative decline, which is why Biden is rapidly trying to fight it. As the world stage continues to shift and the US’s relative power in the world stage is questioned, China is more than willing to fill the role that the US had and establish themselves as this generation's global superpower. One way they are doing this is through chips.
Just last month, Biden made decisive efforts to take this war further. Backed by bipartisan support, this new act attempts to punish US companies and workers that invest or engage in chip business with China. The President made an extensive effort to create export blocks aimed at China, barring them from accessing advanced semiconductors comes as a shock to none. Biden has made it a national priority to fight this chip war and make gains towards new footholds, investing $52 billion in financing tech and fab operations, but it may be too late. This action comes years after Huawei was banned in the US. Its ban is two-fold: the threat of Chinese surveillance was high due to the company's ties to the Chinese government, and at the time there had been heightened chip competition between the US and China. It comes as another act in a long line of attempts to thwart Chinese chip potential, that all seem to dramatically fail.
However, what the US fails to acknowledge is the gradual rise of China’s chip operations that have occurred for decades. Companies like Huawei and LONGi continue to produce and export chips at rising rates, and this is in part due to government encouragement. Shortly following President Biden’s act, the CCP announced an increase in technological self-reliance, working to accelerate legislation and the production of AI, big data, and chips. Additionally, Chinese banks have begun producing special low-interest loans for tech firms creating avenues for technological advancement to soar. China already produces a quarter of all semiconductors in the market, and through their Belt and Road Initiative, they have the markets to sell them.
If the US wants to make a significant change in this race, and emerge victorious they have a long road ahead. Forcing Americans to abandon jobs and dictating what they can do in China shows the CCP the weakness of the American government. To truly fight this war, the US must radically transform its policies, working towards investing in these chip technologies, and forming strategic alliances with companies like TSMC or Samsung. The ball is in their court, but if they don’t act quickly enough, China will further its advance in this field and continue its hegemonic rise on the world stage.
If the US has any hopes in beating China in this growing war, there are significant steps that they must take. In doing so, the US must find a way to fundamentally alter how they understand and fund these programs. Currently, the US lacks their own innovative productions. While they are leaders in producing these chips, many leading companies like Apple and AMD have an almost 90% reliance on Taiwan Semiconductor Manufacturing Company (TSMC) for chip production. While strategic economic and political partnerships can be forged between the US and overseas companies, the US still stalls behind China, a country that produces their chips in the country and then sells them abroad.
To create a shift in production the US passed the CHIPS ACT in early 2022. It is an initiative to increase funding to semiconductor R&D and production with hopes of increasing US supply of chips to the world. While created with the best intentions, the CHIPS Act still faces significant issues that stall American advancements in the ever-growing war. One issue is the enactment of subsidies as they create unlevel playing fields in the creation of semiconductor chips. It reduces innovation and fails to propel the US forward in this race. Technology companies like Intel that receive funding could still funnel a majority into overseas companies like TSMC, further decreasing the amount of chips produced in the US.
To curb this issue and focus on creating home-grown production and innovation is for the US to create foreign trade zones. In doing so, the US would create areas in the US that, for customs purposes, acts outside of US borders, allowing for companies to better distribute goods. They shelter companies that produce chips from federal customs duties and taxes, creating more private investment. Additionally, in order to maximize innovation, the US should work towards creating special manufacturing innovation zones to create industrial hubs for tech and chip production. These zones provide rebates against labor and construction costs, tax credits, and exemptions from some regulations, fast-tracking chip production in the US. The combination of both foreign trade zones and special manufacturing innovation zones would dramatically alter how this war continues to play out. Additionally, these have both proven to increase revenue tremendously. In 2020 it was found that companies using just foreign trade zones saw exports of goods resulting in $100 billion. Combining both foreign trade and special manufacturing zones allows the US the ability to overshadow current Chinese productions and give US companies the ability to reach higher levels of innovation.
At its current state, the US is unable to win this war. Their current infrastructure and reliance on foreign countries for chip production and distribution puts them at a standstill in chip development. If the US has any hopes of ending this cold war and increasing their hegemonic power in the technological stage of the world, they need to act quickly and decisively.
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