Assessing the US-China Chip Competition
Chapter by Chris Miller, Associate Professor of International History at The Fletcher School (in Lessons from the New Cold War: America Confronts the China Challenge)
“Modern wars are fought with semiconductors,” Senator Ben Sasse declared in May 2020.1 At the time, most Americans thought only rarely about chips. Few knew what chips did or how they were made. Yet by 2020, semiconductors were beginning to play a central role in American statecraft, as the US government came to realize their importance—and to understand China’s ambitions in the industry. When, in 2021 and 2022, the pandemic disrupted semiconductor supply chains and caused manufacturing delays for autos, medical devices, and agricultural equipment, the scope of a modern economy’s reliance on chips became clearer. And as the 2022 launch of ChatGPT set off a boom of investment in artificial intelligence, the role of chips in catalyzing technological progress took center stage.
Semiconductors, political leaders in the US and China have come to realize, are key inputs shaping the balance of power. The world’s most valuable tech companies cannot operate without them. Advanced manufacturing capabilities—from defense to medical devices—require many types of high-end chips to function. And advances in artificial intelligence have hinged on the development of ever-more-powerful processors.
In Beijing and in Washington, therefore, chips are a major focus of US technology policy—and of competition. In the US, Presidents Donald Trump and Joe Biden both imposed tariffs on their import from China. Congress passed more than $50 billion of subsidies via the CHIPS and Science Act to revitalize the US chip manufacturing industry. The US has imposed sweeping restrictions on the transfer of chips and chipmaking tools to China, pushing other countries like Japan, the Netherlands, Taiwan, and Korea to do the same. And Beijing has responded by continuing to pour money into its chip industry, driving toward self-sufficiency in the only large-scale manufacturing industry where China still relies primarily on imports to satisfy its demand.
Over the past decade the US government has set chips at the center of its technology policy—and set tech at the center of competition with China. Semiconductor policy has been complicated by an effort to achieve multiple contradictory policy aims. The US government first realized the power it wielded over the world’s chip industry by using restrictions as a punitive tool against ZTE, a Chinese telecom firm, for violating sanctions on Iran. Second, the US began imposing tariffs on chips from China, as semiconductors became intertwined with broader US-China trade disputes. Third, the US started restricting the transfer of chips and chipmaking tools to China with the aim of slowing China’s technological advances. Fourth, the US has begun to limit use of Chinese-made chips in US systems over fears of Chinese espionage or sabotage. Finally, in preparation for potential Chinese escalatory measures in the Taiwan Strait, the US has tried to reduce its dependence on Taiwan’s chipmakers. These tactics are all reasonable, but they are at times contradictory. The struggle to turn these competition tactics into a coherent strategy has been a challenge for US policymakers.
The US and its allies started the chip war with significant technological and economic advantages that their policies aimed to maintain. Yet China has chipped away at this gap and, in some places, has completely closed it. Companies from the US and allied countries have generally been unwilling partners in the government’s chip efforts, preferring the pre–chip war status quo, even at the cost of long-term losses of market share and technological advantages to Chinese competitors. At times, Western firms have passively or even actively undermined US policy, by turning a blind eye to Chinese smuggling of prohibited technologies or by tweaking products to avoid US restrictions.
The US government’s effort to limit the impact on industry by imposing policies that were more “scalpel” than “hammer” has left open gaps that Western and Chinese firms have exploited more rapidly than the government could close them. The glacial pace of government action has compounded its disadvantages versus fast-moving firms. This misalignment between firms and government has enabled China to make substantial progress in closing the technological gap. Nevertheless, in comparison to a counterfactual scenario in which the US government had continued ignoring the chip industry, the US is in a stronger position and China is worse off. In that sense, both China’s chip war and the US chip war launched in response have both been partial successes.
Read the full chapter here.
(This post is republished from Muse.)