The Battle of the World’s Most Advanced Microchips

The Battle of the World’s Most Advanced Microchips

By Anthony Ippoliti

Introduction

Geopolitics determines the type of cell phone you carry, the car you drive, and the computer you use. The all-consuming power of nation-state actor rivalries in the international arena shapes the structural paradigm that drives trade and politics. This is the invisible hand of the global economy. And so it goes with China, microprocessors, and American national security. 

The island nation of Taiwan has a historically fraught relationship with China, and a geopolitical miscalculation here could spell trouble. Much of China’s foreign policy is based on economic and resource security, and China is particularly weak in one area: advanced microprocessors. These are the chips that power smart phones, desktops, laptops, and other devices. Microprocessors are a key component in the world’s infrastructure, and China has been working to develop a domestic capability to produce the most advanced types of these chips. Those efforts have so far been unsuccessful. 

Production of these advanced chips is a highly technical endeavor, and none of the companies in the world that can do it are located in mainland China. A subsidiary of China’s Huawei developed a design for an advanced chip called the HiSilicon Kirin 9000, then outsourced the production of the chip to the Taiwan Semiconductor Manufacturing Company (TSMC), which counts itself among a very small number of companies able to actually build a chip based on the Kirin 9000 design. However, TSMC is located in Taiwan, and recent U.S. sanctions effectively ended Huawei’s ability to actually produce the chip that it designed. This is a double-edged sword with China’s national security on one side, and American national security on the other.   

China and Taiwan:  Positioning for Turbulence

China’s current posture toward Taiwan and its escalating military activities near the island have drawn increasing attention from the rest of the world. China recently sanctioned several U.S. defense contractors for selling arms to Taiwan and has expressed its discomfort with America’s more-or-less open diplomatic recognition of the country, which Beijing claims as part of its territory under its “One China” policy. The Chinese Navy also repositioned its forces in the South China Sea and, in mid-2020, sank a Vietnamese fishing vessel in disputed waters, which served as a harbinger of a more aggressive Chinese military posture in the rest of the region. Following that, the Chinese Navy sent a battle group to Taiwan’s east coast and later held combat exercises near the Taiwan Strait. Then, in September of 2020, China’s military dispatched 18 warplanes over the Taiwan Strait as a show of force, followed by a similar incursion of 28 warplanes into Taiwan’s Air Defense Identification Zone in mid-June 2021. Taiwan’s Minister of Foreign Affairs, Joseph Wu, noted in June 2021 that Taiwan “needs to prepare” for a possible military conflict The threat of military confrontation with the United States will likely continue to deter direct Chinese military action against Taiwan; similarly, Taiwan’s status as an island nation with an autonomous political apparatus will prevent a Chinese territorial fait accompli.  However, China is certainly capable of influencing political outcomes in Taiwan over the longer term, and China may be able to affect change in Taiwan from the inside out.  This, combined with China’s overt military repositioning, creates a threat to Taiwanese autonomy. This is a critical point that should be well-understood by those with interests in the region or, more specifically, interests in what is produced in the region. The U.S. has already seen the global impact of microchip shortages caused by COVID-19-related supply chain and trade disruptions, which has underscored the vulnerability of America’s economy to such a concentrated market.   

In the same regard, China may be using Hong Kong as a practice run for a future move on Taiwan. In mid-2020, China passed a new security law that effectively ended Hong Kong’s autonomy. China arrested protestors and major media figures and installed a new national security office in the city, prompting the UK Government to declare a breach of the Sino-British Joint Declaration which was supposed to guarantee the independence of Hong Kong’s political and economic system until 2047. All of this occurred at a rather rapid rate in a city that had been operating autonomously for decades and is a warning of future possibilities. While China lacks a political mechanism in Taiwan to replicate this same strategy, its activities in Hong Kong are indicative of Chinese ambitions.   

This is a critical issue for many reasons, not the least of which is the fact that much of the worldwide manufacturing capability for the most advanced types of microchips is tied up in Taiwan, specifically with the same Taiwan Semiconductor Manufacturing Company (TSMC) that Huawei once sought to use to produce its HiSilicon Kirin 9000 chip. Like most other advanced technologies, access to production capacity for these chips is a political, economic, and national security issue, and TSMC is one of the only companies in the world capable of producing these types of microchips. California-based Intel, which is one of the other companies capable of producing the smallest and most advanced chips, recently exposed a potential loss of market leadership when it revealed that its own production of 7 nanometer equivalent chips (what Intel characterizes as 10 nanometer chips) was behind schedule and that it would likely begin outsourcing its production to TSMC. Intel later reversed this decision and opted to increase its own production capacity instead when it announced its intention to invest $20 billion to construct two new chip plants in Arizona. Shortly after Intel’s announcement, TSMC revealed its own plans to invest $12 billion to build a chip fabrication facility, also in Arizona. One of the only other large-scale producers of the most advanced types of microchips is South Korea-based Samsung. 

With just a few major players in the advanced microprocessor and semiconductor industry, a rapid geopolitical development between Taiwan and China would send shockwaves around the world. China’s long-standing interest in bringing Taiwan under Chinese Communist Party (CCP) domestic political control will only be exacerbated by its loss of access to TSMC and its corresponding microprocessor production capabilities. Organizations with interests in Hong Kong or Taiwan would be wise to consider seeking additional capability in other regions as a hedge against aggressive Chinese action; similarly, the U.S. government should continue incentivizing companies to establish production capacity outside of China’s sphere of influence, ideally within the United States itself. Otherwise, firms with semiconductor or microprocessor interests and correlating concerns about Chinese aggression in Taiwan or Intel’s manufacturing capability will find few places of refuge, given the very limited number of companies with this advanced production capacity. This also presents a major national security concern for the U.S. and many other nations. The microprocessor shortage that much of the world is currently experiencing may become a way of life if this situation is not effectively addressed.  

Conclusion:

The political, economic, military, and diplomatic relationship between the U.S., China, and Taiwan is a multi-layered onion, and this is just one piece of one layer. In the coming months and years, a keen observer will surely see many other layers surface, and those future developments will determine which nation and political system maintains technological and economic supremacy within the global economic and military complex. The intersection of things like geopolitics, logistics, and international supply chains will move from the realm of think tanks and diplomats into the aperture of the American public, and the increasingly complex relationships between these seemingly disparate issues will influence the quality of everyday life as we understand it. An interesting time lies ahead.