Semiconductors, or chips, are critical components in everything from smartphones and computers to military systems and artificial intelligence (AI), making control over their production and supply a matter of national security and economic dominance.
The “chip war” refers to the intensifying geopolitical and economic competition over semiconductor technology, primarily between the United States and China, but also involving other countries like Japan, South Korea, Taiwan and the Netherlands.
The chip war stems from a combination of strategic, economic and technological factors, as semiconductors are foundational to modern economies and military capabilities.
Semiconductors power advanced military systems, including missile guidance, drones, and AI-driven warfare. The US fears that China’s access to cutting-edge chips could enhance the People’s Liberation Army’s capabilities, potentially surpassing US military power.
China’s “Military-Civil Fusion” (MCF) strategy integrates commercial tech advancements into its national security infrastructure, raising concerns that dual-use technologies (with both civilian and military applications) could be militarized.
The US aims to maintain a technological edge, as articulated by National Security Advisor Jake Sullivan in 2022, who emphasized the need to stay “as large of a lead as possible” in advanced logic and memory chips, moving away from a previous “sliding scale” approach of staying just a few generations ahead.
Semiconductors are the backbone of the global economy, driving industries like AI, quantum computing and 5G. Controlling chip production and innovation equates to economic supremacy.
The US sees China’s rise in chip technology as a threat to its dominance in high-value segments of the global value chain, where American firms like Intel, Nvidia and Qualcomm hold significant market share.
China, conversely, seeks self-sufficiency to reduce reliance on foreign chips, which it views as a strategic vulnerability, especially after US restrictions exposed its dependence on imports (China spends more on chip imports than oil).
The global semiconductor supply chain is highly concentrated, with Taiwan (TSMC) producing 92% of the world’s most advanced chips (under 10 nanometres) and the Netherlands (ASML) monopolizing extreme ultraviolet (EUV) lithography machines critical for advanced chip manufacturing. This concentration creates risks, especially given geopolitical tensions like a potential Chinese invasion of Taiwan.
The US accuses China of intellectual property theft and forced technology transfers, which it claims undermine American innovation and competitiveness.
There are fears that Chinese-manufactured chips, especially in critical infrastructure, could contain vulnerabilities or backdoors for espionage or sabotage.
The chip war is part of a broader US-China rivalry for global supremacy, with both nations viewing technological leadership as key to shaping the 21st-century world order.
The US seeks to maintain its influence over allies and partners by aligning them against China’s technological ambitions, while China aims to build an alternative tech ecosystem, potentially drawing other nations into its orbit.
China’s “Made in China 2025” plan aims to dominate high-tech industries, including semiconductors, to transition from a low-cost manufacturing hub to a global tech leader.
Beijing’s heavy subsidies ($47.5 billion for its chip industry in 2024) and investments in legacy chips (older technology) threaten to flood global markets, potentially disrupting Western industries.
The US and other countries employ a range of strategies to compete in the chip war, from export controls to industrial policies. China, in response, has adopted countermeasures to achieve self-reliance and retaliate. Below are the key methods:
The US has imposed stringent export controls to limit China’s access to advanced chips and manufacturing equipment.
In October 2022, estrictions on electronic design automation (EDA) tools, advanced chips and semiconductor manufacturing equipment (SME) capable of producing chips smaller than 16 nanometres were provided. These also expanded the Foreign Direct Product Rule (FDPR) to 28 Chinese companies and banned US citizens from aiding Chinese chip development.
Companies like Huawei, SMIC, and 13 others (e.g., Beijing Biren Technology) have been added to the US Entity List, barring them from accessing US technology due to national security risks, particularly in AI development.
In October 2023, the US control has been further tightened to close loopholes and expand restricted technologies. The US has extraterritorially applied these controls, pressuring foreign companies to comply under threat of sanctions, effectively building a “global regulatory empire”.
The US has persuaded allies like the Netherlands and Japan to curb exports of critical chip-making technologies.
The Netherlands (home to ASML) implemented export controls on photolithography equipment starting September 1, 2023.
Japan restricted exports of advanced chip manufacturing tools.
The US pushes for minilateral frameworks like the “Chip 4 Alliance” (US, Japan, South Korea, Taiwan) or G7+ formats to align allies against China.
The CHIPS and Science Act (2022) allocates $280 billion to boost US semiconductor manufacturing, research, and development, aiming to reduce reliance on foreign supply chains and capture 30% of the global chip market by 2032.
The US has incentivized companies like TSMC to build fabs in Arizona, though these facilities will produce only a fraction of TSMC’s Taiwan capacity (3% of its total output).
The US Investment Accelerator, established via a 2025 executive order, oversees semiconductor manufacturing to ensure strategic alignment.
The Biden administration doubled tariffs on Chinese semiconductors from 25% to 50% by 2025 to counter potential market flooding by China’s legacy chips.
Tariffs on Chinese goods, initiated under Trump in 2018, have been retained to pressure China economically, though they’ve raised costs for US consumers.
The US has restricted Chinese researchers’ access to its universities and launched the “China Initiative” (2018) to combat alleged economic espionage, though this has sparked concerns about stifling innovation by limiting Chinese talent.
China has poured billions into its chip industry, including a $47.5 billion fund in 2024 and $143 billion in subsidies to develop an indigenous supply chain.
Focus on legacy chips (older nodes) has allowed China to dominate this segment, producing 1 billion chips daily for domestic use and potentially flooding global markets.
Innovations like SMIC’s 7nm chip and Huawei’s AI chips (despite US restrictions) show progress toward self-reliance.
China restricted exports of gallium and germanium, critical minerals for chip production, in 2023 to pressure Western tech industries. However, experts suggest this may have limited long-term impact due to alternative global sources.
China banned Micron chips from its critical infrastructure in May 2023, citing security risks, affecting a key US supplier.
Chinese firms have stockpiled semiconductor equipment from the Netherlands, Japan and others before export controls took effect, exploiting delays and exemptions.
China is exploring innovative solutions, such as Tsinghua University’s plan to build a particle accelerator for chip manufacturing to bypass Western lithography restrictions.
China’s “Delete America” directive mandates state-owned firms to replace foreign software and hardware, boosting domestic tech adoption.
Broadened anti-espionage laws since 2023 target perceived threats to national security, deterring foreign investment but reinforcing control over tech.
Netherlands and Japan, under US pressure, have restricted exports of chip-making equipment to China, with the Netherlands focusing on ASML’s EUV machines and Japan on precision tools. These restrictions aim to protect their technological edge while aligning with US-led efforts to contain China’s chip ambitions.
Taiwan’s TSMC dominates advanced chip production and is diversifying by building fabs in the US, Japan and Europe to mitigate geopolitical risks.
South Korea (home to Samsung and SK Hynix) balances US alignment with trade ties to China, benefiting from the CHIPS Act while navigating export controls.
India is emerging as a potential player, aligning with the US to build a “trusted value chain” and adopting a state-driven model to develop its chip industry.
Countries like Germany and the EU are investing in domestic chip production (e.g., Germany’s eight semiconductor projects) to reduce reliance on Asia, aligning with US goals but prioritizing economic security.
While US export controls have slowed China’s progress in advanced chips, they’ve pushed China to innovate in legacy chips and alternative technologies, potentially creating a dual semiconductor ecosystem.
Restrictions may backfire by reducing US firms’ market share in China (e.g., Nvidia’s exclusion), spurring non-US chipmakers, and alienating allies wary of economic costs.
Overreliance on extraterritorial controls risks straining alliances, as countries like South Korea and the Netherlands face economic losses from reduced trade with China.
Despite progress, China lags in advanced chip production due to restricted access to EUV machines and expertise. Building a fully domestic supply chain could cost $1 trillion and faces inefficiencies and corruption scandals (e.g., the Big Fund).
Xi’s state-heavy approach may stifle private-sector innovation, as seen in crackdowns on tech entrepreneurs like Jack Ma.
The chip war threatens to fragment the global semiconductor supply chain into US- and China-led blocs, increasing costs and stifling innovation.
Allies like Taiwan, South Korea and the Netherlands are caught in the crossfire, balancing economic ties with China against US pressure.
Emerging players like India may benefit from realigning supply chains, but the concentration of advanced chip production in Taiwan remains a geopolitical flashpoint.
The chip war between the US and other countries, particularly China, is driven by national security, economic dominance, and supply chain concerns, with semiconductors as the battleground for technological supremacy.
The US employs export controls, allied coordination and domestic investment to maintain its lead, while China counters with self-sufficiency efforts, retaliatory restrictions and innovation in legacy chips. Other nations like the Netherlands, Japan, Taiwan and India play critical roles, navigating the rivalry to secure their own interests.
However, the war risks fragmenting global supply chains, escalating costs and unintended consequences, as both sides struggle to balance security with economic realities. The outcome remains uncertain, but the stakes – control over the world’s most critical technology – are unprecedented.
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