How microchips are reshaping geopolitics

But Covid 19 and Russia's invasion of Ukraine have prompted the US to reclaim its crown in innovation. Pandemic lockdowns meant that almost all global supply chains were disrupted, and microchips were hit the hardest. The implications of the Russia-Ukraine war for further global supply disruption have drawn attention to America's dependence on foreign-manufactured technology. 

Washington has reacted with a series of laws, including the CHIPS and Science Act, which allocated $280 billion to many projects and priorities, including $52 billion for the local production of chips. The legislation aims to "win the future in the coming decades," according to President Joe Biden, and "bring the supply chain from China to Michigan," according to state governor Gretchen Whitmer. 

The US federal government has not enhanced its investment in research and development as a percentage of GDP for years, unlike many governments that want their countries to take on broader roles in the global economy.  

Since the dawn of globalisation following the fall of the Berlin Wall in 1989 and the subsequent dissolution of the socialist bloc, American companies have tended to only design chips and then assign foreign companies to manufacture them in order to save money.  

With globalisation reeling under the blows of terrorism, repressive regimes, the pandemic and other destabilising developments in the world order, the US is not alone, especially among rich countries, in trying to bring supply chains home. 

However, it is important to note that TSMC — operating in a country threatened by a Chinese invasion — invests tens of billions of dollars annually in its projects.  

It has invested $44 billion dollars since the beginning of 2022 alone, which makes America's $52 billion investment look unimpressive.  

Geopolitical dimensions  

The US and China together consume half of the market for microchips, with 25% and 24% respectively, followed by the European Union with 20% and Japan with 6%. 

Asian supremacy over the US is not limited to manufacturing, but also product diversification. South Korean companies Samsung and SK Hynix excel in manufacturing memory chips, while the American Micron Solutions is third in this field.  
 

Moreover, Japan's Kioxia excels in the production of flash memory chips. In addition, TSMC is a world leader in making logic chips. China is strengthening its presence in the market for logic and memory chips. 

Meanwhile, the role that Singapore and Japan play in the production of materials used in the manufacturing of chips cannot be ignored.  And although the US role in production has receded, it remains the undisputed leader in chip design. 

An important stage of chipmaking is called 'packaging' which collects microchip elements with microscopes — a process that was conducted manually half a century ago and which prompted most chip companies in the West to shift to China and Southeast Asia to save on labour costs.  

It may be difficult for the US to bring this work home, especially since the American CHIPS and Science Act has allocated a mere $2.5 billion for this part of production. Therefore, the Act is likely to bolster US leadership in design first, as it is primarily intended to increase spending on research and development. 

While the pandemic caused shutdowns and production delays, it also boosted demand for technology. Microchips used in smaller laptops, along with many electrical household items, are more popular due to the surge in working from home caused by lockdowns.  

Chip-producing companies encountered difficulties in switching to the production of those kinds of chips. As the pandemic fades away and workers return to the office, demand for 'household' chips could plummet and companies that managed to switch production to them may end up with surpluses.  

This demonstrates the dilemma faced by companies operating in developed countries, particularly the US. But do these uncertainties mean they will give up on bringing production back home? 

Technological arms race 

A technological arms race is unfolding between the US and China at a time when Taiwan is under the threat of invasion, not to mention North Korea threatening to invade South Korea, encouraged by Russia's invasion of Ukraine.  

This arms race deals with many things ranging from smartphones to cellular infrastructure, social media and artificial intelligence.  

Now the race has come down to the most fundamental ingredient of all — the microchip. US tech giants, including Apple, Google and Microsoft, all heavily rely on China to manufacture their devices and their components. 

To overcome this reliance, US officials, such as Treasury Secretary Janet Yellen, are urging American companies to transfer key operations from China to friendlier countries such as South Korea and Japan. 
 

The Europeans are making similar moves. This year, the EU allocated €43 billion to double the Union's share of global chip production to 20% by 2030. China has its own five-year plan — announced last year and worth $155 billion — to strengthen its sector.  
This technological arms race will determine who will soon dominate the global economy and the heart of this race lies on the island of Taiwan.

When US House Speaker Nancy Pelosi visited the country earlier this year accompanied by an American political delegation, Beijing renewed its threat to invade Taiwan, which it claims is part of China.  

Taiwan governs itself according to a democratic system that angers the one-party rule followed on the Chinese mainland where the Communist Party has been adopting a strain of Capitalism since 1978. 

The chairman of TSMC, Mark Liu, has warned of the consequences of any conflict on the world's biggest chipmaker: "If you take military action or invade, you will render the TSMC factory non-operable, because this is such a sophisticated manufacturing facility, it depends on real-time connection with the outside world, with Europe, with Japan, with US." 

There is no doubt that globalisation is in crisis. American thinker Francis Fukuyama was clearly wrong when he said the fall of the Berlin Wall meant "the end of history."  

Perhaps the statement of fellow thinker, Samuel Huntington, issued at the same time, about the "clash of civilisations" following the capitalist-communist conflict, is more applicable but in a different form: the clash of barbarianisms.  

The list is long. Terrorism, whether practiced by states or organisations, invasion, such as Russia's of Ukraine, the threat of aggression and the last vestiges of colonialism, (namely Israel's colonisation of Palestine), are all forms of barbarism that still exist with globalism in retreat.

Global free trade and full economic openness remain a hope that cannot easily be realised.  

Microchip manufacturing is a clear example that illustrates this current trend. While rich countries are trying to repatriate industries which moved to other nations — some of which are now their enemies — poorer countries are still victims, just as they were before, during, and after globalisation. 

A brief history of microchips 

The main microchip pioneers were Jack Kilby and Robert Noyce of the United States. In 1959, Kilby, a Texas Instruments physicist, obtained a patent for inventing miniature electronic circuits. 

Meanwhile, Noyce, a physicist at Fairchild Semiconductor, obtained a similar document for his innovation of a microchip on a silicon base, building on the invention of "the planar process" of chip-making developed by another physicist at the same company, Jean Horney.  
 
With the launch of the chip industry, a patent war broke out between the two companies, which was settled in 1966 with joint patents. In 2000, Kilby was awarded the Nobel Prize in Physics. In his acceptance speech, he did not forget to mention Noyce, who had died 10 years earlier.  

The invention's breakthrough was its ability to reduce the size of electronic devices. The comparison between today's pocket-sized laptops and the smallest of the first computers, which filled a room, is only a minor indication of the impact of the changes.  
 
In 1979, the central processing units of computers began to be placed on microchips, which ushered in the computer revolution. 
 
Besides computers, the spread of chips has expanded to include scientific equipment, weapons, entertainment devices, communication devices, vehicles, and much more. In the first decade of the 21st century, the development of microchips brought down the cost and prices of computers.  
 
Prior to the development of the chip, electronic devices relied on a three-electrode vacuum tube invented by the American inventor Lee de Forest in 1907. It led to notable inventions, such as radio, television, and the electronic computer, but it was fragile, relatively bulky, energy-intensive, expensive, and short-lived.  
 
In 1947, John Bardeen, Walter Brattain and William Shockley, physicists at Bell Labs, invented the transistor that improved on the three-electrode vacuum tube, but remained relatively bulky and fragile.  
 
Then came the microchip, and the revolution it brought about. By 1962, the chip was weaponised. It was used in the Minuteman, an American intercontinental nuclear ballistic missile. The US government also funded the manufacturing of microchips for the Apollo Project, when NASA put a man on the moon for the first time in 1969. 
 
Now, the average desktop computer has a million times more memory than 'Apollo' computers, and the machine performs calculations thousands of times faster.

Desire for lightweight devices

The development of the chip was accelerated thanks to its lucrative revenues and in light of consumers' desire for increasingly advanced, lightweight, portable and affordable electronic devices. 
 
In the 21st century, and over the past 40 years, the number of electronic components that can be attached to a microchip has been doubling twice every few years. Many scientists expect that the ability to miniaturise the chip will reach its limit within a few years.  
 
The chip-making process has essentially been the same for decades: 'shooting' a piece of silicon with atoms of different elements. 
 
But for now, the chip miniaturisation process continues. Moreover, the production of microchips requires huge factories that cost billions of dollars and require updates every few years to keep pace with the development of this technology.  

-Abdel-Rahman Ayas is a Lebanese writer on economic affairs