It has almost been a century since the state lost its monopoly over war. The industrialization of military components, initiated by the Great Wars and intensified by the Cold War, has modernized warfare and encouraged public and private sector involvement.
The notable shift was caused by desperation; the security dilemma in the period of wars during the early 20th century did not push toward modernization as much as technology itself did.
During the early days of the 20th century, ‘the house’ neither had the means nor the expertise to innovate its defensive capabilities, which caused the Allied powers, especially the US, to lead the initiative of contracting numerous private companies to develop aviation technologies (airplanes) that would deliver them a strategic advantage over their enemies.
Almost a century later, private companies have become a thorn in the American political and economic hegemony. This is because defense and deterrence today lie in 5-10 nanometre transistors that can be placed on a piece of silicon. The value of advanced silicon semiconductors is crucial enough to be categorized as the new oil of the 21st century by Chris Miller, author of the book “Chip Wars.” This entails that microchips, or integrated circuits, potentially cause states to resolve conflict over competition, place trade sanctions and embargos, or perhaps go much further than that. And it has already started.
The United States and China are competing in a de-facto ‘chip race’ that is anticipated to maintain the hegemonic status of the former and President Xi’s 2049 vision for the “world-class military” of the latter. This is because, besides the consumer use of microchips in advanced electronics, they are essential for every modern piece of hardware, and their effective use in weapons and intelligence equipment keeps one party ahead of the other.
Experts have been anticipating a confrontation between the two for years. However, the lid blew off when the People’s Liberation Army conducted hypersonic missile tests in July and August 2021, which might have caught the US and its allies off guard. What was previously considered ‘impossible’, China’s PLA had tested the capability of launching a nuclear-armed missile towards a target thousands of miles away from Mainland China, roughly five times the speed of sound, flying below the radar detection range. This marked the tipping point of a brewing geopolitical confrontation as a key point of contention between the two giants.
The geopolitical confrontation and China’s advance in military hardware shall not be seen as an innovation masterstroke. The imperfect supply chain of the microchip industry allowed for this to happen.
The production of semiconductors is a highly interdependent process and involves multiple state and non-state actors. The Chinese market is the largest end-consumer of microchips, accounting for over 57% of global chip sales in 2020 and expected to grow by 7.31% in 2023-2027, despite being a net microchip importer. Perhaps the most important component of the supply chain, the designs and software for both the microchips and their production plants, come from the US, both public and private sector R&Ds. However, 92% of the global semiconductor production is based in Taiwan (and approximately 8% in South Korea), a pivot of the US-China confrontation.
This is because, to reduce costs, the US outsourced the highly complex, secretly and closely guarded production of semiconductors to the Taiwan Semiconductor Manufacturing Company (TSMC), a multinational funded by the Taiwanese and US governments. In conclusion, TSMC takes the capital, ideas, and equipment from the US, other essential ingredients from Japan and the Netherlands, and sells most of the produce to China, directing the geopolitics of the South China Seas by leveraging technology.
President Xi’s vision for a “world-class military” by 2049 has been heavily noticed by the US Department of Defence (DoD). This goal consists of enhancing China’s capabilities in hypersonic missile systems, autonomous weaponry, artificial intelligence, and cyber command. What led the US to take such unorthodox actions towards the Chinese objective is that almost all the advanced semiconductor technology used by the PLA in military and intelligence hardware was supplied by American companies.
The US has historically perceived technology to be an instrument of security. The evolution of computing and the American dominance in its technical domain has allowed the US military to outperform its opponents in the Great Wars, the Cold War, and the conflicts afterward. Therefore, an antithetical sociopolitical entity’s access to such technology was treated as hostile.
The Trump administration defied the ideals of free trade and free market by imposing additional trade tariffs on Chinese exports. The Biden administration’s approach is much more targeted and extreme.
In 2022, Congress passed the Chips and Science Act that banned companies in the US and allied countries from selling advanced microchips, designs, equipment, software, and any essential ingredient for microchip production to China. The Act went as far as to bar any company that uses US technology to manufacture microchips from engaging in business activities with China. The government stepped up its game by approving a $52.7 billion industrial policy that targets R&D supply chain resilience. It also reduces America’s dependence on external actors by establishing advanced microchip production units on US soil.
Although the probability of a military engagement between the US and China is negligible, the Cold War atmosphere appears to be reapproaching. Block politics in the presumably multipolar world is restored after the Japanese, Dutch, and South Koreans placed embargos on the trade of semiconductors with China. China has considered this to be a “policy of suppression and containment” by the US, reciprocating the measures by regulating the exports of gallium and germanium (rare earth metals used for semiconductor production), and imposing sanctions on Lockheed, Raytheon, Micron, top US firms.
However, the effectiveness of this sanction is a challenging debate between experts. This is primarily because export controls on the world’s largest buyer have hit the US companies the most. Nvidia, one of the leading technology companies, has recorded a year-on-year 20% decrease in revenues from China and Hong Kong from Feb’22-Feb’23. The restrictions and the measures to reduce American reliance would also damage the existing Asian markets, making it unclear how the Asian executives will react.
Secondly, Chinese innovation drives and critical technology parks have paved the way for local Chinese companies to engage in fraudulent activities, encourage imports of microchips and export of rare earth metals through black market operations, and corruption at multiple levels. This is partly because regulators and bureaucrats are rarely experts in the technological domain, eliciting multiple instances of fraud, waste, and mishaps.
Dr Kissinger’s forecast of a Sino-US “great power competition” has surfaced, albeit non-state actors triggered the most recent phase.
Both countries find each other an obstacle to their geopolitical imperatives. Given the current circumstances, both administrations must internally adhere to the fact that, unlike the Cold War, both countries have reached levels of hegemony and interdependence, whereby applying pressure serves no other purpose than raising temperatures.
The US cannot democratize China, nor can China “peacefully” takeover US global influence without mutual destruction. Therefore, both parties must strategize their détente by “settling for an easy solution, and getting used to it”—or perhaps pray for a Kissinger to intervene.
The Author is an undergraduate at the Department of Government and Public Policy, NUST. He possesses a reasonable amount of expertise in trade and security. He can be reached at firstname.lastname@example.org and https://www.linkedin.com/in/ashhar-siddiqui-52420924b/