The integrated circuit wars

Source: The post is based on the article “The integrated circuit wars” published in Business Standard on 1^st November 2022.

Syllabus: GS 2 – Effect of policies and politics of developed and developing countries on India’s interests.

Relevance: About the US sanctions on China and the integrated circuit war.

News: Recently, the US President has denied access to China for leading-edge chips that the US doesn’t have the capability to design and manufacture. This created a new phase in the integrated circuit or “silicon chip” war.

About the US Sanctions on China to gain advantage in integrated circuit war

The sanctions not only prohibit the sale of the newest generations of chips to China but also forbid any US firm or those dependent on US technology from selling or licensing software, equipment or technologies that China will need to build its capabilities in chips.

The sanctions restrict US citizens and green card holders from working for or with any Chinese entities in a large number of technology areas.

The sanctions also apply to US allies and their firms, given that they are dependent on US technology in one way or the other.

How the recent US Sanctions will impact China on integrated circuit war?

Impact Chinese purchase: The sanctions will make it difficult for companies like TSMC of Taiwan or Samsung of South Korea from selling the latest generation of chips to China or even helping it in this area. This is because China has always been a big customer for TSMC and Samsung.

Impact Chinese ambitions: Recently, the Chinese President devised a plan to leapfrog the US in multiple technologies and take a critical lead over the West. Without access to the latest generation of chips, its ambitions in Artificial Intelligence research as well as 5G and Blockchain will suffer a big setback.

Impact Chinese Origin US citizens: Much of China’s current tech capabilities were built by people who went to the US, studied and worked with leading US or Western technology companies before coming back home to build up domestic technology companies. Many of these entrepreneurs are Chinese by birth but have since then acquired US citizenship. The sanctions will force them to choose sides.

What are the reasons behind the sanctions?

TSMC is the acknowledged leader in 3-nm processes, which are used to make the most cutting-edge and powerful chips currently, Samsung and Intel are building their own capacities. All three firms are also now working on 2nm processes.

In contrast, Chinese chip fabrication capabilities are several generations behind. For instance, the Chinese latest breakthrough is only in the 7 nm process and most of the chip fabrication facilities in the country are of a much older generation.

China has been pushing technology research in its universities and technology institutes for some time, but it is still behind the US and European research in many areas.

What India needs to do to improve chip manufacturing in India?

India has lagged far behind in this critical area. The government has taken a number of concrete steps ranging from the production-linked incentive scheme to helping firms set up plants in India to license 28-nm fabrication technologies from abroad.

However, they will not be enough for India’s ambitions. So India needs to move up the chip value chain by either buying fully or taking a significant stake in independent chip design and foundry firms around the world that may be available for sale. For that, India needs to encourage active private-sector participation.