Welcome to Chip Wars

Kim Dong-ho
The author is an editorial writer of the JoongAng Ilbo.

“Who would have thought China of the Tiananmen massacre could surge as a new global power, and who would have imagined the United States would waste its resources on the Gulf War?” Yoichi Funabashi, former editor-in-chief and columnist for the Asahi Shimbun, said in a preface to his book “Brave, Grave, New World,” a collection of interviews with strategic thinkers around the world about 10 years ago.

The world indeed is moving through uncharted waters. The United States and China have moved into the second inning of their economic war. The Covid-19 pandemic has merely hastened the transition to a new world order. The New York Times noted the United States and China were sparking fears of a New Cold War. Their clash has built up across the board from trade and technology to diplomacy. The U.S. strategy is to block China from obtaining key chipmaking technology, scale up nuclear reactor technology, and sever ties between its allies and China. President Donald Trump threatened to cut ties with China last month by accusing it of creating Covid-19 in a science lab in Wuhan.

The United States has faced severe internal turmoil after the death of a black man at the hands of police in Minneapolis. On China, however, America is united. A poll showed as much as 66 percent of Americans have negative sentiment towards China. A number of bills are pending in the U.S. Congress to ban Chinese entries. Republican Sen. Lindsey Graham has submitted a bill on “Examining Liability during the Covid-19 Pandemic.” Sen. Ted Cruz has proposed a bill to end U.S. dependence on China’s rare earth elements. The White House has ordered the operator of pensions for federal employees to stop Chinese stock purchases. The U.S. Department of Energy launched a $230 million project to build advanced reactors to regain supremacy in commercial nuclear energy from China and Russia.

America has been rounding up allies in its face-off with China. It has been beckoning Korea and other capitalist allies to join its Economic Prosperity Network (EPN), a multinational platform aimed at reducing supply reliance on China and upset Beijing’s One Road, One Belt initiative. Invitations have gone out to Korea, Japan, Australia, New Zealand, India, and Vietnam. Trump has invited Korea, Russia, India and Australia to a G7 summit he is hosting in the United States in September. Seoul has gained the opportunity to cement its “middle power” role.

Japan has been quick to join the U.S. side. The UK announced it would not use 5G equipment from Chinese telecommunications equipment brand Huawei. Australia relies on China for 34 percent of its exports, but it nevertheless joined western society’s chorus calling out Beijing for liability in the spread of Covid-19. The UK, Australia and Canada issued statements decrying China’s approval of a security bill undermining Hong Kong’s autonomy. The U.S.-China conflict has crossed the Rubicon of no return. The first-stage trade deal signed in January, where Beijing promised to purchase at least $200 billion in American products in return for Washington’s phased removal of tariffs, is likely to be trashed.

Chipmaking is expected to be the focus in the second inning of the economic war between the two superpowers. The Commerce Department has embarked on fixing the rules to block Huawei’s access to U.S. chips. It will not only ban exports of U.S. chips to China, but require any foreign company that employs U.S. patented technology to get U.S. approval to supply chips to Huawei.

Taiwan Semiconductor Manufacturing Company (TSMC) — the world’s largest semiconductor foundry — announced a $12 billion project to establish a next-generation chip plant in Arizona. Secretary of State Mike Pompeo touted the TSMC move as one that “comes at a critical juncture, when China is competing to dominate cutting-edge technology and control critical industries.” The Financial Times noted that United States has ratcheted up its offensive to rein in China in the struggle over technological dominance.

The United States has moved to enhance its own chip self-sufficiency. The Wall Street Journal noted the U.S.’s success in attracting the TSMC factory was aimed to bolstering chipmaking activities in America to reduce reliance on Asia. Fox Business projected Samsung Electronics could be pressured to turn out advanced chips at its foundry in Austin, Texas.

America regards chips as key to dominance in technology. Chips will be the new power behind robotics and artificial intelligence. The Defense Department has been worrying about dominance by China, Korea and Taiwan in digital technology. The Defense Department has been arguing for chip independence from last year to maintain military supremacy, according to the New York Times. The department has been urging U.S. chip makers like Qualcomm and Intel to take some kind of action. U.S. company Micron is the third largest in DRAM production and Western Digital is third largest in the NAND flash memory market.

China has gone all-out to bolster its chipmaking capabilities. It believes an edge in chips is essential to achieve its goal to outpace the United States in military power by 2049. It has appropriated 170 trillion won ($139 billion) until 2025 to raise its chip self-sufficiency rate to 70 percent. Sovereign funds have committed 3 trillion won in the segment. Huawei dominates the 5G equipment market. China’s biggest foundry, Shanghai-based SMIC, has begun mass-production of Kirin 710A, the first domestically produced chipset to power Huawei smartphones. The chipset was designed by Huawei’s fabless unit HiSilicon entirely based on Chinese technology.

In a National People’s Congress meeting last month, China reiterated its commitment to industrial advancement. It vowed to spend 1,000 trillion won to achieve chip supremacy. Xi Jinping three years ago reminded the world that China overpowered America in the Korean War. Korea is caught in the crossfire of the battle between the two giants. We must keep up our lead in cutting-edge technology in order to not be swept away in their war.

The views from Korea, Japan and Taiwan

Chipmakers in Korea, Taiwan and Japan must worry about the ramifications of the intensified chip standoff between the United States and China. President Moon Jae-in attended Samsung Electronics’ new chip vision announcement at its Hwaseong campus in April to back the chip giant’s goal of maintaining its No. 1 position in memory chips and dominating the system chip segment by 2030 so as to become a comprehensive chipmaking leader with a 10 percent share in the fabless chip design market. The ruling Democratic Party has established a chip support commission to ensure a legislative backup to chip leadership.

Semiconductors are responsible for 20 percent of South Korean exports. Under state patronage, Korean chipmakers could be safe in sustaining their lead for now. SK hynix was permitted to build a new factory in Yongin near the capital. The world’s second largest DRAM maker pledged a 100 trillion won ($82.1 billion) investment in its chip cluster around Icheon, Cheongju, and Yongin in Gyeonggi. Samsung Electronics is also spending 19 trillion won to establish a next-generation foundry and NAND flash production line based on cutting-edge extreme ultraviolent lithography.

Defeated by Korea in memory chips, Japan is pursuing a revival through partnerships with Intel and TSMC. Taiwan is expected to cut off ties with Huawei entirely, lured by Washington’s promise to allow it into the WHO as an observer and other favors.