Foreign media: The US launched a "chip war" against China, highlighting the crisis of late capitalism

After Biden entered the White House in January this year, the trade war and technology war with China, especially the "chip war", has not subsided. What does the US's technological containment of China in the semiconductor industry indicate? Prabir Purkayastha, founder of the well-known technology media Newsclick.in, wrote an article to analyze this.

The article points out that the world's electronics industry is facing a turbulent period as the United States imposes technology sanctions on China. After the sanctions, Huawei fell from the first place among mobile phone suppliers (in the second quarter of 2020) to the seventh place currently. However, Huawei not only survived, but also did well. It remains the world leader in the telecommunications equipment market, with a share of up to 31%, twice that of its closest competitors Nokia and Ericsson, and profits of nearly $50 billion in the first six months of 2021. China is constantly catching up in chip manufacturing and design technology.

It's not just Chinese companies that are facing tough times. As the chip war between China and the United States intensifies, the global electronic chip supply chain has been affected and a chip shortage has emerged. If the chip war continues, the chip shortage crisis will also affect other industries.

The article asks, is the crisis in the semiconductor industry a precursor to the fragmentation of the global supply chain? Will it lead to polarization of technology standards between China and the United States? Due to this fragility of the supply chain, are we seeing the end of globalization as a paradigm?

The article points out that the United States chose the semiconductor industry as a battlefield for geostrategic competition with China because the United States believes that it has a significant technological lead and a major market share. China is a latecomer and although it has a comparable market share, it still relies on certain core technologies controlled by the United States and its allies - the European Union, Japan and South Korea. This is why the United States chose Huawei and SMIC, two major Chinese companies, as targets for sanctions.

The United States is following up on sanctions against Huawei and SMIC with plans to ban China from using what it calls “foundational technologies” under its Export Reform Control Act of 2018. The U.S. argument is simple: “We are ahead of China in certain key technologies needed for advanced chip manufacturing; to maintain our lead, all we have to do is deny China access to these technologies; this will ensure our leadership in the future and ensure U.S. dominance.”

At first glance, it would seem that chips should be considered foundational technology and a target of US sanctions. SMIC then attempted to build its 7nm chip manufacturing line and needed to import extreme ultraviolet lithography (EUV) machines from Dutch company ASML, each costing around $120-150 million. Although the EUV machine came from the Netherlands, it used software developed by its US subsidiary and was therefore subject to the US sanctions regime.

US sanctions mean ASML cannot sell EUV lithography machines to China, although it can sell other lithography machines for low-end chip production, keeping China away from high-end <10nm technology and therefore one or two generations behind the market leaders.

Chips, while the main driver of electronics, are not as fundamental as the machines that produce them. If we want to be at the forefront of technology, we must master not only the technology to produce chips, but also the technology to produce the machines that run the production lines. This is why ASML's lithography machines are a bottleneck for China.

So what drives the advances in the key technologies that make machines and chips? As Marxists know, what drives productivity is knowledge, in this case, advances in chip design. These knowledge landscapes are fully on display in software design tools and photolithography machines. These industries are highly knowledge-intensive and require people with very specialized skills.

The United States and its universities remain the primary source of knowledge development and are key to progress in this field. But this is its long-term problem. Research programs at American universities are mostly staffed by foreign students, most of whom come from China, India, and other developing countries. Many of them stay in the United States and provide the manpower needed for America's intellectual progress today.

What the U.S. semiconductor industry is worried about is that China is the largest market for U.S. chip design software. U.S. companies also design high-end chips that are then manufactured in Taiwan. In the short term, U.S. sanctions will certainly hurt China's interests in advanced chip production and the production of electronic devices based on such chips. But it also means that U.S. companies will lose a large part of the revenue they now get from design tool sales in the Chinese market. It also means a loss of revenue for advanced chips designed by U.S. companies such as Qualcomm and Nvidia and manufactured in TSMC.

For US high-tech companies, this loss of revenue means less money for R&D and a slow erosion of their position as a global knowledge hub. Less research funding means an eventual loss of leadership. If US companies lose the Chinese market, and thus a large portion of their revenues, their ability to compete in the future will be severely damaged. In the short term, they may benefit, as they did if Huawei lost its number one smartphone position, but in the long term, the loss of revenue will mean a reduced ability to produce the knowledge that gives the US its technological edge.

In a series of filings with the U.S. Department of Commerce, the Semiconductor Industry Association (SIA) argued that decoupling of U.S. companies from the Chinese market would mean a huge loss of revenue and ultimately abandonment of U.S. leadership in electronics. U.S. sanctions have already caused Chinese companies to remove U.S.-designed components from their product lines. As a result, the sanctions hit not only Huawei and other Chinese suppliers, but also the U.S. companies that are their suppliers.

How long will it take for China to catch up to the lead of the United States and its allies in semiconductor technology? Consulting firm Analysis Mason said in its May 21 report that China will be able to achieve self-sufficiency in semiconductors within three to four years. Boston Consulting Group and SIA simulated the impact of global supply chain disruptions and supply chain and market decoupling between China and the United States. It predicts that under such policies, the United States will still lose its leadership to China. According to the opinions submitted by SIA to the US Department of Commerce, the only way for the United States to maintain its leading position is to allow exports to China - except for the military sector - and use the profits from these sales to develop a new generation of technology. Of course, there are also huge subsidies from the US government.

If the US wants to be a world leader, it must match China in investing in knowledge generation for future technologies. So why is the US going the sanctions route? Sanctions are easier to impose; building a society that values ​​knowledge is much harder. This is the crisis of late capitalism.