China's vanishing superconductor business

Last week the Biden administration announced restrictions on American companies selling advanced semiconductors to China. This included restrictions on US citizens and residents working for chip plants in China. This has led largely to a universal resignation of American citizens working in the Chinese chip industry.

This strategy diametrically limits the competitiveness of China's high-tech rivalry. Biden's strategy gains further colour when considering the CHIPS Act - a $52 billion subsidy devotion to the domestic semiconductor industry and spur innovation. On top of this, Taiwan's leading chip manufacturer (TSMC) agreed to build a major new plant in Arizona.

America is thus looking like a strong competitor in the high-tech war with China. Yet, America is still stuck in a tricky situation as they have an over reliance on foreign sources for microchips. Therefore, they need to continue building a strong network with allies to make their supply chain less vulnerable.

Herman recently noted that:

"The semiconductor industry are the blocks for a modern digital economy, powering the internet and providing the foundation for critical technologies such as artificial intelligence, 5G, quantum, robotics, and autonomous vehicles."

This is particularly clear when considering how semiconductors are an essential tool in America's national security arsenal as they animate every major weapon and defence system. Moreover, they serve an important function in the GPS.

China is now in a critical position as it finds itself unable to fill in several critical gaps in terms of skilled workers, design, and technological inputs. As it looks around for a helping hand its eye is set upon Europe and Japan however there largely on board with U.S. action. China's future will likely to be one where it sources inputs on the grey market - buying competitors or pulling chips from third-party devices and attempting to insert them in products and industries they were not designed for. This process will be time-consuming and an imperfect process with serious complications for high-level computing.

While questions still surround China's aggressive move towards Taiwan, a disruption of Taiwan's semiconductor industrial base could trigger a massive and protracted economic meltdown. Accordingly, the American-Taiwan relationship must grow stronger in order to mitigate the likelihood of any further hostility with China. Their relationship has been strengthened by Taiwan using the U.S. as its semiconductor base, however, it must continue to integrate its supply chain with the U.S. Since the U.S. does not have a competitive advantage in major supplies, its dependence on other countries has grown, consequently causing it to be less powerful. The increasingly politicised world has led to an economic segregation.

A clear semi-conductor race between America and China has formed, and the true victor will not only have economic power but necessary political leverage.

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