Paul van Gerven

8 December 2022

This time around, the Cold War is fought with semiconductors.

What a year it’s been. The coronavirus was beaten into submission, although the economic after-effects such as supply chain disruptions and inflation persist. Russia launched a brutal but embarrassingly ineffective invasion of Ukraine, plummeting Europe into an energy crisis and rattling the EU’s decade-long Wandel durch Handel tenet. And we’ve been watching World Cup games while a Christmas tree lights up the room.

2022 was also the year that semiconductor technology irrevocably got geopolitical. A chip war between the US and China had been brewing for several years, but after the sweeping export restrictions issued by the US, trade relations won’t return to normal anytime soon. “The post-Cold War world has come to an end, and there’s an intense competition underway to shape what comes next. And at the heart of that competition is technology,” US Secretary of State Anthony Blinken said, barely stopping short of announcing a new Cold War with China. TSMC founder Morris Chang said that “globalization and free trade are almost dead,” and unlikely to return.

As the world’s superpowers drift apart, other regions grapple with a new reality. “As the rivalry between the US and China over tech supremacy has been intensifying, chips are becoming more important in terms of economic security,” stated Japan’s Industry Minister Yasutoshi Nishimura. For Europe, it’s no different.

This presents a tricky maze to navigate. The world may be decoupling, but the semiconductor supply chain, though dominated by only two handfuls of key players, is vast and geographically dispersed. No amount of money can buy full control of it. How much risk can you remove, how much do you want to remove and at what cost?

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Japan and Europe both aim high, though Japan’s solution is braver. The land of the rising sun is starting a leading-edge foundry more or less from scratch, using technology developed by IBM and Imec. Europe, meanwhile, is sponsoring Intel to build an advanced fab, along with chip-making projects that better match the current needs of Europe’s industry. It won’t be game-changers in terms of distributing chip manufacturing capacity more evenly across the globe, or even in terms of reducing supply risk. That would require one or two orders of magnitude more funding. But it’s something.

A more pressing dilemma that Japan and Europe face, is how to respond to US pressure to join the export restrictions. Japan’s Nikon, looking to make up ground on ASML, has promoted its DUV systems as a safer alternative to Chinese companies, since they don’t contain US-made components. Given the Japanese reliance on US technology to re-enter the leading-edge chip manufacturing arena, however, it’s unlikely that the US will allow Japan to sidestep the sanctions.

Europe shares many of Washington’s concerns about China but doesn’t necessarily want to slow down China’s technological rise as the US does. It tends to favor defensive measures, which shield its assets and interests from too much Chinese involvement while avoiding damage to trade and the global innovation rate.

There’s no reason why Europe should decouple from China now. If espionage, aggressive foreign policies or human rights violations were reasons to do so, we wouldn’t be able to trade with the US either. However, Europe should be weary of China’s economic imperialism, striving to become more self-sufficient while making other places more dependent on it. Obviously, no country should lend itself to that purpose. Trade relations should be fair and equitable, a point that Europe needs to hammer home more forcefully in Beijing. It’s not fair to ASML, but its scanners might be just the right mallet for it.

It’s a moot point, however, as the US will get its way by fair means or foul. The fact that it went ahead unilaterally, only a year after the establishment of the EU-US Trade and Technology Council, shows it means business. There’s no way that it’ll continue hurting its own companies while allowing foreign ones to keep supplying crucial chip tech to China.