Why are semiconductors at the heart of a ‘technology cold war’?

A trillion-dollar market, chips are at the heart of a tech ‘cold war’ growing in intensity. Here’s everything you need to know about the tiny electronic circuit that is powering modern technologies.

What’s small, powerful and probably at the tip of your finger right now? Every day, we handle multiple chips – a figure that accumulates to thousands over the course of a typical lifetime.
You can find chips in cars, dishwashers, microwaves, coffeemakers and your smartphone. “Chips are in almost every device that has an on and off switch today”, says Chris Miller, author of Chip War: The Fight for the World’s Most Critical Technology and associate professor at Tufts University.
But we almost never see them because they are buried deep inside the devices we rely on. “It’s a piece of silicon, the size of a fingernail, that has carved into it millions or billions of tiny circuits”, describes Miller. And the most advanced chips have the most computing power.
The number of chips we rely on in our daily life is growing every single year, making it an extremely lucrative market.
In fact, the chips industry is expected to reach the trillions by 2030. From an industry worth $412 billion (€380 billion) worldwide in 2019, its value share rose to $580 billion (€535 billion) in 2022.
Its exponential growth has fuelled a global arms race between superpowers.
But all chips aren’t made equal – and money is not the only reason why China, the US and Europe are fighting for what has been dubbed the ‘21st-century oil’.
There’s a direct relationship between computing power and military power, according to Miller.
“Advanced computing has always been harnessed by intelligence and by military arms of government, whether it’s the British computers in Bletchley Park that cracked the codes during the Second World War or the US’ use of supercomputers in Soviet memory during the Cold War.” 
And the US has taken unprecedented action to lead the world in the production of advanced chips.
Its $280 billion (€258 billion) Chips and Science Act aims to not only boost its national chip production but also limit the sale of advanced chips to China to block them from getting ahead in advanced computing, AI or even weapons of war.
“We see now policies not just pursuing industrial policy goals but really also geopolitical goals”, explains Niclas Poitiers, research fellow at Bruegel.
In the tech cold war between global superpowers, Europe is also making its move. The European Commission unveiled its €43 billion Chips Act in February 2022. An ambitious plan that may not be sufficient to develop digital sovereignty.
“This is far too weak a reaction compared to the reactions of other countries”, says Jean-Pierre Raskin, semiconductor specialist at the Catholic University of Louvain in Belgium. “Out of the 43 billion investment, only 15 of it is new. The rest has already been invested_”_. 
Although global players are all massively investing in the production of chips, at the moment, “there is not a single semiconductor facility in the world able to self-sufficiently produce chips”, says Miller.
The highly complex and interconnected nature of the global manufacture of semiconductors makes these global players all rely on one another.
 “As a result, we see quite a division of labour globally with different countries and different economies playing specific roles in the value chain”, says Niclas Poitiers.
The first part of the value chain of the ‘21st-century oil’, the design stage, is mostly done in the United States. But the chips are then manufactured on the other side of the world in East Asia. Taïwan represents more than 65 per cent of the manufacturing market while South Korea accounts for more than 15 per cent.
And China is at the end of the supply chain, where the chips are assembled and packaged into the products that will ultimately be bought by consumers.
But China and the US also heavily depend on Europe to make the ‘brain of modern electronics’. “You can’t make advanced chips anywhere in the world without machines from the Netherlands”, says Miller. The Dutch firm ASML is the only supplier of the lithography machines which are used to produce high-end semiconductors.
The pandemic has laid bare the fragility of an interconnected global supply chain. “The semiconductor shortage impacted the auto industry, causing over $200 billion worth of losses for car companies across the world_”_ Miller adds.
“The devices that rely on chips constitute most manufacturing output”.
And now, rising geopolitical tensions between China and Taiwan could affect the daily lives of people globally.
“If there’s a blockage or war in the Taiwan Strait, the manufacturing of all types of goods will be immediately disrupted and we’d be facing the greatest manufacturing crisis since the Great Depression of the 1920s”, warns Miller.
For more on this story, watch the explainer video in the media player above.
Video editor • Mert Can Yilmaz
Additional sources • Motion designer : Matthew Ashe