CHIPS ABOUT

Trump’s fantasy of home-grown chip making  

To remain the world’s foremost technological power, America needs its friends

The world’s biggest chipmaker needs to move beyond Taiwan. Easier said than done

China’s counterpunch in the chip war

Some goods are special and few more so than semiconductor chips. Entire industries depend on them. Weapons systems are built around them. And in the contest between America and China to dominate artificial intelligence they could be the difference between victory and defeat. 

Less understood is that chips also pose a fiendish test for proponents of industrial policy. Their manufacture is a marvel of specialisation, complexity and globalisation. Under those conditions, intervening in markets is prone to fail. What is America to do?

The parable of Intel. Despite lavish subsidies, America’s chipmaking champion is in grave trouble. An attempt to attract world-beating TSMC to spread from its base in Taiwan is faring better. However, although stronger chipmaking at home will make America more resilient, vital parts of the supply chain will continue to exist abroad. What’s more, TSMC’s factories in Taiwan will remain the single source of the best semiconductors for years to come. With something as important as chips, even the world’s biggest economy cannot afford to shut itself off from the world.

 How low mighty Intel has fallen. Half a century ago the American chipmaker was a byword for the cutting edge; it went on to dominate the market for personal-computer chips and in 2000 briefly became the world’s second-most-valuable company. Yet these days Intel, with a market capitalisation of $100bn, is not even the 15th-most-valuable chip firm, and supplies practically none of the advanced chips used for artificial intelligence (AI). Once an icon of America’s technological and commercial prowess, it has lately been a target for subsidies and protection.  Trump was even mulling quasi-nationalisation.

Taipei, a city of over 2m people, stopped moving at 1.30pm on July 17th. Sirens rang out across the capital as residents rehearsed a civil-defence drill for a Chinese invasion. Half an hour later, as phones buzzed to mark the end of the drill, the top brass of  TSMC  , the world’s largest chipmaker, gathered in a hotel in the city centre for their quarterly earnings call. They brought good news: record profits, good progress on global expansion, a confident forecast of more.  

While TikTok grabs headlines as the most visible symbol of the USA–China digital rivalry, the more consequential battle may be unfolding in the semiconductor sector. Just as Washington extends the deadline for TikTok’s divestiture, Beijing has opened a new line of attack: an anti-dumping probe into US analogue chips. 
Announced by China’s Ministry of Commerce, the probe accuses US firms of ‘lowering and suppressing’ prices in ways that hurt domestic producers. It covers legacy chips built on older 40nm-plus process nodes — not the cutting-edge AI accelerators that dominate geopolitical debates, but the everyday workhorse components that power smart appliances, industrial equipment, and automobiles. These mature nodes account for a massive share of China’s consumption, with US firms supplying more than 40% of the market in recent years.

For China’s domestic industry, the probe is an opportunity. Analysts say it could force foreign suppliers to cede market share to local firms concentrated in Jiangsu and other industrial provinces. At the same time, there are reports that China is asking tech companies to stop purchasing Nvidia’s most powerful processors. And speaking of Nvidia, the company is in the crosshairs again, as China’s State Administration for Market Regulation (SAMR) issued a preliminary finding that Nvidia violated antitrust law linked to its 2020 acquisition of Mellanox Technologies. Depending on the outcome of the investigation, Nvidia could face penalties.

Meanwhile, Washington is tightening its own grip. The USA will require annual license renewals for South Korean firms Samsung and SK Hynix to supply advanced chips to Chinese factories — a reminder that even America’s allies are caught in the middle. 

Last month, the US government acquired a 10% stake in Intel. This week, Nvidia announced a $5 billion investment in Intel to co-develop custom chips with the company. Together, these moves reflect Washington’s broader push to reinforce semiconductor leadership amid competition from China.