Chip War: A monopoly of the AI race

Why is the world suddenly abuzz about semiconductor chips, and why should you care? The answer is simple: the world revolves around them. Semiconductor chips power almost every aspect of modern life—from computers and communication systems to electronics, transportation, healthcare, and even military and defence. In 2023 alone, over 1.5 trillion chips were produced globally, underscoring their critical importance in today’s world.

A significant shift has occurred in the production of semiconductor chips. In the 1990s, the United States dominated the industry, producing 37% of the world’s chips, while China contributed 0%. Fast forward to current projections for 2030, and the landscape looks very different: the U.S. is expected to produce just 10% of the world’s chips, while China is on track to manufacture 24%. But does producing the most chips make China the most important player in the industry? Not necessarily.

The semiconductor industry is a complex, seven-step ecosystem that spans across the globe. This system involves multiple stages: from designers and foundries to integrated device manufacturers, suppliers, assembly and tech services, and finally, the end users. Different industries around the world are responsible for producing various types of chips.

When we look at the complexity of chip production, it’s clear that China is heavily investing in Outsourced Semiconductor Assembly and Test (OSAT) services, which involve lower levels of technical difficulty. On the other hand, the U.S. focuses more on producing integrated device manufacturing (IDM) equipment and foundries, which require higher levels of technical expertise. So, despite China’s increasing focus on semiconductor manufacturing, they are still trailing behind in terms of technological sophistication.

China’s biggest challenge is that they are investing heavily in producing the easiest types of chips to manufacture. This strategy could make them the largest producer of chips, but not the largest exporter. Currently, the U.S. accounts for 46% of global semiconductor sales, while China lags at just 7%.

To maintain its edge over China and slow down its advancements in AI, the U.S. has implemented the “Chips for America Act of 2020,” which boosts investment in semiconductor research and development. Additionally, the U.S. has imposed new trade restrictions on China, prohibiting U.S. citizens from supporting China’s advanced chip development. These measures place China in a difficult position: they cannot purchase high-tech chips from the U.S., nor can they produce these advanced chips themselves due to a lack of expertise.

As a result, China’s progress in military technology and advanced fields like AI is slowed, while the cost of semiconductor chips for Chinese buyers rises. This effectively gives the U.S. a significant advantage in the global AI race.