Chip is the New Oil

Just like oil in the twentieth century, chips could become the defining asset of the twenty-first.

Image by the author

Throughout human history, wars have been fought over a multitude of resources and commodities. Land, water, sugar, spices—all have hitherto served as catalysts for carnage. After witnessing two catastrophic wars in the first half of the twentieth century, a new material came to dictate the global sanctity in the second: oil. Today, chips are the latest disruptors to pose a threat—an economic threat, if not armed.

It’s been a few years since chips have been brewing as a potential candidate to cause turmoil. Industry insiders have been stressing on the strategic importance of the tiny silicon chips and their manufacturing. Its repercussions, however, have recently started coming to light. The iPhone deliveries last year were staggered due to delays in productions, and the latest PlayStation and Xbox models come nowhere close to meeting demands. Surprisingly, another industry to bear the brunt of chip manufacturing issues is automobiles.

Silicon: The Essential Element

Automobiles are one of the many products in our daily use which are powered by chips. New cars today often include over a hundred microprocessors. Like most things wrong with the world today, part of the crisis can be credited to the pandemic. But the root of the problem, labelled ‘chipageddon’, goes deeper.

Today, silicon chips form the basis of almost every consumer electronics gadget and beyond. From solar-orbiting satellites to portable MP3 players, all carry a piece of silicon inside them. One of the key aspects of silicon’s ubiquitousness is its unique chemical properties. It is a semiconductor, has an extremely high melting and boiling point and is highly reactive. It is also the second-most abundant element on earth after oxygen, which makes it the perfect material to be fabricated into wafers.

Silicon wafers are made by melting powdered silicon in cylindrical ingots. They are then sliced up into thin, round slivers of sheets, on which circuits comprising billions of transistors are printed (the latest seven-nanometre chip from Intel reportedly fits around 250 million transistors every square millimetre). These circuits are subsequently cut into chips, ready to be fit into our smartphones, microwaves and automobiles.

Source: Statista

With the lockdown forcing more and more people to work and study from home, 2020 saw record sales in smart devices around the globe, almost doubling in figures since 2014. Many people were also buying gadgets to occupy their time — products like Amazon’s Kindle saw a sales revival during the pandemic. A report by the United Nations Conference on Trade and Development shows that of all the sectors boosted due to online shopping during COVID-19, electronics was the biggest gainer. Naturally, a growth in the demand for electronics spells a growth in the demand for chips.

The US-China Conflict

The US is still the leading chip designer in the world. But when it comes to manufacturing, two Asian nations are responsible for much of the heavy lifting. Economist Rory Green estimates Taiwan and South Korea account for the production of 83% of the world’s processor chips and 70% of memory chips. This contrast is owed to the fact that while the US has a number of design factories like Intel, most of the foundries capable of large-scale production for consumer and military customers are located in east Asia.

On the other hand, China is the world’s biggest importer of chips, and a significant share of those are manufactured by the world’s largest semiconductor foundry: TSMC, or Taiwan Semiconductor Manufacturing Company. Interestingly, TSMC also builds chips for US companies like Apple and Qualcomm.

Last year, the Trump administration banned any chipmaker using American circuits from supplying leading Chinese smartphone brand Huawei. More recently, the US blacklisted China’s top chipmaker SMIC from trade, citing fears that the Shanghai-based company might use civilian technologies for military purposes. Chinese officials were furious, and the country which had already began investing in local chip manufacturing, looks to double its efforts. It has raised more than $80 billion to start over 70 projects in the semiconductor industry since 2014, but its goal of self-sufficiency by 2025 still looks a little far-fetched.

Taiwan’s Geopolitical Importance

Amidst the bickering, Taiwan looks destined to become the centre of this war, akin to the Middle-East a few decades ago. Right now, the US enjoys a clear monopoly over chip production and distribution, accounting for 48 percent of the market share in terms of sales. But the lack of manufacturing muscle has alarmed many high-ranking officials.

Credit: Reuters

TSMC has sided with America for now. However, China has been increasing its attempts to pressurise Taiwan into reunification with its mainland. China is further likely to leverage its economic influence over the country through trade restrictions and talent recruitment, and garner key semiconductor technologies from Taiwan.

So far, there is little-to-no setup for mass production of chips in America. Last Wednesday, President Joe Biden signed an executive order to address the global chip shortage, and has vowed to solve the problem which has been plaguing the American auto industry. But solving a problem as sweeping and extensive could take years, and explains why the US is so keen on maintaining its relationship with Taiwan. The US administration recently reaffirmed its commitment to Taiwan’s independence, but a scenario where reunification of China and Taiwan takes place — which Beijing claims to be inevitable — will land a great deal of Silicon Valley in hot waters.

Reading and writing about tech, culture, history and business most of the time. Find me at adwipal@gmail.com

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