In 2012, Zongchang Yu
left his job as an engineer at a company called ASML...
the only company in the world that can make this machine.
This machine makes the most advanced semiconductor chips
or microchips in the world.
After he left ASML
he started two new companies
one in the US and one in China.
US and ASML lawyers would later allege that
Yu recruited other ASML engineers to his US company...
that they brought with them
stolen information about AMSL's machine...
and that it was all backed by the Chinese government.
This story is just one small piece of China's
monumental effort to transform one of the world's most global
and significant industries: semiconductors.
But China's effort has increasingly locked it
in a struggle with the United States.
This isn't about market share.
This isn't about tariffs.
This is about security.
So how exactly did China and the US
enter into a Cold War over computer chips?
[pensive, driving electronic music]
[music fades]
This is the first semiconductor chip
invented in the 1950s by engineers in the US.
It's a piece of silicon with four transistors on it.
The more transistors, the more powerful the chip.
By 1960
engineers had already made one with four times the transistors...
and each year they figured out ways to add more.
So since the early 1960s, semiconductors
have improved at an exponential rate.
This is Chris Miller, author of Chip War.
The founder of Intel, Gordon Moore
predicted in 1965 that the computing power
produced by a single chip would double every year or so
and that rate has held true roughly up to the present.
The first companies dedicated to making chips were in the US
where they really just had one main customer:
the US government.
The first use cases were actually in guidance computers
that were in NASA's spacecraft
as well as in the missile system.
"The complex guidance equipment..."
"The system's electronic brain..."
Since chip companies were making better and better chips each year
the US government believed a deep partnership with them
would ensure that it always had access to the most advanced ones.
The US government has believed that computing has been a core
determinant of nations' power on the world stage.
You think about the ways that computing
has been used to crack codes in World War II
or to track Soviet submarines during the Cold War.
I think that judgment is correct.
At first, these chip companies handled the entire supply chain.
They designed the chips, manufactured them, and assembled them
into a package for installation into a product.
All within the US.
But by the late 1960s, they realized
they could make a lot more money
designing chips for civilian products
like corporate computers.
They just had to make a lot more of them
and a lot less expensively.
So many chip companies moved their manufacturing and assembly
to factories in Japan, Taiwan, South Korea and Hong Kong
where labor was cheaper.
And the US government encouraged them.
All these countries were US allies or partners
and this was a way to support their economies and deepen ties.
At the same time, it banned these chip companies
from sharing technology with its rivals:
the Soviet Union and China.
It was a way to keep them years behind the US as chips advanced.
Because of Moore's Law, advanced chips are
substantially better than previous generations.
If you're 5 years behind or 10 years behind
you're actually quite far behind the cutting edge.
But it wasn't long before these allied governments
began investing in their own chip companies.
In the 1970s and 80s
Toshiba in Japan and Samsung in South Korea
began designing and manufacturing chips
that rivaled the Americans'.
In the 1990s, a Taiwanese company, TSMC
got so good at manufacturing chips
that many companies in the US stopped doing it.
It meant that U.S. companies were not the only ones
who could make the most advanced chips anymore.
And every country's chip industry
was increasingly reliant on other countries for the materials,
software, and equipment needed to make more complex chips.
But while the US and its allies were pushing the limits
of chip technology...
China was lagging behind.
In addition to the US blocking it from accessing chips
during the Cold War
many of China's brightest scientists and engineers
had been driven out of the country
by the dictator Mao Zedong during the 60s and 70s.
But over the next few decades, new Chinese leaders
pushed to catch up.
By the 1990s, the Cold War was over.
The US had become friendlier with China
and it had lifted most of its export controls.
And so China enticed many chip companies
to move their assembly operations to China.
And by the 2000s, China dominated this end of the supply chain.
But China was importing more and more chips
to feed its assembly industry
and it put them in a tricky position.
The Chinese government had studied the tech supply chain
and they realized the entire Chinese tech ecosystem
relied on a foundation of imported silicon
from China's geopolitical adversaries
and the United States, from Japan, from Taiwan.
And China's leaders concluded
quite understandably, that this was a risk
they were unwilling to continue to take.
So the Chinese government poured money
into its own chip design and manufacturing companies...
which increasingly partnered with non-Chinese firms.
All on the hopes of creating a chip supply chain
that existed entirely within China.
Soon, China could design, manufacture and assemble
some older generations of chips, mostly on its own.
But it was still years away from making the most cutting edge chips.
This is one of those chips.
It's got around 114 billion transistors on it.
Remember in 1960, chips had 4.
Computing capabilities in the future
just like the capabilities of the past
will be deployed to military uses.
The problem is, only a few companies in the world
are involved in making them and none are in China.
To start, only 3 American companies
make the software needed to design advanced chips.
Then turning those designs into real chips
requires a machine that's only made by one company: ASML.
But this machine requires equipment that's only made in the US.
Finally, only companies in Taiwan and South Korea
can put it all together and manufacture the most advanced processor chips.
These companies are chokepoints in the supply chain...
and China was totally reliant on them for advanced chips.
In 2019, police in the US went to arrest Zongchang Yu
but couldn't find him.
Until he appeared later in China as the CEO of his company
that successfully made software like ASML's.
Thanks to help from the Chinese government
his company was flourishing.
And his story was just one of several instances
of IP theft in the chip industry.
The Chinese government has been
at the very least, passively supportive
but in some cases, actively supportive of IP theft
because the Chinese government realizes
is that its companies are in a position of relative weakness.
In order to eventually decrease its reliance on this foreign supply chain
China was identifying choke points like ASML and copying them.
But the plan backfired.
And this has really angered
the US government, other governments,
and caused them to take China's
subsidies as a more security focused issue
rather than just an economic issue.
This was happening at the same time
that the relationship between the US and China
was becoming less cordial and more competitive.
"China's market distortions
and the way they deal cannot be tolerated..."
"...a tremendous intellectual property theft situation..."
"...game on here..."
"...a trade war between the United States and China..."
"Trump says he plans to impose
a 10% tariff increase on China..."
"...if they don't want to trade with us any more
that would be fine with me."
In 2018, the Trump administration banned US companies
from selling components to ZTE, a Chinese tech company.
Then in 2019
it banned US companies from doing business with China's
biggest tech company: Huawei and its affiliates.
These bans nearly bankrupted ZTE
and dealt a significant blow to Huawei.
In 2022, the next president, Joe Biden, targeted
China's chip industry more broadly.
First, it banned all US companies from selling advanced chips to China
but it also blocked Chinese design companies
from using US made design software
and US made manufacturing equipment.
Plus, it banned global companies who use US semiconductor technology
from selling advanced chips to China as well.
The U.S was exploiting these choke points
to stop China's chip industry in its tracks.
These export controls represented
a really clear shift away from the view
that ultimately trade and tax exchanges with China
were fundamentally positive sum to a much more
zero sum view of the technological competition.
Next, the US passed a law that would invest billions of dollars
into its own chip manufacturing companies...
and finalized a deal with Taiwan's biggest manufacturer
TSMC, to build manufacturing plants in the US.
All to enable the U.S. to keep racing ahead.
China and the US have a pretty similar view of the political stakes
when it comes to semiconductors.
That's why the US government
has made it a priority to defend the US lead.
[pensive electronic music]
But this has also put extraordinary pressure on another conflict
between the two countries.
Since 1949, China has viewed Taiwan as a breakaway province
and has vowed to reunite with it, even threatening invasion.
The US has vowed to protect Taiwan.
But Taiwan also happens to own the most important choke point
in the chip supply chain.
Taiwanese companies manufacture 63% of all chips...
and about 92% of all advanced chips.
With companies that are indispensable
to both the US and Chinese chip industries
Taiwan has built itself some protection.
But the US export controls forced Taiwan's companies
to make a choice:
defy the US and keep selling to China...
or comply and cut off China from some of its chips.
So far, they've signaled they'll cut off China.
But as China and the US feud over chips
more and more choices like these are going to be imposed
on countries and companies around the world.
Asking them to pick sides in what looks a lot like
a new Cold War.