There is one vital resource that will make the world go around in the future, and unlike oil,
only a few companies will be able to provide it. Microchips, they are the brains of almost every
electrical device you use. Even though they are built on a base of silicon, which is made out of
commonly found silica sand, these small pieces of tech have become a sought after resource.
What we want to find out today is, if these things are so damn important to the future of mankind,
how come everyone isn’t making them? Why do all the chips, and certainly all the best chips,
seem to be concentrated in only a few countries? Even the super-wealthy, ultra-modern US,
and China, aren’t on top of the world where chips are concerned. And how will these chips give the
countries who have them the upper hand? What’s going on?
In 2022, a New Statesmen headline read, “The future world order will be decided by the
war over semiconductors (chips).” The subheading mentioned Taiwan because Taiwan, said the article,
is the “global leader in microchip manufacture.” No offense to Taiwan, but it’s hardly the world’s
superpower. It wasn’t that long ago that if you asked the average American about Taiwan,
they’d say, “Tai-what?” They’d probably say it has nice beaches and a famous
brutal martial art, mixing it up with Thailand. But not now. Now everyone knows about Taiwan,
a giant in its own right. Taiwan is on the lips of folks that probably didn’t long ago even know
what language they speak there (Mandarin Chinese). The same people probably now understand that the
official name is the Republic of China, and they know that China says Taiwan is just a province of
China and that it should be ruled by the Chinese Communist Party. This is all very important to
know for the purpose of today’s show. The USA doesn’t even recognize Taiwan
as a sovereign nation, not officially, as don’t most other nations, but if you ever go
to Taiwan and tell people they are Chinese, expect a plate of stinky tofu shoved into
your face. Taiwan, they’ll say, is Taiwan! Right now, if you go to the US Department of
State’s website, you can find out what the US officially thinks about Taiwan. You’ll read:
“Though the United States does not have diplomatic relations with Taiwan,
we have a robust unofficial relationship. The United States and Taiwan share similar values,
deep commercial and economic links, and strong people-to-people ties, which form the bedrock
of our friendship and serve as the impetus for expanding U.S. engagement with Taiwan.”
You can forget most of that paragraph and focus on the important and most true part,
which contains the words “deep commercial and economic links.” Taiwan has stuff the US wants,
and Taiwan knows that, so it too can talk about “strong people-to-people ties” and “friendship”
while taking advantage of the economic and perhaps military support of the US.
If you think we sound cynical, just remember that international relations aren’t generally built on
love or friendship. That’s just the way the world works. If you don’t believe us, read history books
about how friendly nations who once had strong ties became arch-enemies willing to blow each
other to smithereens when something happened that affected their economic security. Friendships,
on a global scale, don’t normally last. And for now, as Taiwan is helping the US in
regard to its economic security, they are like two peas in a pod. The only reason for this is
Taiwan is, as we just said, the “global leader in microchip manufacture.” The same goes for China.
Taiwan is just a cog in its economic machine. They are very big economic trading partners,
not friends in any sense of the word. Right now, Taiwan is sitting in the middle
of a technological arms race that has turned into a trade war only because it’s so good at making
those chips we have told you will help countries gain the upper hand in the world. In 2022,
Taiwan made about 65 percent of the world’s microchips and nearly 90 percent of the most
advanced chips. Those advanced ones are needed for all the latest AI advancements,
including lots of tools associated with the military. Low-end chips might just ensure your
washing machine spins around in an hour’s cycle. Not all chips are born equal, but all are needed.
China and the US can make their own chips right now, but when it comes to the mass production of
the most advanced chips, Taiwan has left them in the mud. South Korea, Japan, and some parts
of Europe can make top chips, but they’re all way behind Taiwan. China produces about five percent
of the world’s chips, and the US somewhere from ten to twelve percent, so of course, they are
both heavily reliant on Taiwan as they ratchet up the trade war and people talk about a battle
between the superpowers sometime in the future. Some of our viewers in the US – and maybe even
China – might now be thinking: Wait a minute, why did we let ourselves get so far behind when
we knew that advanced microchips would be one of the most important commodities on planet
Earth? Imagine if Taiwan suddenly snubbed China, or the US, leaving the other country
behind in terms of the technological arms race. How irresponsible of China
and the US to let Taiwan get so far in front. Actually, the US used to be the pioneer of chip
technology. How do you think we got the name Silicon Valley? Chips are made out of silicon,
or at least they usually are. The most simple explanation of how the US fell behind is that it
sat on its laurels as countries in Asia went into chip development overdrive. The governments of
Taiwan and South Korea large amounts of money into chip development and manufacturing, allowing the
companies in those countries to leap over the US. But another reason is those nations pay lower
wages. Americans are proud of their liberal democracy and how this form of government
puts so much emphasis on rights, but when you have fewer rights, you can work people harder
for less money. Producing chips is incredibly expensive, and it takes a lot of people who
you have to pay to work those long hours. In short, this was more suited to Asian nations
than to the US. Their chip plants operated at a much lower cost, so it only makes sense that
they were able to make that leapfrog maneuver. Meanwhile, American companies were not being
helped by the government. The Americans, for the most part, thought, ok, let’s rely
on Asia for chips, and we can spend more of our time on developing and designing chips,
not actually manufacturing them. We don’t need to produce them, they said.
That hasn’t worked out too well, not for now, at least. There’s a chip shortage just
as technological advances go through the roof. There’s what people are calling a global chip
crunch, and the US and China know that this is no time to be without those precious objects.
This is why the US’ chip giant Intel just said it’s investing a cool $20 billion to open a
production plant in Arizona and, later, maybe one in Ohio and another in Germany.
This is not an overnight thing. The Arizona plant might only start producing chips in 2025. The one
in Germany that Intel calls a “mega-site” in a place called “Silicon Junction” will only
be ready in 2027. Intel said it might pile a ton more money ($13 billion) into a foundry in every
American tech company’s favorite low-tax haven, Ireland. Americans may complain about tech giants’
tax-paying habits, but if you want to compete with China, you’ve got to cut some corners.
At the same time, the EU just said it would deal with the chip shortage by making investments of
$49 billion under what it calls the EU Chips Act. Europe is also now regretting the day
it put too many eggs in too few baskets and became reliant on Asia for chips.
As we said in the Microchip War show, forget about Russia, China is the US’s biggest enemy,
so the US and its allies throughout Europe cannot be short of microchips
that will power the world’s most advanced war machines. President Biden knows this,
which is why under him, the US pulled some sanctions out of thin air and demanded American
companies stop selling chips or anything that is used in the production of chips to China.
As the great scramble for microchips gets into gear, the US just kicked China in the balls as
it took its first step over the starting line. This below-the-belt move happened
in conjunction with Biden announcing the CHIPS Act Congress, a package containing $52 billion.
You’d think with all these billions, the US would be out in front. It’s not. As you know,
for many years, Asian governments have been pumping billions into their chip
industries. The only good news is that China has still been somewhat left behind,
also because of their reliance on Taiwan. These days Intel has spent crazy money
designing machines that can make smaller components that can do amazing things.
Intel is proud of its shrinking work, but guess what? It’s still behind the Taiwan Semiconductor
Manufacturing Company (TSMC) in terms of building high-tech chips. Intel wants to catch up,
but it’s starting from a long way behind. To get to Taiwan’s level, we are talking
about spending many, many billions of dollars. The machinery for the processing steps needed
to fabricate chips is really expensive. These factories, aka “fabs,” need giant machines that
will go through thousands of steps to process big wafers that contain lots of individual chips. The
fabs also have to be state-of-the-art regarding their construction. Mere dust or vibrations can
ruin very expensive chip wafers. Ask Taiwan, it’s been doing it for ages, better than Intel has.
TSMC is well ahead in this regard. It can make things faster and make them better. This is the
reason why so few countries and companies rule the roost where chips are concerned. Other nations
can’t afford to get going and then try catching up with the leaders. The only reason the US and
Europe are concerned is the possibility of China out-chipping them and having much more advanced
consumer products and much better weapons tech. They have no choice but to catch up,
or at least that’s the way they see it. Most nations, of course, couldn’t care
less about getting involved with this arms race. It would be too expensive for most,
and let’s face it, who in their right mind would want to get involved in an arms race when the
race’s competitors are already out of their league? Seriously, who could afford to spend
billions to play catch-up with veterans? Well, China can, you might be thinking,
but remember that China isn’t exactly a newbie on the chip scene. Sure,
last year it spent close to $80 billion on chips from TSMC alone, 15 percent more than
it spent in 2021, but China right now, like the US and Europe, wants to be more self-sufficient.
The Chinese government just announced it was spending $143 billion on new chip manufacturing
packages, which dwarfs US and European expenditure. But like the US and Europe,
China’s chip plants won’t be ready for a long time. Right now, the great chip race is on,
just as Taiwan sits back, saying, “Bring it on…and in the meantime…hand us your money.”
It’s holding some good cards right now, as the US and China are moving
uncomfortably in their seats on the world stage. Who will come out on top is anyone’s guess,
but there’s a very good chance it will be China. With its notorious cheap labor, not just to run
plants but to build them, companies such as Huawei and SMIC might leave Intel in the dust.
But who knows? China may have the labor force and cheaper building materials, but brilliant minds
are borne out of the US’ system of democracy. Freedom is important where science is concerned.
The experts say there’s also every chance no one will catch up to Taiwan since it’s
already so far ahead. Still, the US and China will continue to extend their influence over
the island nation, making sure their demand of high quality chips is met.
South Korea, with Samsung and SK Hynix, is also in the race, and Japan is a contender,
too, if not an outsider. Europe might be left behind, but it has some very advanced
chip companies in Germany and Switzerland. The Netherlands is home to ASML Holding, which owns
what are called lithography systems. These are used to pattern the circuits in high-tech chips,
and ASML Holding is the world leader, making chips on what some experts say is a “new level.” In
layman’s terms, these machines can make smaller and more compact chips that hold more power.
In conclusion, it would be too expensive for companies elsewhere to join this race
without the infrastructure to make chips. They don’t have the machines, nor do they have the
expertise and the all-important patents. Making microchips is kind of like space travel. It’s
literally and figuratively difficult to get off the ground. Just as every nation on Earth
doesn’t have ambitions to send rockets to Mars, they don’t fool themselves into thinking they
can sit at the chip table with the big guns. Now you need to watch “How US Just Paralyzed
Chinese Manufacturing Overnight.” Or, here’s some good news, “Why 2023 Will Be The Best Year EVER.”