The global battle over microchips | DW Documentary

The global battle over microchips | DW Documentary

This technology is minute… It’s everywhere. It’s in the finest grains of society. From autos, to manufacturing, to data centres, to communications. Everything depends on semiconductors. Semiconductors are more important than oil. Semiconductors or microchips are not only important — the industry around them is also highly strategic.

The world’s largest microchip producer is the island of Taiwan, just across from China. If we imagine China taking over Taiwan’s semiconductor industry… The worldwide economy would shut down. For Taiwan, semiconductor is probably the best defence. It’s a silicone shield. Since the 1990s, the US and Europe have been offshoring

Much of their microchip production. The globalisation trend was driven by differentials in labour costs. It was simply cheaper to hire workers. But with so many industries relying on semiconductors now, the US and Europe are in a race against time to produce their own. Whoever controls the microchip supply, controls part of global industry.

The world’s geopolitics has been defined by where the oil reserves are — for the last five decades. And I think where the chips come from is more important for the next five decades. From Taiwan to the far reaches of America, all of the world’s superpowers want microchips. To make semiconductors,

You need cutting-edge technology. But the process begins with one of the most abundant elements in the earth’s crust: silicon. Extracted as quartz, this is first melted in a furnace at 1,400 degrees Celsius, before being cooled in silos. The silicon is then cut into ultra-thin wafers. And onto these the electronic circuits

That form the microprocessors are etched. The wafers are found in all electronic devices. Europe opted to outsource the production of these components to Asia in the 1990s. Taiwan decided to make them their key industry. In Taiwan, we have been developing the microprocessor industry

For 30 or 40 years. The sector accounts for 13% of our GDP. It is very strong, right now, in technology and its very strong in terms of the talent supply, the workforce quality. And it has the strongest, I would say, semiconductor supply chain cluster with global partners.

In terms of the infrastructure, cost structure, Taiwan has become the promised land for this kind of stuff. Today, the island just off the coast of China is the stronghold of this key industry. Taiwan produces more than half of the world’s semiconductors — making the small country a vital pillar of the global economy.

The impressive development is largely due to a single person: Morris Chang. Chang was born in China in 1931 and is venerated as a national hero in Taiwan. In 2018, he was awarded the country’s highest civilian honour by Taiwan’s President Tsai Ing-wen. He studied at the best American universities

Before founding the Taiwan Semiconductor Manufacturing Company or TSMC: the chip foundry was the first global manufacturer of microprocessors. Throughout Silicon Valley, he’s admired to this day. Morris, the world is full of successful people, frankly. But we’ve never seen impact like what you’ve made. And, on behalf of all of us, you’re my hero.

Morris Chang I think rightly can claim to have really reshaped the chip industry, starting in the late 1980s when he founded TSMC. He was actually present at the creation of the semiconductor industry when he worked at Texas Instrument in the late 1950s. So he’s been with the chip industry from the invention.

Actually, the very idea of the new business model, the pure-play foundry business model, now everybody thinks that it was a pretty clever idea. But at the time, nobody needed the platform. He, with the support of the Taiwanese government, which was a founding investor in Taiwan Semiconductor Manufacturing Corporation,

Began pouring money into expanding production capacity in Taiwan. Designing none of their chips in house — but providing outsource manufacturing for chip firms in Europe, the United States, across the world. Pretty quickly, in the early 90s — and I think that TSMC’s existence certainly helped to accelerate

The formation of a lot of ‘fabless’ companies. There were maybe 25 fabless companies in the whole world. And then,10 years later, there were 400 or 500 fabless companies. “Fabless companies” design and market hardware, but outsource the fabrication of this hardware to a third-party partner. Such as TSMC for chips.

In less than 40 years, TSMC built an empire of ‘chip megafactories’ across Taiwan. These factories are impenetrable, and corporate communication is strict: Interviews with employees are forbidden, as are images from inside. Everyone now has an eye on TSMC. After all, it’s a company that has the power to paralyse the world economy.

TSMC produces 90% of the most advanced processor chips. From Apple, whether it’s an iPhone or Nvidia which powers many data centres, TSMC produces many of their chips. And without TSMC’s production, the entire digital economy would simply ground to a halt. Of all of the companies you know in the world,

This is the only company that currently has something they make in our possession right now. There are no others. So there’s basically air, and TSMC. TSMC’s stock market value constitutes over half of Taiwan’s national wealth. 90% of the world’s most advanced semiconductors are manufactured on the island.

China, the US and Europe are lagging far behind and have long had to import the bulk of their microchips. And in March 2020, when the Covid-19 pandemic hit, and the world economy became even more reliant on this technology. We pushed out of our fabs 1.15 trillion chips,

Well exceeding any record in the past. So we’d been running at way above full capacity for a couple of years. The problem we’re facing right now, is that demand has just exploded. And fabs have four walls, and you can only produce so many chips within those four walls.

Suddenly, the Western world felt its own vulnerability. In 2020, when it started, COVID-19, the automotive industry, the business go on the downside. They just stopped, forcing chip companies like TMSC to give their high-capacity production for some other industry. Forget about automotives.

In the second half of 2020 when car orders started to pick up, car manufacturers urgently wanted to buy semiconductors. But all of our production lines were already booked by other clients. Everyone was fighting for our chips. It was a very tense time. All of a sudden, every country in the world woke up.

Then, the money and demand started to increase. Then, they were asking our company for more chips. But sorry, we don’t have the capacity! We gave it to someone else. Opel Eisenach has temporarily ceased production at its plant. Renault workers in Sandouville have had to leave the factory,

Which has to close for thirteen days. Thousands of people in mid-Michigan are temporarily out of work tonight. And it’s all because of a little chip. In 2020, tens of thousands of vehicles were left waiting in American carmakers lots for their microprocessors. In 2021, many vehicles were not even produced,

Costing the global automotive industry around 200 billion euros. There’s a lot of analogy to what we saw in 1973, you know. In 1973, oil was a given. Nobody worried about oil, it was always there. Until it wasn’t! Now, we fast forward: 2020. Same, got all these chips, always been there. Until they weren’t.

And all these questions suddenly pop up. Where are they? You know… Where do they come from? Who is producing it? That is exactly why chips and semiconductors are now strategic. The globalisation trend was driven by differentials in labour costs. It was simply cheaper to hire workers in places in East Asia.

It was driven by typical trends in terms of shipping costs going down, in terms of new IT technologies making it easier to have a firm that operated in Europe, in the US. And that’s where the vulnerability comes in. We did not think for a single moment that these international supply chains

Could be put at risk. Nor did we envisage such a pandemic or war. Today it’s no longer about low-cost labour reasoning, but about low-cost technology. That’s fundamental for understanding this reverse trend we’ve seen. Companies had been outsourcing production for decades without a second thought — including for microchips.

It wasn’t until COVID-19 that they saw the full scale of their vulnerability and dependence. The pandemic has painfully exposed the vulnerability of chips supply chains. The Covid-19 pandemic exposed the fragility of just-in-time supply chains. I think, for a couple of decades now, political leaders meanwhile have just not thought much about the industry.

They’ve thought semiconductors were something that plugged into their computer or smartphone and their thinking stopped basically right there. The global semiconductor shortage has caused a shortfall on consumer goods. Especially automobiles. It’s contributing to higher prices around the world. And so it’s only in the past couple of years, because of the pandemic,

Due to the geopolitical competition, that leaders have started thinking about: is this a risk? To limit the effects of the shortage and reduce their technological dependence, America, China and Europe are taking action. In 2022, each announced their “chips” plan for developing their own production capacity.

The College of Commissioners has adopted today the European Chips act. The microchip war has been declared. There are a couple of different wars going on simultaneously. There’s wars between companies struggling for market share, but there’s also competition between nations for who gets which part of the supply chain.

On the 2nd of August 2022, Taiwanese television channels showed a live broadcast of a US Air Force passenger jet arriving. On board was Nancy Pelosi, then-speaker of the United States House of Representatives and third-in-line to the presidency. She was the highest-ranking American official in 25 years to visit the self-ruled island.

Today our delegation came to Taiwan to make unequivocally clear: We will not abandon our commitment to Taiwan, and we are proud of our enduring friendship. Nancy Pelosi posted about her visit on social media several times. But she didn’t mention a very important meeting she had:

Here she is with Morris Chang, founder of TSMC. And with Mark Liu, the chip company’s current Chairman. If you look at Taiwan’s production of semiconductors, you can easily tell that Taiwan has occupied a very important place in the world. It might come into play in the near future,

That China might have the temptation to think about Taiwan’s semiconductor as something that they want to take over. China wants to expand its influence and power beyond the first island chain. Taiwan happens to get stuck in the way and they want to take Taiwan over.

The absolute majority of the people here say no to unification. Using force becomes the only option for the Chinese government to unify Taiwan. Nancy Pelosi is in Taiwan tonight and China is already responding. Pelosi’s late-night landing was quickly followed by news of Chinese military drills all around the island.

Using missiles and fighter jets, China organised an unprecedented military blockade of Taiwan for several days. A strong message from President Xi Jinping to Taipei and Washington. Pelosi went to Taiwan? But come on, who is Pelosi when faced with China? Isn’t she a little bit too old?

Since 1949, China’s government has had its sights set on Taiwan. In October 2022, at the 20th Congress of the Chinese Communist Party, President Xi Jinping reaffirmed his intention to annex the island. China’s interest in Taiwan is not just political. The island is at the heart of the tech ‘cold war’

Being fought by the US and China. China has said that they plan to overtake the USA’s technology. And, of course, that conflict revolves around semiconductors, which are at the heart of the third industrial revolution and global tech dominance. If China were to launch a military attack on Taiwan, the consequences would be huge.

There is no doubt that these days China is only an emerging power when it comes to semiconductors. We are not at the forefront of technology, and our production capacities are not the most advanced in this sector. We thus only end up with mid to low-end microchips, and that’s a huge problem for us.

If we imagine the world with China taking over Taiwan’s semiconductor industry and they use this as a weapon against the rest of the democracies, I’m sure the rest of the democracies which relied on the semiconductor industry in Taiwan, I’m sure they would react in a very strong way.

Taiwan with semiconductors — it’s probably the best defence. The Taiwanese are using TSMC as a shield, to protect themselves, both politically and militarily. Taiwan must remain capable of manufacturing semiconductors in spite of China, and not just for the US, but for the global industry.

The United States, you make sure that we are here to make things for you. It’s not for our own interest. For their interests, for Apple, for all these companies that require that we continue business. The Chinese might like it. But the US says: no, no, sorry, we’re not allowing this to happen.

And as an armed conflict in the Taiwan Strait would jeopardize the world’s electronics production, Taiwan can count on a powerful military ally against China. Are you willing to get involved militarily to defend Taiwan if it comes to that? Yes. You are? That’s a commitment we made.

The idea that it could be taken by force is just not appropriate. It’ll dislocate the entire region and it would be another action similar to what happened in Ukraine. If Taiwan did not have the industrial capacity in this field, then I think that the United States would be much less interested

In the defence of Taiwan. It goes without saying that economic interests, particularly in the field of semiconductors, are a crucial and central part of US-Taiwan ties. Following her return from Taiwan, Nancy Pelosi stood as Master of Ceremonies. Today, Mr President, with the stroke of your pen, America declares our economic independence,

We strengthen our national security, and we enhance our family’s financial future. We are the United States of America. A singular place of possibilities. I’m now going to go sign this Chips and Science Act and, once again, I promise you we’re leading the world again for the next decades. Thank you.

By signing ‘The CHIPS and Science Act’, Joe Biden gave priority to protecting American interests. Reducing costs, creating jobs and countering China are becoming key features of Washington’s trade policy. 80 billion dollars have been allocated to industry and research, of which 52 billion are semiconductors alone.

It is the largest public investment in the US since World War II. Among the audience that day, was one man who had worked for this outcome discretely behind the scenes: Pat Gelsinger, CEO of Intel, the company that invented the world’s first single chip microprocessor back in 1971.

These days Intel is the second largest producer of microchips in the world. I came into the role as CEO. We basically lay it out in this very simple view: The world needs more geographically balanced resilient supply chains. And the world now realises that, that’s the essence of the US Chip Act,

To get more geographically balanced resilient supply chains. I can’t put oil reserves in my country, but I can help build fabs in my country. We have to build out. We are coming to you live from Licking County, Ohio. This is the site where Intel is breaking ground for its newest chip manufacturing facility.

Intel is going to build a workforce of the future right here in Ohio. A brand new $20billion campus. Seven thousand construction jobs. Please join me in welcoming Intel CEO Pat Gelsinger. We made it! This great state of Ohio has this tradition of manufacturing. You all like to build stuff.

That’s exactly what we’re going to do together. We’re going to make the advanced stuff in the world, right here in Ohio. Unfortunately, we produce zero, zero of these advanced chips in America. Zero. China is trying to move way ahead of us.

The United States has to lead the world and produce these advanced chips. And this law makes sure that we will. Intel CEO Pat Gelsinger is one of a handful of powerful entrepreneurs who are close to the President. In the US, industrial policy in key economic sectors

And the interests of the State are connected. The US is pursuing an industrial policy without nationalising companies, like France was able to do at one particular point, but they operate through massive orders from the State Department. When we take a closer look at the industrial history

Of the United States, we see that the military-industrial complex has played a major role in the emergence of technological innovations. Okay ready? One…Two… Three, let’s dig! Intel’s 20-billion-dollar investment complex in Ohio is set to be up and running in just two years. Thanks to the Chips Act, that is, to taxpayer money.

Semiconductors is an expensive competitive market. I can’t make those levels of investments without the incentives, so we’re looking for offsets of 30-40% of a 20-billion-dollar investment. That’s exactly how the Chips Act is designed. As I say to the political leaders, we’re not looking for handouts.

But if I’m going to make this level of capital investment, it has to be competitive in the world market. The United States have realised that China reaching the technological frontier would mean that China is also capable of outrivalling them on a military scale, by using semiconductors that can integrate

The very latest technology and threaten US military supremacy. To combat this, the American reindustrialisation strategy is accompanied by punitive and radical measures. American companies are no longer permitted to work with telecoms giant Huawei, and SMIC, China’s leading producer of microprocessors. Measures that in Beijing, are perceived as aggressions. Like the United States,

China is also investing billions in the semiconductor sector… to little avail so far. The US microchip legislation is not very ambitious. This 52 billion dollar allocation is not much. We are investing 150 billion. But the Chinese, even though they work hard,

Still have to import over 400 billion dollars worth of chips per year. The Chinese government has poured a lot of money into chip-making, but it’s done so in a very ineffective way. China spends more money importing semi conductors than it does importing oil.

For nearly 40 years now, China has been investing heavily in semiconductors and losing enormous amounts of money. In some ways they have caught up, but they are still not at the technological frontier, and China would obviously like to surpass Taiwan. Not only because there is a rivalry between the two countries,

But also because there is a rivalry with the United States and a desire for its technological dependence. As if in response to American sanctions, Chinese semiconductor production has hit an all-time high in recent months. 300 billion chips were created in the country’s factories.

I think that many of the decisions made by the US are very simplistic, without a clear goal or even stupid. My name is Yao Haiping. I am the founder and CEO of this firm. I founded Artosyn in 2011. Over the last 25 years, I launched a semiconductor company specialised in chip design.

This company has approximately 300 employees, of which 60 are in the chip design department. Over there they are working on integrated circuits. They perform simulation and verification. They code the microchip for different applications. For now, design firms can continue to manufacture their chips in Taiwan, Korea, or the United States.

Only certain companies like Huawei are banned. But the American Chips Act will not fix things. We can clearly see their intention: harm China. I feel that any form of repressive measure will permanently hinder our country’s development. Nowadays, China manufactures only around 15% of the electronic chips it needs. It has ambitious goals, though:

It’s aiming to close the technological gap and become largely self-sufficient by 2025. Yet when it comes to semiconductors, China still lacks the technology, know-how and production capacity. This is the Chinese industry’s greatest weakness, as it’s significantly dependent on foreign microchips. I worked in China for about two years.

I was hired by SMIC as a vice president. In 2020, Professor Shang-Yi Chiang, a former executive of Taiwanese company TSMC, was recruited by the leading Chinese manufacturer of semiconductors. Currently, he lives in the United States, in Silicon Valley. Before I went to China, I heard that they were going to put in

Several hundred billions into the semiconductor industry. I think there must be a master plan. After I went there, I found that there was no master plan. You think China is a kind of concentrated government? Politically it is, but economically it’s not, because local governments have their own spending.

They can do whatever they can. People just want to have power. If you look at the aggregate funds that China devotes to chipmaking, it’s billions and billions of dollars, but much of that comes from different provincial or local officials, and they all want a facility in their province or their city,

So it ends up being very inefficient in terms of how this is spent. As a result, although China’s firms are subsidised more than anyone, they’ve really struggled in the past decade to actually improve their manufacturing capacity relative to other countries. There is a tech war underway. Who will have the technology that leads?

Right now the US has it but our lead has been slipping. And China certainly wants to have its indigenous technology that doesn’t rely on the US or Taiwanese or Korean or… The strong are very strong, you know? TSMC, Samsung, Intel… they are all very powerful.

But we believe we will quickly catch up with them. These things can go fast, extremely fast! Does China have the means to achieve its ambitions? Will it be able to catch up in less than two years? In this global race to produce semiconductors, Europe seems overwhelmed, despite speeches by leaders in Brussels.

We have relocated a large number of these factories, not only for semiconductors but for a huge number of manufactured products. We are in a sort of race that some, perhaps rightly, criticise — and I can understand some of their arguments. But now the crisis is obviously speeding things up,

And we have this awareness that it’s time to take control of our destiny and lay down our ambitions, in which by 2030 we will be capable of manufacturing 20% of the global production. It is crucial that we massively increase the production capacity of semiconductors in Europe. To attain microchip sovereignty,

Europe needs more factories, like this one in Dublin. A modern factory, which is being built in the suburbs of the Irish capital. Isn’t it magnificent? We call this factory the Fab 34. It’s a 17-billion-euro project. Two years to build it, a year to put the equipment in it and qualify it,

And a year to wrap it or so. It’s a multi-year project. In 2023, the plant had moved toward full production. It plans to make the latest generation of semiconductors. But Fab 34 is not a European plant. It is owned by the American manufacturer Intel, and its CEO, Pat Gelsinger.

Today we are announcing our European investment programme. We envision investing up to 80 billion euros in the EU over the next decade. European Commission President, Ursula von der Leyen recently said, ‘There is no digital without chips,’ and she is absolutely right. Ladies and gentlemen,

A month ago the Commission presented the European Chips act… The President of the European Commission appears in Intel’s promotional video advertising its semiconductor plan. In total, more than 43 billion euros of public investment, both European Union and national level investment, will support the Chips Act until 2030.

The EU, unable to reach technological independence alone, is thus working with American companies. In the trade war between the US and China, Europe seems to have the worst hand. We still had several manufacturers in the 1980s and 90s. Since then these have all either closed down or been acquired

By American or sometimes even by Asian companies. European countries have failed. Essentially what Europe is trying to do now, is secure its supplies, in case we have further geopolitical turmoil in this industry. Although – Brussels can count on three European manufacturers of microchips. Including one major champion in the industry.

ASML is a Dutch firm few people have heard of. But it’s this company that makes photolithography machines — incredibly advanced and precise machines that are capable of engraving even the smallest objects. Without ASML, we wouldn’t have semiconductors for our mobile phones. What we are doing is, we are making a big slide projector.

We are providing a machine that actually takes the design of a computer chip, and it translates that design onto a carrier. A carrier is the microchip that, when you open your phone, you see all those little chips sitting there, you know? That’s what we do, it’s expensive, but it’s like a slide projector.

Just one of these machines costs at least 150 million dollars. Only TSMC, Intel and Samsung can afford them. This is a very profitable industry. TSMC, they have announced that they’re going to spend 140 billion dollars over the next three years. Samsung? They are going to spend a similar amount of money. Intel?

More than 100 billion dollars. So there’s already 300, 400 billion dollars, but only 3 manufacturers allocated to build out that capacity. Why would you then, from a risk management point of view, put everything in Asia? You want to distribute this across the world, it’s logical.

This is why Intel, an American company, comes to Europe. This is why TSMC, a Taiwanese company goes to the United States. The semiconductor industry is an expensive industry to compete in. Building a new facility can cost $20 billion for one plant. So any effort to change the geography of where factories are located

Is going to cost them a lot of money. Now the question is: Is it worth it? I believe we have been too dependent on Asia. I would like to see us reassure our manufacturing. I don’t get why globalisation is being questioned. It’s impossible. Globalisation is part of God’s plan, right?

Should countries fund a thriving industry that’s riding on the high wave of demand for semiconductors? Governments need to incentivise and subsidise those big companies to just start such a big project, as a kind of co-partnership. Governments and manufacturers working hand in hand.

In Asia, Europe and the United States, the Chips War has only just begun. As microchips have become the main raw material of the digital age. There is no innovation without semiconductors. There is no green without semiconductors. And, there is no national security without semiconductors.

It’s that important to the future, let’s treat it with that priority. You have some companies that have developed a unique expertise and are faring well in this new geopolitical situation, and therefore it is these companies that are able to impose their decisions on governments across the globe.

Will this microchip war, that is both commercial and political, reveal the limits of globalisation? The semiconductor crises fuelled tensions between China and the US. Will Washington be able to maintain its current strategy? Or will it have to contend with China, a country that may use violence,

In the global race to close the technology gap?

Computers, cars, mobile phones, toasters: countless everyday objects contain microchips. They’re tiny, unremarkable and cheap, but since the outbreak of the coronavirus pandemic, they’ve been at the center of a political and industrial tug of war.

Against the backdrop of the trade war between China and the US, “The Microchip War” spotlights all the aspects of this conflict. In the film, the world’s most influential actors in this industrial sector weigh in.

No one is in any doubt that microprocessors are as strategically important as oil. The battle over microchips could potentially redefine the geopolitical world order. In the United States and Europe, fears over a microprocessor shortage have led to a flood of investment pledges. After ceding microchip production to Asia in the 1990s, market leaders in the West are now trying to bring production back home and thereby regain control of the production chain.

This resulted in the adoption of new legislation in 2022: the European Chips Act initiated by the EU Commission under Ursula von der Leyen and – in response to this – the American “Chip and Science Act” initiated by Joe Biden. China, the US, Europe: major global powers fighting over tiny microchips. Pandemic and resource scarcity have fueled the desire for industrial reconquest and economic superiority.

But is this reindustrialization actually possible? Can the West challenge the foundations of globalization in this way?

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