Surveilled 91 — How Physics and Geopolitics Collide: Chris Miller's "Chip War"
Greetings from a typical Belgian summer, propitious to spending time indoors and reading. Hence, no surprise that this month's edition is another book review. Expect a few more in the coming months...
How Physics and Geopolitics Collide
Chip War: The Fight for the World’s Most Critical Technology, Chris Miller, 2022
In the 1990s, the introduction of a new microprocessor was major news. Intel’s release of the Pentium chip, for example, generated a level of excitement among computer enthusiasts comparable to that of the early iPhone models. Since then though, we’ve come to take these technological wonders for granted, and forgot to what extent they power our daily life. At least until about 2021 and the disruptions brought about by the global pandemic that is, which caused acute shortages in chip supply for almost every industry, highlighting how many products now rely on them and how fragile their supply chain is.
While the initial shock of the pandemic has subsided, rising geopolitical tensions have cast the fragility of these supply chains into even sharper relief. Every nation is now scrambling to protect their perceived national interest by trying to secure access to semiconductors. The problem is that manufacturing them is an incredibly specialised industry, operating at the boundaries of our understanding of physics. There are really only a handful of companies globally able to make and run the machines required for state-of-the-art chips, hampering national ambitions of self-reliance.
Miller does a great job at tracing the history of the semiconductor industry, both in terms of the daunting technical challenges and the economic logic that shaped their supply chains. His description of Extreme Ultra Violet (EUV) lithography boggles the mind, and gives an indication as to how difficult it is for new entrants to catch up with the industry leaders:
The company’s engineers realized the best approach was to shoot a tiny ball of tin measuring thirty-millionths of a meter wide moving through a vacuum at a speed of around two hundred miles per hour. The tin is then struck twice with a laser, the first pulse to warm it up, the second to blast it into a plasma with a temperature around half a million degrees, many times hotter than the surface of the sun. This process of blasting tin is then repeated fifty thousand times per second to produce EUV light in the quantities necessary to fabricate chips.
The process described is just one step in the EUV lithography process, which relies on machines made by only one company, the Dutch ASML. Practically the only customer for these machines is Taiwan Semiconductor Manufacturing Company (TSMC), who operate as a foundry, meaning that they don’t design chips in-house but instead manufacture the designs of their customers. Innovations in semiconductor design enabled this separation between design and manufacturing, leading to a “Gutenberg moment” for the industry. TSMC’s innovations, both technical and business, and the subsequent economies of scale they benefited from turned it into a vital supplier:
Today, Apple’s most advanced processors—which are arguably the world’s most advanced semiconductors—can only be produced by a single company in a single building, the most expensive factory in human history
Semiconductor manufacturing is not only the locus of scientific innovations, the sector was also at the vanguard of capitalism. They were early to spot the potential of a globalised supply chain, leveraging the potential of free trade zones and relying on a cheap and compliant workforce in countries far away from their customers:
“We had union problems in Silicon Valley,” Sporck noted. “We never had any union problems in the Orient.”
At least there were mutual benefits, with the semiconductor manufacturing operations providing good jobs to a mostly rural population that was beginning to move to the cities. Miller cites the example of Malaysia:
In Malaysia, semiconductor production boomed in Penang, Kuala Lumpur, and Melaka, with new manufacturing jobs providing work for many of the 15 percent of Malaysian workers who had left farms and moved to cities between 1970 and 1980.
The establishment of these manufacturing clusters is now an important factor in the geopolitical risk to the industry, the third main theme of the book. As the name implies, TSMC is based in Taiwan, and it could arguably become the flashpoint of an armed confrontation between the US and China. This poses the very concrete threat of seeing the largest part of the world’s semiconductor manufacturing capacity destroyed in a “hot war”. But beyond that, access to the most sophisticated chips is increasingly important for national defence directly and for the competitiveness of the economy overall.
This explains the great efforts expended by China, for example, to achieve independence for its supply of microprocessors. But, as indicated earlier, the manufacturing process for state-of-the-art chips is so complex that this goal is nearly unachievable. Unsurprisingly, the US seeks to consolidate this state of affairs by imposing restrictions on the export of equipment to China, chief among which ASML's EUV lithography machines.
Conversely, the manufacturing clusters that were created fifty years ago and that had lost ground to China from the 2000s onwards, now provide the best opportunities to manage the risk associated with the existing supply chains. This is readily apparent in the rush of investment in Malaysia, for example, where both Chinese and Western companies have announced big expansion plans.
All in all however, “Chip War” is less convincing when it comes to the geopolitics and especially the future direction of the industry. To be fair, the situation is far from settled today, be it between superpowers considering policies to secure their dominance, or within countries looking to position themselves as investment destinations in the reconfigured supply chains. Nonetheless, at the very least, "Chip War" will provide participants and interested observers in these debates with the necessary grounding in the industry.
Noteworthy links
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This article makes a plausible case that the Singularity has arrived for the online job market. It is now basically AI agents trying to best each other. Link (Salon)
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The largest social media platforms will soon need a licence, renewable yearly, to operate in Malaysia. The regulation is mainly intended to address issues with scams etc., while leaving some very real issues unaddressed. Link (Nikkei Asia)
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Somewhat of a behind-the-scenes look at X/Twitter, interesting for context. Unsurprisingly, it seems there are lots of corporate politics at play, this will inevitably manifest in what the company says and does. Link (FT $)
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