Are computer chips the new nuclear arms race?

Facing a global shortage, countries are retreating to a new Cold War footing.

Computer chips make the world go round, even in hardware and technologies we couldn’t conceive of. Few people realized how important chips were to the functioning of our society until a global shortage, brought about by the coronavirus pandemic and an associated surge in demand for electronic devices that rely on them.

Initially, it was games consoles and computers that came into short supply, but chips’ broader impact on our world became clearer when car waiting lists lengthened because they too rely on tiny processors to dictate where we drive and how.

The impact has been so great that countries have felt the need to step in and do something. Onshoring production of chips and improving the capacity to make them has become a strategic priority for plenty of countries, including the UK and US, as they seek to be less beholden to the effects of closures and issues within China and countries like Taiwan, the latter of which is the main producer of chips worldwide.

Semiconductor supply issues

What was once a market dominated by single countries will, in short order, become far more diversified as nations recognize the strategic soft power that comes with producing one’s own semiconductors. Semiconductors have an integral role in the global economy and those of individual nations, and supply issues have set back countries’ abilities to bounce back from the recession caused by the pandemic. It all means that there’s a desire to make your own.

Economic historian Chris Miller, who will shortly publish a book on the global chip war, says that the computer component is the new oil – and with it, is triggering a new global struggle for supremacy. China spends more money each year importing chips than it spends importing oil, according to Miller, spending billions of dollars to be able to make its own chips at a level that the United States can.

Despite Taiwan’s role as the leading manufacturer of computer chips, the United States is generally believed to produce chips of a higher quality. China doesn’t like that and is engaged in what Miller calls a "Manhattan project" to develop chips that can better the US’s offerings.

A new Cold War

It’s an issue that the United States has seen before. At the height of the Cold War, it was competing with Russia to produce the best semiconductors, winning that race and becoming the world leader when it comes to quality. But the US’s dominance is in danger of slipping away, undermined by the idea that outsourcing the production, if not design, of those chips can help make a globalized market that would keep it secure.

Instead, what’s happening is those countries that are tasked with making America’s chips to their specifications are also tinkering with the design, making their own, potentially superior versions. Companies in Taiwan, South Korea, and across Europe now design their own and are catching up to the United States.

And now that those manufacturing requirements are needed more than ever as the steady supply of chips slows to a trickle, it puts the US in an invidious position. They’re on the back foot and struggling to keep pace with a host of global competitors snapping at their heels. It requires rapid thinking and a retooling of the way their manufacturing system works in order to keep pace – and is a tumultuous problem that promises plenty more twists and turns in the years to come as each country vies for supremacy.