Geopolitics and Chips: the new iron curtain that will divide the world

Since Trump's arrival in the White House problems began for the Chinese companies, with the governmental limitations on which technology who can be sold to China and who can work for companies in the country ruled by the CCP. The change of inhabitant of the House did not mean a relaxation of this policy, but rather an increase in restrictions.

Chip manufacturing is becoming increasingly complex, due to the advanced nature of these components, which are vital for consumer and professional electronics. The more complex they become, the higher the risk of technological dependence from consumers to suppliers, and we are talking about countries.

U.S. sees China as a competitor in the technology industrybut also as a high-tech supplier. Being aware of this latent risk, and when it still has the commercial power to do so, it wants to take advantage of it to bring manufacturing back to the U.S., with generous federal grants. It is not the only player in the geopolitical arena with this agenda, governments of Europa y Asiawith relevant national manufacturers, have introduced similar policies to support their technology sector. 

This chip nationalism468,875 million, can profoundly change a sector that has been characterized, since its emergence, by being based on globalization.

Bringing the chips home.

To assist in this offshoring of commercial chip production48,763 million to finance the construction of semiconductor factories. TSMCthe Taiwanese chip giant, has invested 37.51 billion euros in the manufacture in the USA of the most advanced chips for defense applications, a priority for the US government.

Although, despite government support,chip manufacturing costs in the U.S. are 50% higher than in Taiwan. This is going to be a increase in costsThe new chips, which will be transferred to the companies that will install these chips in their equipment. In this way, it is expected that the devices of U.S. companies, such as the Apple phones, and Nvidia cards. prices will be increased as a result of the politically forced to buy chips that are manufactured in the U.S.A..

It remains to be seen how this policy will continue, and whether or not economically sustainable for the governmentIf factories do not continue to benefit from subsidies, it is unlikely that they will be able to continue operating due to the high labor costs involved in bringing manufacturing to the West. In contrast to the low wage costs in Asia.

Taiwan produces more than 60% of the world's semiconductors and more than 90% of the world's most advanced semiconductors, until now, these were only manufactured in Taiwan.

U.S. and Taiwan are political and commercial alliesThe main reason for this is the danger for the US of losing its influence in the physical passage that is the island of Taiwan.

Taiwan limits China's exit to the Pacific and forms part of the so-called first island chainThe United States, along with Japan, South Korea and the Philippines, allies of the United States. If China were to take over the island, the US would fear for its military bases on the islands of Guam and Hawaii.

But Taiwan, undisputed world leader in chip manufacturingdoes not want to lose its leadership positionThis would put it in an even greater danger zone vis-à-vis China and its undisguised intentions of an invasion. That is why Taiwan approved a subsidy law by November 2022 to grant their companies in the sector onerous tax exemptions.Japan and South Korea have followed suit. No one wants to see their manufacturing companies flee overseas.

Chinese response.

Chinese companies are coping as best they can with the restrictions the US is placing on the sale of advanced chips to China or their installation in Chinese equipment. In reality the CCP can do little for its companies as China does not have the capacity to hit back at the US. with its own trade restrictions.Except for its rare earths, key to chip manufacturing.

China controls 80% of the world's refining capacity for rare earth materials. These are essential for manufacturingfighter planes ycomponents of consumer devicesWhy then has the CCP not used this to put pressure on the U.S.? Because today, it would be like shooting itself in the foot.

China's chip industry relies on a global supply chainIn the case of the United States, where other countries, such as the Netherlands, supply them with lithography machines, or the Americans, with the intellectual property of the chips. To be at odds with the leader of the group of countries that provide them with what is indispensable for their own industry does not seem the smartest thing to do. And if there is one thing that characterizes contemporary China, it is its pragmatism.

So China is going to do the same as the rest of the countries, support its industry with subsidies and other assistance to its domestic industry in order to achieve the self-sufficiency and no dependence on foreign technology.

The rest of the world.

As mentioned above, there are countries other than the US, China or Taiwan that have a lot to say in chip manufacturing. The Netherlands, Japan and South Korea control key manufacturing processes that neither China nor the US can replace with domestic alternatives.

Despite significant government efforts to achieve greater self-sufficiency, this sector is so globalized that a semiconductor can be designed in the United States, manufactured in Taiwan with chemicals from Japan and Germany, assembled with equipment from the Netherlands, and eventually packaged in China. As one analyst told the Financial Times: "Self-sufficiency in semiconductors is a fantasy for anyone: from chemicals, to production tools, to software, to the chips themselves, they cannot be monopolized by a single country.".

The creation of the new Technological Iron Curtain.

With Taiwan being able to ally with the US in export control, they are joined by the Western leader's usual allies, the semiconductor industry can be separated into two de facto. The American alliance on the one hand, and on the other, China together with the countries that the Asian nation is pressuring to adopt its technologies, such as the countries of Southeast Asia, the Middle East, Eurasia and Africa, in exchange for financial aid and trade agreements. 

This will result in a re-division of the world with a new iron curtain not seen since August 19, 1989, when Hungarians and Austrians bypassed the Soviet borders and symbolically came together in one event, a gesture that brought an end to the Iron Curtain that had divided the world since the end of World War II. A gesture that brought an end to the iron curtain that had divided the world since the end of World War II. Are we witnessing the creation of the foundations for a new separation of the world into two blocs?

Iron curtaino iron curtain are two historical locutions that derive from the expressions Eiserner Vorhang (in German) and Iron Curtain (in English). The name refers to the political, ideological, and in some cases also physical border between Western Europe (capitalist bloc) and Eastern Europe (communist bloc) after World War II.

Cover image by Maxence Pira