How Biden killed China's Semiconductor industry in just a night

Biden

Global Market
by 5paisa Research Team Last Updated: 2022-10-21T21:18:00+05:30

 


In ancient times, when emperors wanted to dominate territory, they would often go to war against the king ruling in the area. At that time, what dictated the win in a war - was the army and weapons of the king.

Remember Padmavat? From the start, Rawal Ratan Singh knew his small army would not be able to stand against Khilji's massive army armed with the best weapons. Because of this, he allowed the sultan to see his queen.

Well, what I am trying to say here is, in the past, in a war what defined your win was - your people and your weapons.

Now, you may ask, why are we discussing this today? How are semiconductors and war related?

Even in today’s time weapons are important just today nations don’t go to war with weapons like axes, shields or swords but modern-day warfare involves drones, missiles, and advanced electronic warfare systems.

All of these advanced weapons require semiconductor chips to function. These teeny-tiny chips are found in almost all tech devices - from a TV remote to a spaceship. 

 In the modern world, they are as important as oil!

Today, if a nation has to take down another nation, they just have to take away these chips!

And that’s exactly what Joe Biden did.

annihilation 1

 

Unless you are living under a rock, you might know about the ongoing cold war between China and US. US for a long time is worried about China’s dominance in the world.

So a few days ago, the US president passed some sweeping rules, under these rules U.S.-based companies cannot sell advanced semiconductors—including those used for A.I. and high-performance computing or any equipment that is used to make new chips to China. 

Also, companies in other countries as well cannot sell advanced semiconductors to China if the chips were developed using American-made technology, software, or equipment. 

Chris Miller, an economic historian at Tufts University quoted,

“When you think about the future of warfare, autonomous drones or advanced electronic warfare systems, all of them will be critically dependent on access to advanced chips and the computing power that they enable. And the U.S. government believes that now more than ever, it's important to increase the gap in terms of the technology that the U.S. has access to and the technology that China does.”

These new rules would set China’s technological advancements by not years but decades back.

Why?

To understand that, you need to know a bit about semiconductor technology. 

The value chain of a semiconductor involves,

Semiconductor value chain

 

Design: these are the companies that design integrated circuits (IC’s) to perform a particular task


Fabrication: Companies that manufacture these ICs physically, transform the designs into silicon chips


Assembly/Packaging/Test (APT): companies that package ICs into chips that companies can incorporate into products like smartphones, TV sets, cars, etc.   


Semiconductor Manufacturing Equipment: Companies that produce the capital equipment needed to automate and perform the functions of other segments of the semiconductor industry


Well, all processes in the semiconductor value chain are concentrated in specific geographies.

America dominates the world when it comes to the equipment used in manufacturing semiconductor chips and the technology and design of a chip.

Now, Chinese companies rely on the US for the equipment and the design of the chip. And there are only five companies in the world that manufacture chip-making machines, three are in the US, one in the Netherlands and one in Japan.

Biden has barred all of them from supplying equipment to China. 

Another important process in the value chain that the US dominates is Design. Designing a semiconductor chip is a very complex process, you need to have the best talent and have to pour billions of dollars into R&D to create the design.US had close to 63% market share in chip design in the world.

Market share in semiconductor industry

 

So, can China design these chips indigenously?

Maybe not. 

Miller quoted,

“Even if you were to copy the blueprints or hack into the systems, there's really really complex knowledge that the engineers who have built these have that simply can't be straightforwardly copied.”

As per experts, Biden’s move will eliminate the Chinese semiconductor industry completely. Reportedly, he has also barred Americans from working in Chinese semiconductor companies.

One of the provisions of his executive order says that any U.S. citizen or green card holder working in China cannot work in the Chinese semiconductor industry or they will lose their American citizenship.

A lot of American engineers have resigned overnight. While Chipmakers have distanced themselves from Chinese companies. In simple words, Biden has attempted to put China’s semiconductor industry to the grave.

 

semiconductor 2

 

As semiconductor chipmakers in the U.S. and allied nations are years ahead of their Chinese counterparts from an innovation standpoint. Advanced chips represent the new frontier of warfare, as well as economic and technological dominance. 

By putting sanctions on China and cutting off its ability to import all-important semiconductors, Biden wants to slow its geopolitical ascendance & aggression.

What do you think, by killing China’s semiconductor industry, Biden will put an end to its dominance?


 

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Our research team is composed of some highly qualified research professionals, their expertise range across sectors.

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Investment/Trading is subject to market risk, past performance doesn’t guarantee future performance. The risk of trading/investment loss in securities markets can be substantial. Also, the above report is compiled from data available on public platforms.

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