Chip War: The Best Economics Book Of 2022 And Lessons For India

Chip War: The Fight For The World’s Most Critical Technology. Chris Miller. Simon & Schuster Ltd. 2022. Pages 464. Rs 1,786.

Almost three years after the pandemic, where lies the biggest calamity?

Chris Miller answers this question in what can be easily labelled as the best non-fiction book of the year 2022.

In his book, Miller documents the history of semiconductors, and how the pandemic ushered a geopolitical storm around the established supply chains.

In a year when many big economies, including India, have been wanting to get on the chipmaking bandwagon, this book serves as an incredible primer of the new trade war that engulfs the global economy. 

Simultaneously, the book, across chapters, has several lessons for aspiring chip production economies.

The Government of India with an outlay of Rs. 76,000 crore under the Production Linked Incentive Scheme (PLI) is aping Japan, Taiwan, and South Korea which not only promised government investment in the early years for chip making plants but also ushered lending from banks.

Further, partnerships were forged with global companies, and engineers working in other countries were asked to return. 

However, as was the case more than three decades ago, chipmaking is more to do with diplomacy than technology.

In the early years, Taiwan and South Korea were playing foreign firms against each other, and then the Japanese and the Americans.

Today, India’s chipmaking aspirations rely more on diplomatic dynamics than technology. China, throwing hundreds of billions of dollars, if not trillions, is caught in the same storm, fighting off American sanctions to develop an indigenous chip industry. 

Miller documents the supply chain equations in his book.

For instance, the software tools to design chips are concentrated in the United States. China, on the other hand, has less than 2 per cent share, globally, when it comes to core intellectual property, less than 5 per cent of the share in silicon wafers and chip making materials, a per cent share in the tools needed to fabricate chips, and merely a 5 per cent market in chip making design.

Thus, Beijing also has the money muscle, but no intellectual capital.

Perhaps, this explains Beijing’s hammering by Washington in recent weeks.

When Trump first floated the idea of import restrictions and export controls around China, Democrats were worried about the inflated costs for the consumers, but today, under the Biden administration, Trump’s policy has not only been followed, but elevated to unimaginable proportions.

The US wants to cripple China’s ability to produce advanced semiconductors (3-14 nanometre process technology). More about it here. 

Infamous for its close ties to the Chinese government, Huawei was in the eye of the trade war storm since the Trump days.

Given the amount of data that will be generated with 5G, even from something as trivial as a coffee maker, to show doors to a company that has acknowledged copying source code from Cisco and has been banned in several countries makes for a good diplomatic call. 

What makes semiconductors so critical is their indispensability to most devices we use every day, from Sony PlayStation to cars, and from computers to mobile phones.

As the world moved to a work-from-home regime, the demands for various such devices went up, creating a bottleneck of semiconductor supply. The bottleneck in supply led to a longer waiting time, which in turn impacted the production times for devices, resulting in an overall delay in manufacturing.

The manufacturing prowess extends to military supremacy as well, as documented by Miller in his book.

Artificial Intelligence in the Military amounts to better and faster machines, equipped with the ability to identify and take out threats more accurately. There are autonomous vehicles in air, water, and land that are learning to maneuver and identify threats on their own, deployed by China in the Taiwan Strait.

However, the advanced the weapons, the greater the demand for computing power, and that creates the demand for more advanced chips. 

Chip War: The Fight For The World’s Most Critical Technology documents the fusion between changing diplomatic equations and challenging technology demands.

One of the best case studies is around the EUV lithography machine, used to pattern the finest details of the most advanced microchips. Headquartered in the Netherlands, ASML is behind the world’s most advanced EUV machine.

More recently, they were seen complying with the US sanctions, thus asking their staff to halt all trades with Chinese customers. 

An EUV machine, critical to advanced chipmaking, is all about identifying, procuring, assembling, testing, and deploying thousands and thousands of intricate components.

The laser of the EUV system alone is made up of more than 457,000 components. Thus, assuming the Chinese or any aspiring production economy were able to steal the IP, the entire details of the EUV ecosystem, they’ll still lag when it comes to the experience, the tech know-how, and the deployment of the tools. 

Miller's book deserves to be read from cover to cover, for the few important lessons (many more left for the reader to discover) that surface.

• One, chipmaking, unlike China’s manufacturing decade, is not about cheap labour and loose regulations.

And finally, for aspiring economies like India, the key is to invest in long-term chipmaking goals while forging partnerships with the likes of Intel, TSMC, and Samsung. 

Also Read: Supply Chain Wars: How US Is Turning The Heat Against China On Semiconductors