Resource wars are sadly enough not uncommon, and we’re in a novel one at the moment in which the chips are at stake. Electronic ones, that is.
Thanks to globalisation (read: the provision of vast amounts of cheap yet skilled labour and slack or no environmental protection rules), China’swhere most of our electronic devices are assembled.
Western companies took the relatively short-term bet that China would not have the research and development nous to come up with the intellectual property needed to come up with home-grown technology to sell to the world; this is no longer the case.
It’s no longer a matter of putting stuff together in the Far East: China’s increasingly able to make a large range of products that use non-Western developed components, and it is creating its own global brands.
A China that’s both the original equipment manufacturer (OEM) to the world and a technology leader risks knocking the West off every global perch there is.
That’s the reason why the United States has tried to walk back on technology transfer to China for some years now.
Under the guise of national security concerns, which have been used to hit for example Huawei and ZTE hard with sanctions and forced telcos around the world to replace the Chinese vendors’ technology already in use in their networks.
Taking it up a notch, the US has now banned the export of top-end chips to China.
Last year the export restrictions were enacted in law by the US, to further hobble the Asian nation’s growing information technology and electronics sectors.
One direct consequence of this is that a thriving black market for Nvidia’s artificial intelligence chips, which are banned in China, has emerged in Hong Kong.
Most of our electronic devices are assembled in China. Photo / 123RF
It doesn’t matter that there’s much magic thinking around AI currently and where it’ll take us. Any company that doesn’t lace its offerings with AI will be disregarded, even if its products and services are perfectly good otherwise. Chinese AI startups are forking up serious money to get their proofs of concept up and running for investors now.
A threatened Chinese invasion of Taiwan, the electronics cynosure of the world, also looms large for the US and Europe. Less of a priority is China’s dismal human rights and environmental records, but they too pop up in the list of reasons why Western tech mustn’t migrate to the East.
Along with the sticks to beat China with, the US, Europe, Japan and South Korea are holding up billion-dollar subsidies for chip makers to build facilities in their respective economies. Chip makers are able to get paid to help governments score political points and there’s much semiconductor foundry building going on.
Faced with not having access to the technology fundamentals that enable companies - and its armed forces - to remain competitive, China has struck back.
Some of the measures include a “network security review” of US memory and storage maker Micron’s products, which saw China ban the use of them for critical infrastructure. The US was predictably enough infuriated by this and lashed out against China in very strong language.
Not many people bar IT hardware geeks will be familiar with gallium arsenide and germanium nitride, but they are used in a whole lot of electronics, from LEDs to solar panels, radios, electric vehicles and more.
China has now retaliated against the West by restricting gallium and germanium exports from August this year. It’s not the end of the world, but enough to cause serious corporate headaches globally, as China controls the supply of both chip-making elements.
There is a level of hypocrisy and cynicism on both sides, but what was a trade war is now a resource conflict. That conflict could take a while to resolve, either through cessation of hostilities, or the West diversifying supply chains.
New Zealand doesn’t make semiconductors, but we import around $70 to $75 million worth of them; and of course, you can’t buy anything these days that doesn’t have transistors, integrated circuits, diodes and other electronics inside.
We’ve already seen what a semiconductor shortage did to the car industry, with delivery times for some newer models ballooning out considerably and which can still be lengthy.
If The Chip Wars grow more intense, all of us need to be ready for serious disruption across the whole of society.
