To win the chip war, China needs a multinational strategy

Nvidia’s H200 chips, a step down from its most advanced Blackwell line, have resumed imports into China, albeit in small quantities. Meanwhile, China’s chip exports nearly doubled in the first half of this year. Much of these exports are mature logic integrated circuits for applications in consumer electronics and automotive sectors. While the US is the undisputed leader in the most advanced artificial intelligence (AI) chips, China is emerging as a dominant player in mass market legacy integrated circuits. Between the two is the central processing unit (CPU) layer, the brains of laptops and servers. Before the AI era, Intel CPUs once symbolised American semiconductor leadership. As AI transitions from model training to applications, CPUs will regain importance in the next five years. Although the CPU segment has long been dominated by Intel and AMD, Chinese firms are closing the gap. It is a more contestable arena where China has a more realistic chance of becoming self-sufficient over time. Another key segment is memory chips, which the United States ceded to East Asia decades ago. Samsung Electronics and SK Hynix together account for two-thirds of the global dynamic random access memory (DRAM) market, while Japanese firms continue to have a critical role in the supply chain upstream. US-based Micron is a distant third with 22 per cent market share. China’s fourth-ranked ChangXin Memory Technologies, with an 8 per cent market share, is expected to make its debut in a Shanghai listing on July 27. But the ultimate chokeholds at the apex of the semiconductor ecosystem lie in Europe and Taiwan. Nvidia’s graphics processing units (GPUs) are made by Taiwan Semiconductor Manufacturing Company (TSMC) using ASML machines. The US restricts mainland China’s access to the global semiconductor supply chain through its allies. This is not a simple bilateral contest but a layered, multilateral hierarchy of interdependent control unfolding across different arenas. Washington does not need to own every rung of the semiconductor ladder to prevail in the chip war. Beyond its supremacy in the software and design of the GPU – the most strategic layer – the US has leverage over two chokepoints it does not own: the Dutch lithography monopoly and fabrication capacity in Taiwan. The CPU layer, whose gap with the US may be more realistically narrowed by China, carries lower strategic value. CPUs, less powerful than GPUs, are subject to fewer export restrictions – as they are assembled into laptops in China which are then exported globally. Cost-effective laptops are available to American consumers only with an open supply chain where components flow freely. Compared to Nvidia’s US$4.86 trillion valuation, Intel’s valuation is significantly lower, indicating the relative maturity of the CPU layer. Reaching parity with the US on CPUs would be China’s next milestone worthy of celebration but not one which is most consequential. The lithography machine is the most consequential layer; it is the mother machine, the foundation of making all chips. China has started making its own deep-ultraviolet lithography machines. But ASML’s most advanced extreme ultraviolet (EUV) machines are complex monsters assembled with technologies from many countries. It is truly the result of multinational collaboration beyond what any single nation can achieve. China is making a heroic effort to develop its own EUVs while at the same time finding bypasses around their use, but the technical challenges are formidable. China has built a prototype EUV machine in Shenzhen. Meanwhile, a Shanghai-based company is trying to overcome the engineering intricacies through alternative chip technologies. Even under the most ambitious timeline, these efforts are likely to come to fruition only towards the end of this decade. China’s challenge is not to surpass the US alone, but to replicate the combined technological capabilities of the entire Western world. Thus, semiconductor supremacy is not a single technology to be mastered but a thousand critical points, held by different companies across different countries. Most of the technologies China has mastered reward scale and capital, with its domestic market often world-leading in scale. Semiconductors reward accumulated tacit knowledge and allied trust. China has been structurally denied both. America’s power in the chip war is triangular: upstream through chokepoint technologies, downstream through customer concentration and sideways through geopolitical allies. Washington does not need to own the mother machines or the fabs; its technologies are embedded in both. Washington can bind Taipei and Seoul through defence relationships. The US-China chip war is ultimately more geopolitical than technological in nature. The US lead over China is real. However, it does not mean that the contest is won. Washington’s decisive chokeholds lie in a lithography monopoly it does not own, fabrication capacity it does not operate and the memory supply chains it does not control, all exercised through leverage over others. China’s key challenge is to induce other economies to act in their own interests rather than to absorb the high costs of US containment of China. For example, China has been a critical market for ASML. China has also introduced its own legal countermeasures and can wield its command of rare earth processing supply chains as leverage against the US and its allies. The decisive front of the chip war is not Silicon Valley or Shenzhen, but Amsterdam, Taipei and Seoul – specifically when they decide, even with different levels of agency, whether compliance with Washington is worth the costs Beijing may impose.

To win the chip war, China needs a multinational strategy

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Beyond GPU supremacy, America’s greatest asset lies in its leverage over its allies’ critical technologies and capacities

Beyond GPU supremacy, America’s greatest asset lies in its leverage over its allies’ critical technologies and capacities