Chris Miller is the author of Chip War: The Fight for the World’s Most Critical Technology, which tells the history of semiconductors, a product that more than any other provides the foundation for economic, military, and geopolitical power. The battle to control this vital technology is at the forefront of U.S.-China competition, while dependence on Taiwan to produce the vast majority of the most complex chips has become a major focus for U.S. policymakers. The Financial Times named Chip War its Business Book of the Year, while the Economist and the New Yorker both listed it as a book of the year. What follows is a conversation between Chris Miller and David Sacks about his book and the future of semiconductors.
Why are chips so important and what drew you, as an economic historian who studies Russia, to this story?
I wanted to understand why some countries can produce certain advanced technologies and not others. Russia has a complex track record when it comes to technology. It has brilliant scientists, an impressive education system, and some real technology successes, like being the first country to launch a satellite and the second to explode an atomic bomb. But it utterly failed at producing computing power. I wanted to understand why and discovered that a key reason was that Russia could never manufacture cutting-edge chips—the tiny pieces of silicon that produce all the world’s computing power.
Taiwan Semiconductor Manufacturing Company, or TSMC, has become almost synonymous with semiconductors, and some have even called it the world’s most important company. How did TSMC get to where it is today and what does it have that others don’t?
Today, TSMC produces 90 percent of the world’s most advanced processor chips, while Taiwanese companies produce over a third of the new computing power the world adds each year. TSMC has risen to become the world’s largest chipmaker for two reasons. First, it devised a unique business model, not designing any chips in-house but instead manufacturing chips designed by other firms. Second, because it focused solely on chip manufacturing, it has honed more advanced processes than any other firm. Today, when it comes to fabricating the most cutting-edge chips, TSMC is the only company in the world that can do it.
As you noted, the vast majority of the world’s most advanced chips—those used in everything from smartphones to super computers and weapons—are manufactured in Taiwan. How do you evaluate the risk to the United States if China were to blockade Taiwan or attack the island? What would the immediate consequences be and how long would it take to relocate manufacturing?
Losing access to Taiwan-produced chips would be disastrous, the worst disruption to manufacturing output since the Great Depression. Today, almost every electronic device has chips inside. The world’s production of smartphones would fall by far more than half. Many PC processors, including those Apple uses, can currently only be made in Taiwan. Almost all of the graphics processing unit (GPU) chips that run artificial intelligence (AI) applications in data centers are made in Taiwan. Some of America’s biggest technology companies would struggle to produce much of anything.
The impact would extend far beyond Silicon Valley, however. Automobiles have dozens or hundreds of chips inside. Dishwashers, microwaves, coffeemakers, and all manner of household appliances rely on chips. Not all these chips are made in Taiwan, but a huge proportion are. When it comes to “low tech” processor chips (below forty five nanometer, in industry jargon), which are widely used in autos and household goods, 31 percent of production capacity is in Taiwan and another 23 percent is in China. The problem isn’t simply that we’d only have half as many chips, because not all chips are easily replaceable. As auto companies learned during the 2020-2021 chip shortage, if a car had all the chips it needed but one, it still wasn’t complete. They were forced to let thousands of almost-complete cars sit in manufacturing facilities as they awaited the arrival of the last specific chip needed.
In the case of a Taiwan crisis, it would take years to build up capacity offshore, because there’s a limited supply of the ultra-complex tools needed to make chips. What’s more, these machines have chips inside, too. During the recent chip shortage, companies that manufacture chipmaking tools reported delays too, because they didn’t have all the chips they needed. Replacing chipmaking capacity in Taiwan would take years, and the delay would impose several trillion dollars of losses to global manufacturing.
Some in Taiwan, including President Tsai Ing-wen, have referred to semiconductors as a “silicon shield.” Do you believe that China’s dependence on Taiwan for chips makes a war less likely?
I hope that President Tsai is right, but I’m not sure that she is. Germany bet heavily in recent years that economic and energy interdependence would make Russia more peaceable. That gamble didn’t work out, as Russia has chosen to ruin the future of its gas industry in pursuit of geopolitical gain. President Xi Jinping’s decision-making calculus isn’t necessarily the same as Putin’s. But I think President Tsai’s recent steps to enhance Taiwan’s defensive capabilities are smarter than a strategy that places great hope in a “silicon shield.”
If a U.S. president has to make the enormously consequential decision of whether to come to Taiwan’s defense, do you think U.S. reliance on chips manufactured in Taiwan will be an important factor in his calculus? Should it be?
I’m sure semiconductors and the broader electronics industry they enable will be part of any calculus. But the United States has committed itself to defending Taiwan since before the first semiconductor was invented. Preserving peace in the Taiwan Strait is about far more than securing our chip supply.
The United States clearly believes it has to reduce its reliance on Taiwan for semiconductors. In just the last few years, it has pushed TSMC to build a manufacturing facility in Arizona and allocated billions of dollars to incentivize companies to establish manufacturing facilities in the United States. Do you think these moves will succeed? Looking a decade into the future, do you think the United States will be just as reliant on Taiwan?
The CHIPS Act funding will help increase the share of chip fabrication in the United States, but given Taiwan’s unique capabilities and tremendous chipmaking capacity, the entire world will be highly dependent on Taiwan-made chips for the foreseeable future. TSMC has signaled it is opening some facilities abroad, including in the United States and Japan. But it is keeping most of its investment, including the development of its most sophisticated chipmaking capabilities, in Taiwan. So Taiwan’s importance isn’t going to decline anytime soon.
China has given hundreds of billions of dollars to domestic firms in the hope that it will be able to produce cutting edge chips domestically and alleviate this strategic “choke point.” So far, however, its efforts have largely failed. Why?
Making advanced semiconductors is the most complex and precise manufacturing process humans have ever undertaken. In some ways it’s no surprise that China hasn’t been able to replicate Taiwan’s capabilities—no one else has, either! However, China’s government has been a mediocre venture capitalist. Beijing has spent many tens of billions of dollars to promote its chip industry. But alongside some real successes, especially in the chip design space, there have also been many abject failures and some outright frauds. China’s enormous chip subsidies should be a source of concern for the United States, given the massive distortions they are creating in the electronics industry. But they aren’t something we should try to emulate.
David Sacks is a research fellow at the Council on Foreign Relations.
Chris Miller is an associate professor at the Fletcher School at Tufts University and the author of Chip War: The Fight for the World’s Most Critical Technology.