Episode 70: The New Star Wars: Can China Survive the Semiconductor Squeeze? A New Modern Cold War (An opinion piece)

Summary:

In this episode, we argue that China's reliance on imported semiconductors and AI technology creates a vulnerability that could ultimately lead to its downfall, similar to how the Soviet Union was weakened by technological advances. In the episode, we opine how the US and its allies, specifically Taiwan, Japan, (South Korea) and the Netherlands, have a powerful opportunity to strategically limit China's access to these critical technologies, which could effectively cripple its economic and to a degree its advanced ISR related military capabilities. We conclude by questioning whether the global community is prepared for the potential consequences of China's decline, including the need to absorb its manufacturing output and navigate the geopolitical shift.

Questions to consider as you read/listen:

1. What are the key technological and economic vulnerabilities of China in the current global landscape?
2. What roles do semiconductors and AI play in shaping the geopolitical power balance between China and the West?
3. How might a potential "collapse" of China impact the global economy and geopolitical order?

Long format:

The New Star Wars: Can China Survive the Semiconductor Squeeze? A New Modern Cold War (An opinion piece)

By Justin James McShane

Disclaimer:

The views expressed in this piece are solely my own, based on my observations and interpretation of the current global landscape. I am not a policy maker, or a policy influencer—just an informed individual sharing my perspective. While I strive to present factual information, much of what follows is my personal opinion on the challenges and opportunities presented by China’s position in the world. Please keep in mind that this is not a prediction of what will happen, but rather a suggestion for what might be done. I welcome your thoughts and interpretations, as this issue impacts us all.

WHAT SHOULD BE DONE ABOUT CHINA?

Let me be frank. I don't know when China or even if China is going to collapse. A lot of very learned geopolitical subject matter experts have opined that there is going to be a collapse of China primarily due to demographic pressures. I do think that there are a lot of strain on the system (demographics, unemployment, economy, deflationary pressures, overproduction, environmental, political and on and on).

In my humble opinion, the US Department of Commerce in conjunction with Taiwan, Japan, and the Netherlands have a good strategy. Unfortunately, at the present South Korea has not joined that. Here is why I think it is a good strategy.

Again, in my opinion, the semiconductor chip race and AI is the battle for the future. It is water wars important in my opinion. The country or countries that stay on top of this technology and at the least delay the technology to its adversaries is the way to stay on top of the global value chain. Period. Full stop. Again, this is my opinion.

Again, in my opinion the Chinese have shown a total lack of fair play with other countries and international norms of (fair) trade. Their overcapacity (dumping) is Exhibit A. But an important and less known issue is the efforts by the Chinese United Front that I wrote about days ago. It is like Russian active measures but much more covert and includes sanctioned large scale industrial and commercial espionage and at times sabotage.

A lot of folks look to the end of the USSR and what accelerated it as a model perhaps. When doing so and examining what pushing the life support that the USSR was on to its final end, some point to increased defense spending, but in my belief it was technology--the spread of integrated information sharing systems and the beginning of mass use of computers at the individual level and information sharing via them and most especially the threat of the SDI (Star Wars). If SDI could be built, then it would be a destabilizing technology for sure. Although Gobachev claims at the time and in later interviews that he was never afraid of SDI because he thought the technology was beyond the US's current capabilities (which was true), he sure acted in accord with it being a concern. Gorbachev responded to Reagan’s first letter, again voicing his concern over SDI. He emphasized that “space-strike weapons…possess the capability of being used both for defensive and offensive aims.” All leading Gorbachev to present “an unprecedented program to completely eliminate nuclear weapons” in three stages by the year 2000.

China, in my opinion, has values, priorities and goals that are incompatible with ours at the core. I have read Made in China 2025 and it is remarkable. It is brilliant, and well thought out but it reveals the incompatibility for all who care to read it.

While the trade wars that already exist are pressure the BIGGEST source of pressure that will cause China to "fall" are semiconductors/AI, in my opinion.

People, I think, fail to understand the scope of semiconductors (let alone AI). Virtually 100% of the world's electronics contain semiconductor chips.

Currently, the Chinese are restricted by available equipment to make anything less than 28nm node chips at scale if they are not allowed to import. [See my post about how they possible could make down to 3nm but how horribly inefficient and what a low yield with unacceptably high rejection rate it would be] If they are not allowed to import, they have zero AI chips. Zero.

Just to help us all personalize what the world would be like if you were restricted to only 28nm node chips, here is an example: 5G networks require chips that are smaller than 28 nanometers (nm). There goes all of our cell phones. Every single one. Further, an iPhone 8 used a 10nm node size chip. An iPhone 6 used a 20nm chip. Most modern high end cars use under 28nm chips.

Interestingly enough most military systems that filed deployed (aircraft, hypersonic missiles, etc) are not based upon low nm node sized chips, but high-level computers such as those used in ISR and AI based computing certainly requires under 28 nm systems.

Semiconductors and AI are China's Achilles Heel. They need them but they have utterly failed to develop a domestic China based ability to make any at scale below 28nm when the current state of the art is 2nm (an iPhone 16 has a 3nm chip) and also in AI. They make zero AI chips. They import them all.

This is our modern Star Wars and we (Taiwan, The Netherlands, South Korea and Japan) generally control all of the cutting edge of it.

If we continue to push this and get SK on board in terms of global export bans on the chips and related technologies China as we know it disappears instead of waiting for demographic decline outcomes.

The only question (much like with the case about the Soviet Union) is what comes next? Is what came after the Soviet Union better or worse? Is what comes after China better or worse?

There is also timing. If China ceases to function, I don’t know if we Americans (and our alleys) are prepared today to absorb it all in terms of manufacturing and industrial output as our re-shoring efforts aren’t complete. Are we ready for the pivot to elsewhere?

So, what comes next? Dunno

And is this the right time? Dunno

What do y’all think?