The fight over chips continues to escalate tensions between China and the U.S. The world’s two biggest economies are battling over these precious components that are essential for auto production. And while U.S. automakers are scrambling to source semiconductors to ramp up production, Chinese car manufacturers saw sales boom in 2022 and reported record profits. According to Bloomberg, China is hoarding microchips amid a worldwide shortage, and dominance over the global supply is fueling a heated dispute between the two nations. These tiny fragments of silicon are at the heart of a $500 billion industry that is expected to double by 2030. And whoever guarantees a top spot on the supply chains – controlling a tangled network of companies and countries that make the chips – holds the key to being a leading superpower. With the U.S. auto sector facing the worst performance in nearly a decade, this could be another threat to our hegemony on global markets.
Unlike oil, which can be bought from many countries, semiconductor production depends fundamentally on a series of supply chain choke points, such as tools, chemicals, and software that are often manufactured by a handful of companies — and sometimes only by one. These chips are also very difficult to produce, and only a few countries possess the technology necessary to create the most advanced semiconductors. That combination makes them central to the strategic thinking of all nations, and most of all to that of the United States.
In fact, semiconductors were actually invented in the U.S., but over the years, we exported our intelligence to Asian markets as countries like Malaysia, South Korea, Japan, and Taiwan emerged as major manufacturing hubs. That definitely puts the U.S. in a vulnerable position. With tensions between Taiwan and China threatening to evolve into a full-blown geopolitical conflict, and Beijing’s growing influence in the Asia-Pacific region, one single disruption in the chip supply chain could spark devastating consequences that could throw the U.S. auto sector into disarray.
China’s production of these essential software tools is actually 3% higher than ours, providing 15% of global chips, and that number is rising quickly as the state pours more and more investment into it. In recent years, U.S. regulators have cranked up the heat on China. In May 2020, the United States banned any company which used U.S. chip-making technology (basically every chip manufacturer in the world) from doing business with Huawei, the gem of Chinese technology. For its part, China has largely held off punching back. The superpower knows that it has levers it can pull in the chip war. Most of America’s biggest tech firms have important supply chains based in China. And the real leverage it possesses comes from its huge consumer market, upon which American big tech is reliant for its revenues.
In the meantime, 2022 data released in January shows that China’s auto market is still in a strong position, and it will remain an important market for global auto manufacturers in 2023. In contrast, the U.S. only produced 14.7 million cars in 2022, and the industry is facing the worst performance in over a decade, with vehicle sales declining 9% to 13.4 million units, the lowest level since 2011 when sales were recovering from the Great Recession. In a sense, the U.S. may feel victorious for its sanctions on chip-making technology, but when comparing the state of both auto industries, it certainly looks like China is winning the game.