Washington’s sweeping sanctions on China’s semiconductor industry will go far in controlling America’s geopolitical rival. They will not only set China’s chip makers years behind, but will limit the country’s progress in many areas, from personal computers to data centers, to artificial intelligence (AI) systems to hypersonic missiles. This could be America’s most important step in the ongoing competition between global powers.
Certainly, a country as big and resourceful as China can overcome the obstacles in its path, but it will take time. In the five to ten years it may take for sanctions to catch on or make irrelevant through innovation, the US-centric technology ecosystem will have moved on by several generations. The opportunity cost of lost time would be massive, both in terms of economics and politics. China brought it upon itself. In her latest book, Overreach, Susan Shirk describes how Beijing’s decision to confront America under the collective leadership of Hu Jintao began in early 2006. It took America more than a decade to recognize this reality, overcome denial, and decide to fight back.
How will China respond? Once its political system is back to work after the grand spectacle of its party congress and program management, it is likely to use a combination of sanctions evasion, fraud and indoctrination to reach countries such as Germany, Israel, South Korea and perhaps Malaysia. likely to be detected. and Singapore. Since most of these are US partners, Washington will take advantage of Beijing’s progress. This route could allow Chinese firms to meet their domestic needs with import-substituted products, but unable to compete in export markets for high-end and high-value products.
There is another possibility. This is far-fetched and foolish, but we are in a phase where it is undeniable. Beijing may well consider a semiconductor blockade as the trigger and pretext to invade Taiwan and take over Taiwan Semiconductor Manufacturing Company and other chip-making facilities centered on that island. Even if such an invasion succeeds, unless its managers and engineers cooperate, the Chinese military will only be flying the Chinese flag on some high-tech real estate. But Beijing could stop supplying chips to the rest of the world.
This is why the US and European governments are providing tens of billions of dollars of financial incentives to build fab units outside of Taiwan, preferably on their own soil. It would take 4-5 years for these to come on stream, after which it would theoretically be possible for Taiwanese professionals to flee Chinese invaders and take trans-continental flights to the new workstations. Therefore, on current trends, we should expect high geopolitical risk in the Taiwan Strait around 2027.
India has already benefited from the world’s willingness to manage risks to high-technology supply chains. Realizing this window of opportunity, the central and several state governments have announced policy frameworks to attract some global investments in the shifting semiconductor industry. The financial incentive of over $10 billion to attract investment in fab and assembly plants is a step in the right direction. India has the infrastructural capability to produce advanced semiconductors on its soil to not only meet the national security requirements, but also to equip its talent pool with the skills required to master the entire semiconductor industry cycle. Should be
India must double down on its core source of strength in the technology industry: the quality and quantity of its skilled manpower. The economics of semiconductor manufacturing mean that the hundreds of billions of dollars needed to set up rapidly depreciating state-of-the-art plants are out of reach of most governments. While India should welcome private investors to build the most advanced plants in the country, public money is better invested in manpower development. India should aim to use human resources to dominate the semiconductor industry, as does the IT services industry today. It would be a good idea to set up half a dozen industry institutes that prepare professionals in the design, production and management of the silicone industry.
Government support has been vital to the development of the semiconductor industry around the world. Where incentives have been implemented to move production, such as in Singapore, they have had modest success. Where they have been used to fund upstream scientific breakthroughs, as in the US, or to change the paradigm of industry, as in Taiwan, they have had a tremendous impact. India must find out how its strength in manpower can transform the industry. Can we do to software what Taiwan did to foundries?
Every country that has a semiconductor industry today, including China, has done so as Washington’s geopolitical partner. The same is true for us. The ‘bubble of trust’ with the US and its partners such as Japan, Taiwan and the European Union is critical to secure the movement of investment, technology, markets, expertise and people. For the past three decades, economic and geopolitical ecosystems were not required to be significantly correlated, but in the post-pandemic era, such a correlation is necessary for economic growth.
Nitin Pai is the co-founder and director of the Taxila Institution, an independent center for research and education in public policy.
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