Silicon sovereignty

Chips get chopped as Europe suffers in US-China spat over semiconductors

Chips with everything. Semiconductors are now crucial to virtually every sector of the global economy.
Chips with everything. Semiconductors are now crucial to virtually every sector of the global economy. AFP/File

As the world struggles to stem the Covid-19 pandemic, leaving the global economy in tatters, the health crisis is set to bring further hardship. One side effect has already been the global penury of computer chips, a strategic shortage that is changing the dynamics of global politics. 

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The shortage of chips has put the US and China against each other in a struggle for supplies. Europe is desperately trying to find a means of survival.

"Shortages of specific parts mean that you cannot have your car assembled," says François Roudier, head of communications at the Trade Association of French Motor Manufacturers (CCFA).

Crucially missing are the integrated circuits, fixed on silicon semiconductor microchips. A modern vehicle can contain up to 3,000 such components. They are the electronic nerve system of the car. Without them, the wheels literally stop turning.

Since the beginning of the Covid-19 crisis, France's motor industry has been hampered by increasingly frequent production stoppages says Roudier.

Smart water bottles

On 27 May, a Stellantis (formerly Peugeot) factory in Rennes announced a temporary closure "at least until 1 June", days after another Stellantis outlet, in Sochaux, interrupted the production of, among others, the popular Peugeot 308.

Since last year, the company had to interrupt the production of 9,400 cars, while workers faced the uncertainty of partial unemployment and massive loss of income.

A close-up of a micro-controller of German semiconductor manufacturer Infineon in Munich, Germany, February 20, 2020
A close-up of a micro-controller of German semiconductor manufacturer Infineon in Munich, Germany, February 20, 2020 REUTERS - MICHAEL DALDER

So why this crisis now?

As a result of worldwide Covid-19 lockdowns, people were forced to stay at home, got bored and looked for entertainment. "There was a massive increase in demand for chips driving laptops, cell phones, notebooks and personal computers, medical devices," Stephen Ezell, vice-president of the Washington-based Information Technology & Innovation Foundation (ITIF) told RFI.

This notion that Europe wants to do it alone and as some sort of digital sovereignty idea, I think that's misguided.

Podcast: Stephen Ezell, Vice President, Information Technology & Innovation Foundation

"Covid has moved everything to digital. So, smart water bottles, smart thermostats, smart everything you want in your home. This also increased the demand for all types of consumer electronics. And in these conditions the production of semiconductors just hasn't been able to keep up," he says.  

Europe lagging behind

"We discovered that we [in France and Europe] were lacking [chip making] companies and that we were relying on just a few of them," says Roudier.

"Europe is suddenly just waking up now," says Philippe Notton, who in 2020 launched SiPearl, an ambitious French startup that designs microprocessors for supercomputers.

"It screwed up in the past years, because the "Gafam" (the 'big five' tech giants Google, Amazon, Facebook, Apple and Microsoft) are based in the US. Two of the 'big three' 3D graphic design software companies, essential for the creation of chips,  Synopsis and Cadence, are also based in the US.

Only one of the three, Mentor, was taken over by German company Siemens in 2017 and now goes under the name Siemens EDA.

France is home to the impressive Grenoble-based R&D facilities of French-Italian-Dutch STMicroelectronics, currently among the world top-ten chipmakers, while The Netherlands boasts ASML, which produces the world's only chip-printers using extreme ultraviolet lithography – indispensable for any advanced chip-making factory. But all this is far from enough to ensure independence and prevent delays. "If we don't wake up quickly, it's going to be the same for the next decades," says Notton.

A technician checks electronic chips in the lab of STMicroelelectronics on November 15, 2018 in Grenoble.
A technician checks electronic chips in the lab of STMicroelelectronics on November 15, 2018 in Grenoble. AFP - JEAN-PIERRE CLATOT

Five years behind

Meanwhile, the US has its own problems, and they stretch far beyond the current chip-crunch, reaching the core of American global identity: the US position as leading semiconductor superpower is increasingly threatened by the People's Republic of China. *

Beijing is not there yet. In spite of its spectacular 40-year run from rags to riches, China has not yet managed to catch up with the world's top-notch chipmakers.

According to the 2020 Eurasia Group report The Geopolitics of Semiconductors, "China’s leading fabrication company, Semiconductor Manufacturing International Corporation (SMIC), remains three to five years behind industry leaders Intel, Samsung, and TSMC."

Observers said TSMC rallied following news that US giant Intel had been forced to place orders with rivals owing to delays with its own next-generation chip.
Observers said TSMC rallied following news that US giant Intel had been forced to place orders with rivals owing to delays with its own next-generation chip. AFP

But China is catching up fast. In 2014, Beijing formulated guidelines to boost the sector, and President Xi Jinping's "Made in China 2025" support program injected billions into China's chip industry.

China angst

The effect was immediate: according to Chinese company search website Qichacha, in 2020 alone, 22,540 semiconductor companies were created, and, so far in 2021, some 15,216 have been registered. Since the start of Beijing's obsession with chips in 2014, China has seen the birth of over 93,000 new chipmakers. 

A situation which gives policymakers in Washington the jitters.

The US Senate is currently debating an update of the American Innovation and Competition Act, and proposing a massive 50 billion dollars in emergency funds to boost the US chip industry,

President Joe Biden is following the lead of Donald Trump's anti-China policy which added the SMIC, China's top chip maker, to a blacklist, prohibiting it from buying US machinery "to prevent such key enabling technology from supporting China's military modernisation efforts".

U.S. President Joe Biden holds a semiconductor chip as he speaks prior to signing an executive order, aimed at addressing a global semiconductor chip shortage, in the State Dining Room at the White House in Washington, U.S., February 24, 2021.
U.S. President Joe Biden holds a semiconductor chip as he speaks prior to signing an executive order, aimed at addressing a global semiconductor chip shortage, in the State Dining Room at the White House in Washington, U.S., February 24, 2021. REUTERS - Jonathan Ernst

Earlier, Washington had banned China's top technology giants Huawei and ZTE from buying US chipmaking equipment, while preventing Dutch ASML from selling its chip-printers to China and banning Chinese companies from buying chipmakers Micron and Aixtron.

Most dangerous place on earth?

At the same time, the Trump administration managed to lure top Taiwanese chipmaker TSMC to build an advanced factory in Arizona to help advance the US chip industry. 

Which means that self-governing Taiwan, an island claimed by China as a province, finds itself in the eye of the Sino-US semiconductor storm.

The Economist in its 1 May issue called Taiwan "the most dangerous place on earth," because of China's growing military might, its increasingly outspoken ambition to unify Taiwan with the mainland by non-peaceful means, and America's hawkish responses, which consist of naval exercises with regional allies, and occasionally sailing elements of its Seventh Fleet through the Strait of Taiwan.

Taiwan is at the core of the world's semiconductor industry. The Taiwan Semiconductor Manufacturing Company (TSMC), the world’s most valuable chipmaker, produces 84 percent of the world's integrated circuits. Success of a chipmaker is measured by the size of chips produced – the smaller the chip, the more can be printed on a piece of silicon. 

TSMC, which rose to global chip prominence after it was commissioned to deliver the crucial circuits for Apple's iconic iPhone 6, is currently producing chips of 7 and 5 nanometre (nm – 1 nm = one millionth of a millimetre).

Production of 3 nm chips is set to start in the second half of 2022, according to TSMC management, and a factory to produce 2nm chips is currently being built in the south of Taiwan.

And TSMC is pushing the boundaries even further: on 12 May, the respected science review Nature announced a significant breakthrough in the downsizing of chips thanks to joint research by TSMC, the National Taiwan University (NTU) and Massachusetts Institute of Technology (MIT), "potentially reducing by several times a key parameter called the channel length from the current 5 to 10 nm in cutting-edge chips, to a subnanometre scale. No other company in the world matches this.

Taiwan's security

Taiwan's prime position in the semiconductor world forms its shield against possible agression from China.

"Were production at TSMC to stop, so would the global electronics industry, at incalculable cost" according to The Economist. If there is no more supply of chips, cars will not drive, planes will not fly and computers will stop calculating."

"I believe that we will get support from the US, from Europe or Japan, from all these countries the industry of which needs the support of semiconductor production from Taiwan," François Wu Chih-chung, head of the Representative Office for Taipei in France, Taiwan's de-facto embassy, told RFI, saying that more than 50 percent of US semiconductor imports come from Taiwan and South Korea. "I believe that Taiwan can use this key semiconductor industry to protect our security."

"The economic well-being of Taiwan matters greatly to the economic well-being of the United States and its allied countries," adds Ezell, of the Information Technology & Innovation Foundation, pointing out that Taiwan produces 92 percent of the world's high-end chips. "So the policy that Washington sticks to Taipei becomes very critical," he says.  

So can Taiwan help Europe to catch up?

European Commissioner for Internal Market Thierry Breton said in April that "it was possible to redress Europe's shortcomings on the chip-field, adding that the global shortage currently crippling carmakers and electronics suppliers was evidence that now is the time to act.

Europe’s share of semiconductor manufacturing has dropped over the years because the region has been “too naive, too open,” he said in an interview with Bloomberg News.

His remarks came after the European Commission launched Europe's Digital Decade plan that envisages "Europe's digital transformation" by 2030, including digitalising all public services, 5G everywhere, development of 6G, and helping at least 75 percent of EU companies to use Cloud, AI or big data technology.

Taiwan is ready to help.

In a video-address at the Copenhagen Democracy Summit on 10 May, Taiwanese President Tsai Ing-wen said that Taiwan "will continue to engage with the EU and other democratic partners to establish a more resilient supply of critical goods such as semiconductors."

And a recent study on Taiwan-Europe cyber cooperation by the Dutch Clingendael Institute, points out that both the European Union and Taiwan are taking steps "to protect consumers and strengthen democracies’ investments in strategic sectors and intrusive Big Tech, and to reorganise critical supply chains – including of chips, rare earth elements and vaccines – to reduce reliance on China."

Long way to go

SiPearl's Philippe Notton is carefully optimistic about European chip sovereignty. "We still have lots of issues to fix. Europe is not California. It's easier in China, because it's one country with one vision. In Europe, you have 27 countries, with political issues," he says. "Even without these issues, the budget is not equivalent to what China is doing. So we still have a long, long way to go."

"What needs to be happening is that the markets in Europe and Taiwan and like-minded countries need to be working together with a new version of Sematech," says Ezell, Sematech being a consortium put together in the 1980s by the US to help its semiconductor sector compete against Japan.

"This notion that Europe wants to do it alone as some sort of digital sovereignty idea, I think that's misguided," he says. 

RFI contacted the Chinese embassy in Paris, which did not respond to a request for an interview.

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