(Bloomberg) -- Computer chips are the engine of the digital economy, and their growing capabilities are enabling technologies such as generative artificial intelligence that promise to transform multiple industries.
Small wonder, then, that the devices are now the focus of intense competition between the world’s economic superpowers. The US under President Joe Biden rolled out an array of restrictions to curtail China’s semiconductor ambitions. Early indications are that his successor Donald Trump will expand those efforts.
Why are chips so critical?
They’re what’s needed to process and understand the mountains of data that have come to rival oil as the lifeblood of the economy.
Made from materials deposited on disks of silicon, chips — shorthand for semiconductors, or integrated circuits — can perform a variety of functions.
Memory chips, which store data, are relatively simple and are traded like commodities. Logic chips, which run programs and act as the brains of a device, are more complex and expensive. Access to components such as Nvidia Corp.’s H100 artificial intelligence accelerator has become linked to both national security and the fortunes of giant companies such as Alphabet Inc.’s Google and Microsoft Corp. as they race to build out AI data centers and take the lead in what’s seen as the future of computing.
Even everyday devices are increasingly reliant on chips. Each press of a button in a car full of gadgetry requires simple chips to translate that touch into electronic signals. And all battery-powered devices need chips to convert and regulate the flow of electricity.
Why is there a battle over chip manufacturing?
The critical role of semiconductors was highlighted when the coronavirus pandemic disrupted chip production in Asia, tipping global technology supply chains into chaos.
Most of the world’s leading semiconductor technology originates in the US, but today it’s Taiwan and South Korea that dominate chip manufacturing. China is the biggest market for the electronic components and has a growing desire to make more of its own chips.
The US is deploying export controls and import tariffs to contain China’s chip ambitions. Leading Chinese tech companies including Huawei Technologies Co. have been placed on a so-called US entity list, meaning American chip technology suppliers must get government approval to sell to these blacklisted companies.
National security concerns are often evoked to justify the US restrictions, along with accusations that China doesn’t compete fairly in trade. Biden’s government set aside huge sums of federal money to bring home physical production of the components and reduce what it saw as a dangerous reliance on a few facilities in East Asia. Several other nations including Spain, India and Japan are following Washington’s lead in attempting to repatriate chip manufacturing.
Who controls supply?
Chipmaking has become an increasingly exclusive business. New plants have a price tag of more than $20 billion, take years to build and need to be run flat-out for 24 hours a day to turn a profit. The scale required has reduced the number of companies with leading-edge technology to just three — Taiwan Semiconductor Manufacturing Co. (TSMC), South Korea’s Samsung Electronics Co. and Intel Corp. of the US. TSMC and Samsung act as so-called foundries, providing outsourced manufacturing for companies around the world.
The world’s biggest tech firms are dependent on access to the best manufacturing, most of which is in Taiwan.
Lower down the food chain, there’s a huge industry that makes so-called analog chips. Companies such as Texas Instruments Inc. and STMicroelectronics NV are leading makers of these components that do things like adjust power inside smartphones and control temperatures. This is one area that China, blocked from access to many of the machines needed to make more cutting-edge parts, is targeting, investing heavily to boost production.
Are the US chip curbs working?
Despite China’s effort to develop a homegrown semiconductor industry, the country’s chipmakers still depend largely on US and other foreign technology, and their access to chip equipment designed and made overseas is shrinking.
The picture is a little murkier when it comes to the most advanced chips used in AI and supercomputers.
The US imposed tighter export controls on these in 2022 to stop China from developing capabilities that Washington regards as potential military threats. Those included caps on the sophistication of Nvidia chips essential to AI development that could be shipped to China.
This hasn’t stopped Chinese companies making strides in AI. In January, Hangzhou-based startup DeepSeek released an AI model that measured up well against the best offerings from US rivals OpenAI and Meta Platforms Inc. and said it was developed at a fraction of the cost. The breakthrough re-energized the Chinese tech community, with national media presenting it as a monumental achievement in the face of Washington’s containment efforts.
What is China’s progress in chipmaking?
Huawei is building a shadow manufacturing network of semiconductor-fabrication facilities across the country, which would let the blacklisted company skirt US sanctions. In 2023, it unveiled a smartphone powered by a processor with so-called 7-nanometer technology — more advanced than the US rules allow.
But the US curbs have effectively stalled efforts by Huawei and other Chinese chipmakers to develop the most advanced semiconductors — at least for now. As of late 2024, Huawei appeared to be using the same, 7-nanometer chips for its next generation of products, suggesting it was having trouble moving to the next level.
What is Trump doing?
The new US administration has been sketching out toughened versions of Biden’s chip curbs and pressuring allies to escalate their own restrictions on China’s semiconductor industry.
Trump officials recently met with their Japanese and Dutch counterparts about restricting Tokyo Electron Ltd. and ASML Holding NV engineers from maintaining semiconductor-making equipment in China, Bloomberg News has reported. That comes in addition to early discussions in Washington about sanctions on specific Chinese companies.
Some Trump officials also aim to further restrict the type of Nvidia chips that can be exported to China without a license. They’re also in early conversations about tightening curbs on the quantity of AI chips that can be exported globally without a license, Bloomberg News reported in February.
What are others doing?
- The European Union has forged its own $46 billion plan to expand local manufacturing capacity. The European Commission estimates public and private investments in the sector will total more than $108 billion. The goal is to double the bloc’s output to 20% of the global market by 2030.
- Japan and South Korea are devising plans to spend billions on boosting their own chip sectors. Japanese companies count among the world’s leaders in designing the equipment for chip manufacturing, while Korean giants Samsung and SK Hynix Inc. are the global leaders in memory chips, particularly those used by Nvidia.
- India in February 2024 approved $15 billion worth of investments in semiconductor fabrication plants, including a Tata Group proposal to build the country’s first major chipmaking facility.
- In Saudi Arabia, the Public Investment Fund is looking at an unspecified “sizable investment” to kick off the kingdom’s foray into chips as it seeks to diversify an economy dependent on fossil fuels.
- Japan’s trade ministry has secured about $25.3 billion for a chips campaign launched in 2021. Projects include two TSMC foundries in southern Kumamoto and another foundry in northern Hokkaido, where Japan’s homegrown venture, Rapidus Corp., aims to mass produce 2nm logic chips in 2027.
- Germany’s plan to become a semiconductor superpower has been fading due to factors including political turmoil and Intel halting a €30 billion ($30.9 billion) investment in Magdeburg.
What’s the biggest risk to global chip production?
A potential conflict over Taiwan.
China has long claimed the island, about 100 miles (160 kilometers) off its coast, as its own territory and threatened to invade to prevent its formal independence. The US has been a major backer of Taiwan’s government.
A war could cut Taiwanese chipmaking giant TSMC off from its global customers. The company almost single-handedly created the “foundry” business model — building chips designed by others. Big customers like Apple Inc. gave TSMC the massive volume to build industry-leading expertise, and now the world relies on it. The company overtook Intel in terms of revenue in 2022. Matching its scale and skills would take years and cost a fortune.
--With assistance from Edwin Chan and Mackenzie Hawkins.
©2025 Bloomberg L.P.