The process of designing, testing, manufacturing, and packaging semiconductors—the integrated circuits that power modern smartphones and computers—is fiendishly complex and capital intensive. From its origins in Silicon Valley, the semiconductor industry has evolved over decades under intense competitive pressures into a highly specialized global industry. This evolution is now having geopolitical consequences.
Since the US-China
trade and technology confrontation spilled into public view in 2017, most of the attention has centered on trade conflict and the US campaign against Huawei, China's 5G leader and its most important global technology company. But recent US actions involving semiconductors present a more fundamental problem for China. Efforts to cut off the supply of cutting-edge semiconductors to Huawei and to encourage the construction of advanced chip factories on US soil have drawn the semiconductor industry into the US-China technology cold war, raising the stakes in the countries' trade and technology conflict.
This report by Eurasia Group's Geo-technology practice analyzes the political and technology dynamics of the semiconductor industry, which will become even more important as mounting US pressure on China, China's domestic technology development, and Chinese responses to US actions affect bilateral relations and create new risks for companies, market participants, and global technology supply chains.