This is What The “Trade” War With China Is Really All About

This is What The “Trade” War With China Is Really All About. By Tyler Durden.

China’s ambitions to be a leader in next-generation technology, such as artificial intelligence, … rest on whether or not it can design and manufacture cutting-edge chips. …

China’s plan has alarmed the US, and chips, or semiconductors, have become the central battlefield in the trade war between the two countries. And it is a battle in which China has a very visible Achilles heel. …

This is a concern for China as the $412 billion global semiconductor industry rests on the shoulders of just six equipment companies, with three of them based in the US. Together, these companies make nearly all of the crucial hardware and software tools needed to manufacture chips, meaning an American export ban would choke off China’s access to the basic tools needed to make their latest chip designs.

“You cannot build a semiconductor facility without using the big major equipment companies, none of which are Chinese,” said Brett Simpson, the founder of Arete Research …

As the FT, notes, the real difficulty is not in designing the chips, but in making them: “From a design perspective, Chinese companies are at least on par with anyone else in the world,” said Risto Puhakka, president of VSLI Research. “Where they have a challenge is if they decide to make a very cutting-edge chip.” …

Foremost among them is the Netherland’s ASML, which makes the photolithography machines that print and etch designs on to silicon wafers. It is the only supplier of the extreme ultra violet (EUV) lithography machines needed to make a 7-nanometre processor, the industry’s current gold standard.

Over in the US, Lam Research and Applied Materials as well as Japanese company Tokyo Electron dominate the market for equipment that can deposit billions of transistors and other active components on to a single chip. Another US company, KLA Tencor, sells much of the technology used in testing and monitoring the quality of chip production. …

Puhakka of VSLI Research said: “[These equipment suppliers] have the research and development, the trade secrets in metallurgy, the recipes: all of that knowledge base is 40 years old.” said VSLI Research’s Mr Puhakka.

“This is not about money. This about the knowledge base . . . and that knowledge base is not moving” he added, delineating China’s core dilemma. …

China has every intention of not only matching, but surpassing total US military spending — springing the biggest Thucydides Trap ever witnessed in civilization — and in light of the importance of an autonomous, self-reliant semiconductor industry, one can argue that much of this spending will go toward beating the US where it truly matters … in the technological arms race.

I used to work for KLA-Tencor, in their R&D section. Like Stanford, it is in Silicon Valley.