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US-China Semiconductor War
Semiconductors (chips) have emerged as the foundation of modern technological progress, powering everything from smartphones to artificial intelligence and advanced military systems. Often described as the “brains” of modern technology, they enable the operation of data centers, AI algorithms, and high-performance computing systems critical to both civilian and military applications. Their strategic importance cannot be overstated.
Currently, the United States leads in chip design, with tech giants like NVIDIA, AMD, and Intel at the forefront of innovation. However, the manufacturing of these chips heavily depends on external sources, particularly the Taiwan Semiconductor Manufacturing Company (TSMC). TSMC produces the most advanced chips globally, placing Taiwan at the heart of the semiconductor supply chain.
Such reliance has turned semiconductor production into a geopolitical matter. This is predominantly given Taiwan’s sensitive status, which dates to the second phase of the Chinese Civil War (1945 – 1949). While Taiwan has evolved over time into a democratic and economically developed society, Beijing maintains its claim over the island.
The U.S. has historically walked a fine line on this matter, adhering to the “One China” policy while simultaneously encouraging TSMC to establish manufacturing facilities on American soil, and supporting Taiwan’s defense under the Taiwan Relations Act of 1979 – having even deployed aircraft carriers to the region during the Taiwan Strait Crisis in 1996. China has repeatedly responded to such actions by increasing the aggressiveness of its military exercises near Taiwan, including the simulated blockade conducted during the visit of then – U.S. House Speaker Nancy Pelosi in 2022.
China’s military exercises around Taiwan in August 2022 and March 1996 (Third Taiwan Strait crisis). This time, some exercise areas overlap with Taiwan’s territorial waters, an apparent escalation. pic.twitter.com/egw4hyu5U5
— Duan Dang (@duandang) August 2, 2022
The US Restrictions on Exports
This US-China semiconductor war is part of a broader rivalry between the countries, encompassing political ideology, economic influence, and technological supremacy. Both nations understand the vital role that semiconductor technology plays in shaping the future, and each is determined to secure its position as a global leader.
The United States is particularly focused on maintaining its technological edge while denying China access to advanced chips that could enhance its AI and military capabilities. These concerns are not unfounded. Over the years, China began moving up the value chain, investing heavily in R&D and setting ambitious goals to achieve technological self-sufficiency under initiatives like “Made in China 2025”.
To slow China’s progress, the U.S. has implemented stringent export controls on semiconductors. In October 2023, the Biden administration announced a ban on the export of powerful AI-related chips to China, citing national security risks. The move targeted chips capable of training large-scale AI models, which could be repurposed for military use.
Building on this strategy, the U.S. unveiled a new export control framework in January 2025. The system introduces a three-tier licensing structure:
- Top Tier: Close allies, including G7 nations, South Korea, and Taiwan, face no restrictions on semiconductor exports.
- Middle Tier: Over 100 countries are subject to export caps and licensing requirements based on volume and sensitivity.
- Bottom Tier: Nations like China, Iran, Russia, and North Korea are effectively barred from accessing U.S. chips.
Unsurprisingly, these measures have sparked criticism both domestically and internationally. The Semiconductor Industry Association (SIA) has described the new rules as excessively restrictive, warning that they could undermine U.S. competitiveness and drive innovation abroad. Companies like NVIDIA have also expressed concern that overregulation could harm their ability to serve global markets, especially when alternative suppliers in other regions may step in to fill the gap.
We’re deeply disappointed that a policy shift of this magnitude and impact is being rushed out the door days before a presidential transition and without any meaningful input from industry. See our full statement here: https://t.co/t9dBzDOYdG https://t.co/B3HfnrUwGd
— SIA (@SIAAmerica) January 13, 2025
The European Union has also voiced objections, pointing out that some EU Member States and their companies have been unfairly subjected to restrictions. European officials argue that the EU is a strategic partner for the U.S., not a security risk, and they have called for a more balanced approach.
From a practical perspective, it remains uncertain whether these restrictive measures will achieve their intended objectives. Recently, the Chinese artificial intelligence company DeepSeek made significant strides by developing AI models, R1 and V3, designed for complex problem-solving. These models are reported to nearly match the performance of their American counterparts, despite relying on less advanced chips.
The company’s progress has been led by Liang Wenfeng, a hedge fund manager turned AI entrepreneur, who has expressed confidence in China’s ability to close the technological gap with the U.S. It is suggested that partnerships between domestic AI start-ups could optimize the capabilities of lower grade chips, and accelerate research and development efforts within China.
The ongoing US-China semiconductor war underscores a high-stakes battle for technological supremacy. With semiconductors acting as the backbone of both civilian innovation and military advancements, the U.S. is keen on maintaining its edge, particularly in AI and defense applications. However, China’s rapid advancements in AI, despite facing export restrictions, highlight that technological progress is not easily thwarted.
Do you think the export controls will successfully limit China’s AI advancements, or will they lead to unexpected developments? Also, do not forget to explore our other articles on the latest technological advancements across various industries.