Chip War Intensifies

There is disruption in the global supply chains with the ongoing “chip war”. The continued conflict between the US and China over computer chips has escalated to the peak level.

China’s ambition of having a “fully modern” military by 2027 is to boost the planned ‘Made in China 2025 vision’, to boost manufacturing and hold semiconductor capabilities at the core.

Semiconductors, commonly called chips, are used in the majority of electronic products, ranging from computers and cars to military weapon systems, has become a focal point of contention between China and the US.

Semiconductors are produced by a remarkably global supply chain, with design often stemming from US, Japanese, or European firms, and manufacturing taking place in Taiwan and South Korea. However, Taiwan alone manufactures more than 60 % of the world’s semiconductors — and crucially, 90 % of the most advanced ones.

The US has been implementing measures to limit China’s access to technology that it perceives as having potential military applications, including chips used in supercomputing and artificial intelligence.

China’s move is being seen as a retaliation to the efforts the US took in recent months to restrict Chinese access to advanced microprocessors. Exporters will need to go through procedures to obtain export licences, as per the China's commerce ministry statement.

China is the world's biggest producer of the metals. On July 3, China's Ministry of Commerce said the restrictions were needed to "safeguard national security and interests. The silvery metals are used in semiconductor, communications and military equipment. They are also key materials in products like solar panels.

Anyone exporting these products without permission and those who export in excess of the permitted volumes will be punished, it said. Germanium is also used in infrared technology, fibre optic cables and solar cells.

China's control, starting from 1st August, will applicable to 8 gallium-related products: gallium antimonide, gallium arsenide, gallium metal, gallium nitride, gallium oxide, gallium phosphide, gallium selenide and indium gallium arsenide.

They will also apply to 6 germanium products: germanium dioxide, germanium epitaxial growth substrate, germanium ingot, germanium metal, germanium tetrachloride and zinc germanium phosphide.

Going forward, the ongoing chip war is going to get worsen, low supply is likely to continue, which means price increases and product delays. This would place marked pressure on the price of the chips manufactured outside Taiwan.