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A silicon war is brewing between the world’s two largest economies as the US seeks to isolate China from one of the most important technologies of the future. This summer is over THE CHIPS LAW, which allowed the federal government to pour billions of dollars into the semiconductor sector to “lead the world in future industries and protect national security.” The Biden administration continued with the measures serious export controls prevent US companies – or any global company that uses their technology – from selling chip designs, software and equipment to Beijing (also barring US citizens from working with Chinese chip companies to slow their technological progress).
Background: Chips are used in almost everything today, making the modern economy possible, but the bigger problem here are those used in sensitive military technologies. The most advanced integrated circuits allow states to stay far ahead of their rivals in terms of weapons systems and intelligence gathering, and more broadly, are a statement of geopolitical power. As China grows its influence, the country is making moves to produce its own advanced chips, and has even surprised the US with its latest military development (remember China’s test of a hypersonic missile that circled the globe in 2021?).
Until now, the US has outsourced the production of its most advanced chips to Taiwan, which has become increasingly threatened by its powerful neighbor China. A Taiwanese semiconductor company (NYSE:TSM) and other local factories account for 92% of the world’s advanced semiconductor manufacturing capacity, according to the Semiconductor Industry Association, and former House Speaker Nancy Pelosi even found it necessary to meet directly with TSMC (TSM) executives during a tense visit to the island last summer. The move highlighted the company’s importance to American security, and its stock did almost 10% from the visit. Steve Cress, head of quantitative strategies at Seeking Alpha, recently identified TSM as one of the top 10 tech stocks for 2023 (see the others here).
Go deeper: The US is now trying to protect the rest of the advanced chip supply chain by forging an alliance that will limit China’s ability to produce its own domestic silicon. Talks are due to conclude today with Japan, the biggest supplier of chips, metals and chemicals, as well as the Netherlands, known for its deep ultraviolet lithography machines used to carve advanced chips. Restrictions are likely to be imposed on ASML (NASDAQ: ASML), Nikon ( OTCPK:NINOY ) and Tokyo Electron ( OTCPK:TOELY ), building on earlier business and trade regulations, and marking the latest salvo in the semiconductor war.
Related: AMD (NASDAQ: AMD), applied materials (NASDAQ: AMAT), Broadcom (NASDAQ: AVGO), Intel (NASDAQ: INTC), micron (NASDAQ: MU), Nvidia (NASDAQ: NVDA), Qualcomm (NASDAQ: QCOM) and Texas Instruments (NASDAQ:TXN).