Everyone wants chips

Chips could be the new oil. Recode readers, Before we get into today’s newsletter, we have a request. Vox — and, by extension, Recode — is free thanks in part to financial support from our readers. That’s because we think everyone should be able to access essential information that helps them understand how to navigate the world, whether that’s understanding what’s at stake during the midterm election or how to protect your privacy on your devices. We’re aiming to add 5,000 financial contributions from readers by September 30 to help keep Vox free for all. Recurring monthly or annual gifts, in particular, help us plan and weather a notoriously unpredictable industry. [Will you help us reach our goal by making a contribution to Vox today?]( [Yes, I’ll give](   Chips are the new oil. And there are no reserves. In a single day, we interact with hundreds of computer chips, most no larger than a penny. These tiny circuits power everything from smartphones and laptops to medical devices and electric vehicles, and they’re largely responsible for our increasingly computerized lives. But in recent months, the world’s dependence on these chips has also put them at the center of mounting tensions between the United States and mainland China over Taiwan. Taiwan is located just 100 miles from China’s eastern coast, and it produces the vast majority of the advanced chips used in today’s electronics. The island is a democracy with its own government, and is home to more than 20 million people. Officials in Beijing, however, [claim]( Taiwan as part of China and have repeatedly threatened to invade and “reunify” the island with the mainland. The US does not [officially recognize]( Taiwan’s independence, though President Joe Biden has suggested that he would send American troops to defend the island against an invasion. As a result, there’s fear that [a blockade around Taiwan]( could create a humanitarian and trade crisis, ultimately cutting off the world’s access to tons of critical technology. “If Taiwan chipmaking were to be knocked offline, there wouldn't be enough capacity anywhere else in the world to make up for the loss,” explains Chris Miller, an international history professor at Tufts and the author of Chip War. “Even simple chips will become difficult to access, just because our demand outstrips supply.” The world is so reliant on chips produced by Taiwan that they’ve become the new oil, according to Miller. Recent [military exercises](along the Taiwan Strait, the critical waterway that separates Taiwan and mainland China, have raised the possibility that China might eventually block exports out of the island, which would disrupt all sorts of technology production, though some experts say there are plenty of reasons to think that [a war won’t actually]( happen. The chair of Taiwan Semiconductor Manufacturing Company, which makes nearly all of the world’s most advanced chips, has already warned that a war would leave its factories “[not operable](.” As Russia’s war in Ukraine continues, the world is slowly transitioning away from oil. But the same isn’t true for chips, which will only become more critical as new technologies become more popular and require even more computing power. Electric vehicles, for example, require twice the number of chips used by traditional internal combustion vehicles, and the rise of 5G — the technology that could make remote surgeries and self-driving cars a reality — will create a surge in demand for semiconductors, too. That means the stakes are only getting higher. Recode spoke with Miller recently about the growing importance of chips in global politics. Our conversation has been edited for clarity and length. Rebecca Heilweil You argue that chips are the new oil. How ubiquitous are chips today, and to what extent do we depend on them in our daily lives? Chris Miller Almost anything with an on-off switch today has a chip inside. That's true not only for things like smartphones or computers, but also for dishwashers and microwaves and cars. As we put more computing power in all sorts of devices, that requires more chips to convert signals from the real world into digits that can be processed and remembered. The typical person in the US will end up touching several hundred chips a day. The typical person hardly ever sees a chip in their entire life unless they take apart a computer, but the reality is we touch them and rely on them more than ever before. Rebecca Heilweil The computer chip was invented in the US. Taiwan now manufactures much of the world's semiconductors and almost all of the advanced chips that governments are most interested in. How did that happen? Chris Miller Over the course of the past 50 years, but especially over the past couple of decades, the semiconductor supply chain has gotten much more specialized. So when the first chips were made by Texas Instruments, for example, or Fairchild Semiconductor in Silicon Valley, these companies did almost everything in-house. They designed chips. They produced them. They produced the machines that were needed to design chips. As chips have gotten more complex — and as the engineering needed to produce ever more semiconductors has become more specialized — you had firms emerge that focus on a specific part of the production process. Japanese firms, for example, play a major role in chemicals. US firms are particularly influential in the design of chips, as well as the production of machine tools that produce chips. Taiwan has specialized in the manufacturing of chips themselves. Companies will take a design and send it to a Taiwanese firm for production. Contract manufacturing is not unique to chips, but several decades ago, the biggest Taiwanese chipmaker, TSMC, realized that there was a potentially huge market for contract and manufacturing services. It began investing very, very heavily in trying to attract customers from Silicon Valley and offered to produce chips for them. That combination of scale investment in R&D has proven just impossible to compete with. Rebecca Heilweil So how does that play into the risks regarding China and the world's supply of chips? Chris Miller Today, Taiwan produces, depending on how you calculate, 90 percent of processor chips. In aggregate, Taiwan is one of the biggest producers of chips in the world, so companies like Apple, for example, rely fundamentally on TSMC to produce the chips that power iPhones, iPads, or PCs because no one else can produce the chips that they need. It's not as though they have second sources in most cases. It’s TSMC or else, which means that they're highly reliant on peace in the Taiwan Strait. Over the past couple of years, as the military balance has shifted really dramatically in China's direction, I think the assumption of peace going forward is being tested. The entire world economy would be dramatically hit if China were to attack Taiwan for a whole number of reasons, chips being just one of them. It’s easy to look at the biggest customers of TSMC and say the companies are most exposed — and maybe that's true. But whether it's autos or aviation or even chips in a dishwasher or microwave, many of these are also produced in Taiwan. Rebecca Heilweil The recent CHIPS and Science package allocates tens of billions of dollars to produce more chips in the US partly because of the risks you're talking about with China. Will that be enough for an American chip comeback? Chris Miller It's certainly going to have an impact in terms of getting more leading-edge production of the most advanced processor memory chips in the US. But it's not nearly enough to dramatically reduce our reliance on Taiwan. Part of the reason why there's more concern today — justifiably — is that unlike in prior decades, it's now much less clear who would win a war on the Taiwan Strait. Therefore, we're now much less certain than we were in the past that China wouldn't attack because it'd be too costly for China to do so. Now, that's an open question. Rebecca Heilweil Is this risk set to get worse because of the rise of 5G and electric vehicles and other emerging technology? The world is going to need more chips in the coming years and decades. Chris Miller Our reliance on Taiwan is not going to decrease. It will be a little bit less than it otherwise would have been thanks to the CHIPS Act, but the reality is we're going to be dependent on Taiwan. The Chinese government is pouring many tens of billions of dollars — far more than CHIPS Act funding — into its own chip industry. Although the Chinese remain far behind the leading edge in terms of the technological level of chips they can produce, they're going to vastly increase the capacity in producing what's called lagging-edge chips: the types of chips you might find in a car or a consumer device. We're going to continue to be reliant on chips from Taiwan, but also there's a risk that we might rely more on chips from China in the future, too.   [A roadside billboard in Arcadia, Florida, reads “Advertise Here.”]( Jeff Greenberg/Universal Images [ The mysterious ad slump of 2022]( [Four theories on why ad sales are plummeting even as the economy is doing fine.](   [Asteroid moonlet Dimorphos as seen by the DART spacecraft 11 seconds before impact]( NASA/Johns Hopkins APL [The universe is a dangerous place. 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