Today, Explained - Battlechips

Episode Date: August 3, 2023

Semiconductors are used in just about every piece of technology. The US wants to limit what China can do with them. Alex W. Palmer explains the latest front in the fight for tech dominance. This episode was produced by Jon Ehrens, edited by Amina Al-Sadi, fact-checked by Laura Bullard, engineered by Michael Raphael, and hosted by Noel King. Transcript at vox.com/todayexplained Support Today, Explained by making a financial contribution to Vox! bit.ly/givepodcasts Learn more about your ad choices. Visit podcastchoices.com/adchoices

Remember a few years back when the U.S. had a trade war with China and it was harder and more expensive to get everything from washing machines to solar panels to soybeans? Well, that war never ended. And this week, a new front opened up. China started restricting the export of two rare earth materials called gallium and germanium. Now, these metals that China has are materials used in semiconductor chips. Last fall, the U.S. said it would stop selling advanced semiconductor chips to China, and it would stop selling the technology to make those chips. These chips are in everything, including artificial intelligence. We're going to cut off this entire ecosystem and kill China's ability to create advanced technology.

Coming up on Today Explained, a war over chips, the little thing that's in everything. groceries delivered across the GTA from Real Canadian Superstore with PC Express. Shop online for super prices and super savings. Try it today and get up to $75 in PC Optimum Points. Visit superstore.ca to get started. It's Today Explained. I'm Noelle King. For most of us, this week's blockade on germanium and gallium went unnoticed. There are no gallium shortages at the Trader Joe's. But Alex W. Palmer saw this coming. Alex is a contributing writer at the New York Times Magazine, and he recently wrote a piece called An Act of War, Inside America's Silicon Blockade Against China. Blocking germanium and gallium is China's latest salvo in what has become a technological war fought on the battlefield of chips.

So last October 7th, the U.S. took what was to that point the most extreme and drastic step, which was curbing through a variety of means chips, chip components, basically anything along the supply chain that China could use to make advanced semiconductors that could power AI, that could power future weapon systems, could power surveillance. The US unilaterally cut those off from China. With regard to China, there are certain extremely sophisticated semiconductors that we have built that are useful for nuclear and or other weapon systems. Those we are not selling, we're not exporting to China or anyone else.

And for a few months it seemed like China was not really going to respond, at least not forcefully. You know, immediately after these October 7th measures. You saw some statements from China about this being sort of technological hegemony and how the U.S. shouldn't abuse its position. A case was taken to the WTO. The so-called request for consultations is the first step in a long procedure at the global trade body.

But it seemed for a while like the U.S.'s idea of the case, that China just had a weak hand when it comes to chips and that this was what the U.S. was trying to leverage its dominance in the semiconductor supply chain that China just didn't have a lot of options. But what China has done is dominated the rare earths industry which includes germanium and gallium that all these sort of unique sometimes hard to find but actually sometimes not that rare, ironically, but also very expensive and polluting to produce. This whole industry, China has really made a concerted effort to dominate. So China's export controls on gallium and germanium are a response to the United States instituting a blockade on China.

The American blockade was aimed at preventing China from doing or getting what exactly? By the logic of the Biden administration, this is purely a national security imperative, that these advanced chips are used to power AI models that help China modernize its military and help create the surveillance state. The databases and surveillance centers in Xinjiang province in the West, those are all run on American chips, which of course is a pretty startling thing because that was, at least for the administration, one of the impetuses behind the October 7th measures was saying, you know, we don't want these tools to be used against us. We don't want these tools that we have created that took, you know, decades of research, tens of billions of dollars for American companies to create for these to be then used for human rights abuses.

Or, you know, worst case scenario, someday teaching a missile how to shoot Americans on a battlefield. That is what the Biden administration was trying to prevent with these measures. It's saying that the U.S.-China relationship has fundamentally changed, that for decades, we had sort of been okay with China advancing technologically as long as the U.S. stayed ahead. And what the U.S. had decided, the Biden administration had decided, is that that's no longer enough. So you could see this in a speech that Jake Sullivan had given last September, just before the restrictions came out. And he was saying that the U.S. had had a policy, sort of an unspoken policy, of remaining two generations ahead of China on advanced technology,

or ahead of any adversary on advanced technology. We seem to take for granted that our technological advantages were somehow permanent and invincible. We did not fully grasp that those advantages must be prized, preserved, and renewed. It's a little bit of a wonky process. It goes deep into the weeds of sort of technical minutiae and bureaucratic jargon. You know, there's different restrictions depending on what the end use of the chip is, depending on who the end user is, depending on where it's produced, you know, if it's using a certain kind of American technology or knowledge. It's really multi-layered. And the point was, one, to be surgical about it, because they're only trying

to cut off really the most advanced chips, you know, the ones that power AI, that help create something like chat GPT. The technology, known as a chatbot, is only one of the recent breakthroughs in artificial intelligence, machines that can teach themselves superhuman skills. But really, this is only affecting about like the top one or two percent of the market. It's really the extreme cutting edge. But the Biden administration feels that because chips are so fundamental, what Sullivan called a force-multiplying technology, and because we don't know where they're going yet, this is still sort of a nascent field. Who knows where AI is going to go, where supercomputing is going to go, where quantum computing is going to go,

that the ramifications are potentially so extreme that the U.S. needs to make sure it has not just a couple generations lead, but the largest lead possible. Not just cut China off at the knees from this future of advanced technology, but actually force them to regress. What is a semiconductor chip? What are these things? Yeah, this is one of the things that's so fascinating about it is these are technological miracles. Semiconductors, the little heroes of big innovation. Hey, mister, what's that thing in your hand? Well, son, this little device is called a

semiconductor. That sounds boring. Who cares about that? Well, this tiny little chip is far from boring. Say, you like playing games on your iPhone, don't you? Well, I sure do. I could play Minecraft just about all day. Well, without semiconductors, there wouldn't be any Minecraft for you to play. There wouldn't even be an iPhone. In fact, there wouldn't even be an internet without all these tiny little microchips. You mean those little things can do all that? I don't believe you. The internet comes from the sky,

not from some dumb piece of plastic. It's called silicone, son. At their most basic level, they're quite simple. They're just tiny pieces of silicon and then carved with transistors. So a transistor is just a little switch. It can go on and off. If it's on, there are electrons flowing. If it's off, there's not electrons flowing. This is what creates the ones and zeros of binary language for computing. When these were first created in the late 1950s, they were carving these transistors by hand. There were just a

couple on a chip. You could see it with your eyes. And, you know, in just the span of, what, six decades now, there are, in the newest iPhone, the largest chip in that phone has maybe 20 billion transistors, which are the size of a virus, which is just incredible. You know, these are scales at which humans can't even see, but somehow we've made machines that can spit these off the assembly line to the order of billions of these a year, which is just absolutely incredible. And that's what has allowed modern life to sort of keep moving forward. Where do the materials to make these chips come from? So they come from all over the world.

So, mister, where do these supercompunctors come from anyway? Semiconductors, son. They're called semiconductors. And they're made in countries all over the world. Let me show you. Better hold on tight. Now look down there, son. Where are we? What is that? I'm scared.

This is a place called the Netherlands. Wow! Now you see all those people down there? They're just doing one part of the process that makes semiconductors. Neato, mister. Now, hold on tight. There are a lot more countries that we need to visit, and it's about a 26-hour flight to Taiwan.

Oh, okay. We are obviously in an age where globalization has gotten a bad name. The future does not belong to globalists. I'm not going to be a globalist. You're either a nationalist or you're a globalist. The globalists can all go to hell. I have come to Texas. But the semiconductor industry, the feats it's been able to achieve are really thanks to globalization. This has been a whole-of-world effort with intense specialization across regions and even across companies.

So you have Taiwan plays an important role. TSMC, it's one of the largest semiconductor manufacturers in the world. Netherlands plays a crucial role. TSMC cannot make its chips without a $150 million machine from a Dutch company called ASML. Japan plays an important role at certain step. Etching gas is a key material for fabricating semiconductor circuits, and Japanese suppliers account for more than 70% of the global market. The U.S. really, though, is the linchpin. For years, Intel technicians have been making PCs

smarter. Now they face their greatest challenge ever. Hey, no one messes with my brain. This is the place where chips were invented, and that holds really choke points across several key steps of the supply chain. All of a sudden, everybody started to learn the phrase supply chain. A year ago, no one knew what the hell everybody was talking about when he said supply chain. But now they all know. And we lost access to these semiconductors. All three of the main companies that do the most advanced software, those are all American companies, or they are based in the U.S., which gives the U.S. government leverage over them.

Everybody else designs the chips, gets them ready to go, and then you send them to Taiwan, and Taiwan is the one who actually makes those chips. They can just do things that no one else can do, because so much of making chips has been the accumulation of knowledge, sort of implicit process knowledge across decades. You can't sort of put these things on a blueprint and just turn them on and make them work. It takes really knowing the machine and working with it constantly. These materials come from everywhere, which is what gives the Biden administration power, because it is a series of choke points. If you just squeeze on those little spaces, it gives you enormous leverage. And that's what the Biden administration is trying to do. And

that's what now China is trying to respond with, is saying, hey, we have our own choke points. We can squeeze them too. See what happens. And this is where rare earth comes in. Do you know what rare earth is, son? No, I mean, I just learned what a semiconductor is. Rare earths like germanium and gallium are integral to the creation of semiconductors. So semiconductors are made of earth? Like dirt? No, no, no, no. Try to keep up here, son. This is an important lesson in supply chain economics. You see, when these places mine their own material... Okay, so gallium and germanium, these things that China says it will no longer export to the U.S., they're part of the equation. They go into the semiconductor chips? They do. So they're important in the manufacturing process. And China, you know, as part of a broader

strategy across the last several decades to dominate rare earths, really has a dominant position in germanium and gallium. It's something like 60 and 90% respectively are made or brought to finished use by China and then shipped abroad to countries like Japan, the Netherlands, Germany, the US, which then use them in the semiconductor supply chain. This move by China to curb gallium and germanium, this is sort of a warning shot. This is them showing the U.S., showing other Western countries that eventually joined on to the restrictions, that if you keep pushing on this, we have our own tools and we can hurt you as well. In a moment, Alex W. Palmer will return to tell us why, for the time being, there is no way out of the war for semiconductor chips. Support for Today Explained comes from Ramp. Thank you. your pocket. Ramp says they give finance teams unprecedented control and insight into company spend. With Ramp, you're able to issue cards to every employee with limits and restrictions and automate expense reporting so you can stop wasting time at the end of every month. And now you can get $250 when you join Ramp. You can go to ramp.com

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Gambling problem? Call 1-866-531-2600. Visit connectsontario.ca. Today, today explained. When we left off, Alex W. Palmer, contributing writer, New York Times Magazine, was explaining how two metals, gallium and germanium, represent a new front in a war over technology that the U.S. and China are fighting. Each country is trying to prevent the other from making semiconductor chips. But why do we need to fight this war?

Alex, why can't we just each make our own stuff? It was to some extent in the way that the industry has been structured up to now, because it was such a globalized industry. So the U.S. had something to bring, you know, the expertise, the technology, and China had something to bring, which was a huge market, huge demand. So to this point, it has been a sort of symbiotic relationship, both as, you know, the whole supply chain across the globe and the U.S. and China. Semiconductors are one piece of this larger story of the changing perceptions of the U.S. and China relationship, that engagement, economic engagement especially, had been seen as sort of a win-win

situation. And now both sides, but it seems like starting with the Biden administration on chips, are reevaluated that and wondering, can we be dependent on this other country? Can we trust them? And certainly the answer seems to be no right now. And now the question is, as we start to try to cut these dependencies, whether that's actually going to work. So I hear you saying that the U.S. move to cut China off is both an economic move and a national security move? Yes, the Biden

administration wants to say that this is just a, you know, sort of blocking military modernization, and it will have that effect, but it will inevitably also have spillover effects into the wider economy. And I don't doubt that the justifications are national security and human rights, but because chips are such a fundamental technology, it is inevitably an economic move as well, right? Because AI is not just used for the military. ChatGPT is not a military weapon, but it was powered by chips that China is now prevented from having, according to October 7th. Imagine if tomorrow Saudi Arabia cut off all oil exports to the U.S. and said, look, oil is used in fighter jets,

it's used in bombers, it's used in tanks. This is purely a military move. You know, we're just trying to stop America from using its military in irresponsible ways. Okay, that's true. But oil is so fundamental that it also goes into almost every other part of the economy as well. So by cutting it off just for military uses, you're also cutting it off for everybody else as well. And it's the same with chips, right? That an advanced chip can be used to train AI to shoot a hypersonic missile better, but it can also be used to try to identify cancer more quickly

or develop new drugs or develop new crops. Those are all things that AI can also be used for. And this is the piece of it that I think China is most upset about and that the Biden administration is trying to sort of massage and keep the spotlight on. No, this is about weapons, about human rights. It's not intended to benefit American companies. All right. So China says in response to this, we're going to block certain materials from entering into the U.S. Any other response? It seems rather muted. It seems like China could have gone bigger. Yeah, it was a pretty muted response. And this seemed to be at first sort of vindication of the Biden administration's logic on this that, look, China just

does not have a strong hand. China is extremely dependent on the U.S. for chips, that they really don't have any leverage here. But you also then had, you know, China showing the U.S. that it had pain points too, that there were places it could squeeze. So, for instance, you had an American company, Micron. Micron is essential to the world's most inspiring innovations. Which makes semiconductors that was put under national security investigation and then not surprisingly found soon after by the Chinese government to be sort of untrustworthy. And so Chinese companies, especially tied to the government, cannot or should not use that company.

That's going to be a huge blow to Micron's revenue. It was only two months ago that China's cybersecurity regulators said that they were going to review Micron, and now they've said that they're restricting network and infrastructure-related memory chips made by Micron. You also had other pieces of the supply chain where China was sort of showing where it had some leverage.

And now, as you'd said, going into effect August 1st, the most extreme so far has been the export controls on germanium and gallium, because the world is dependent on China for these materials. And if they really want to, if they really want to squeeze, they can send prices soaring, they can, you know, send companies scrambling to find other places to produce these minerals. And so far, there aren't any. But what's difficult about this entire dance for the U.S. and for China is that

for these two minerals, the more China squeezes, the more it hurts itself, too, because it also needs the revenue, you know, from selling these items abroad to continue powering its own industry. And this is the same with the U.S. of, okay, yeah, you can squeeze China, but does that end up hurting us more? And because it is, again, such a globalized industry, yeah, you have a lot of leverage over everybody else. But every time you hurt them, you're also hurting yourself to some extent. And so that's what everyone's really trying to fine tune right now is, okay, how can we exert maximum pain on them, or, you know, the biggest possible warning shot without hurting ourselves. And that's going to be tough, because the industry is incredibly interdependent. and everybody is scrambling now to sort of friend shore and, you know, find

alternative sources for everything. But it takes billions and billions and billions of dollars and decades of research to get to the real cutting edge of this stuff. And you can't just do that overnight. So all of this is happening because the U.S. and China are so linked. That's how the global economy works. Is any of this raising a conversation within the American government about whether or not it would be wise for the U.S. to decouple from China? Definitely.

And I think decoupling was a hotter term a few months ago. Now it's moved on to sort of de-risking. Whether China sees any difference in that, in that, you know, change of language remains to be seen. I think partly what the Biden administration is trying to do with these measures is to silence some of the more extreme critics who want something like decoupling, which would be even more difficult, obviously, incredibly painful for American consumers and for the global economy. But there is a feeling among some that that's that might be inevitable, that that might be necessary. And what the Biden administration is trying to do is say, like, no, look, we can be more surgical about this.

We can be precise. We can show exactly what we can depend on China for and what we can't. And chips are one of the things where we can't. So we can take action to cut off that vulnerability. Well, son, I hope you understand now that these little semiconductors may look boring. They sure do. But are an important part of what makes up the world around us. I do, mister. Without semiconductors, we wouldn't have computers. That's right.

Or phones. Mm-hmm. Or cars. Or planes. Or washing computers. That's right. Or phones. Or cars. Or planes. Or washing machines. Or microwaves. Or... Okay, okay, okay, son. You're right. They power all of these and more. And who knows what the future holds

for semiconductors. They just might create the technological wonders that could solve the world's most complex problems. Or doom us all. Today's episode was produced by Vermont Bureau Chief John Ahrens, who you also heard doing some many voices. It was edited by Amina El-Sadi.

Michael Rayfield is our engineer and Laura Bullard is our fact checker. The rest of the team includes Siona Petro, Salima Shah, Hadi Mouagdi, Miles Bryan, Amanda Llewellyn and Avishai Artsy. My co-host is Sean Ramos-Firm and our executive producer is Miranda Kennedy. We're distributed to public radio stations across these United States by WNYC in New York, but of course, we are also a podcast. Please leave us a review on Apple Podcasts or Spotify, especially if you have something nice to say. Email all of your complaints to seanramasfirm2 at gmail.com.

We're part of the Vox Media Podcast Network, and I'm Noelle King, and it's Today Explained. Thank you.