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The Most Amazing — and Dangerous — Technology in the World (With Transcript)
The historian Chris Miller explains how semiconductors touch every corner of modern life — and the geopolitics of manufacturing them.
Ezra Klein
I’m Ezra Klein. This is “The Ezra Klein Show.”
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So you may have noticed at the beginning of the year the two themes are really dominating the show — China and A.I. And obviously, that’s not an accident. I’m not going to try to rank order what matters most in the world, but these are two good contenders for the top five, at least. When I imagine the history books getting written of our era, it is very hard for me not to imagine these being dominant themes.
And these stories connect. They connect in obvious ways. There’s a geopolitics of who controls A.I., a race between the U.S. and China to get the strongest and earliest A.I. capabilities. But they also connect in another, more tangible way. They are both stories driven by semiconductors and who controls them.
In the same way that you couldn’t understand geopolitics in the 20th century without understanding oil and other forms of energy — where it was, and who had it, and who needed it, and what they would do to get it — you can’t understand the major stories of the 21st century without understanding semiconductors. Whoever controls semiconductors controls the future.
And it turns out, for reasons I didn’t really understand until I read Chris Miller’s book “Chip War,” that semiconductors really can be controlled. So “Chip War,” which is just amazingly timed, given how deep it is, is a history of semiconductors as a technology, as an industry, and then it traces the way they have and are shaping geopolitics. It was a “Financial Times” Business Book of the Year in 2022. And having read it now, definitely going to be on my year-end list of the most important books I read in 2023. And there’s a lot more in the book than I’m able to cover in the show. I really do recommend reading this one. But I do think this show is one of the more important we’re going to do — and important for understanding a lot of the other shows we’re going to do — because this is getting at a material reality that is easy to miss but is going to shape so many of the big stories we’re living through in the coming years. As always, my email: [email protected].
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Chris Miller, welcome to the show.
Chris Miller
Thanks for having me.
Ezra Klein
What timing on this book, man. I assume — when did you actually start it? Because I honestly cannot imagine a better moment for it to have come out.
Chris Miller
Well, I started researching it around 2015, 2016, didn’t start writing until 2020, and finished writing early 2022 just as the chip shortage was reaching its peak.
Ezra Klein
So let’s talk a bit about why semiconductors end up mattering this much. You write that we rarely think about chips, yet they’ve created the modern world. Justify that for me.
Chris Miller
Well, today, people like you and me can’t live our lives without touching hundreds or thousands of chips just going about the course of our daily lives. We think of chips as being in smartphones or being in P.C.s, but today, they’re in almost any device with an on/off switch. So a new car will have a thousand chips inside of it, your refrigerator, your microwave, your dishwasher. All of our devices are full of chips that do computing and do sensing, increasingly do communication. And so the modern economy just can’t function without lots and lots of chips.
Ezra Klein
I don’t know if this will be a hard question or an easy question for you, but like most people, and particularly before I read the book, I have only the hazy idea of what a semiconductor chip actually does. So you often describe it as providing the processing power of the modern world. What is it actually doing?
Chris Miller
So a chip is a piece of silicon with a lot of tiny circuits carved into it. And these circuits are either completed or interrupted via a device called a transistor, which is a switch, basically, that turns them on or off. And when a circuit is on, it produces a 1. When it’s off, it produces a 0. And all of the 1’s and 0’s that undergird all of software, all of data storage, it’s just circuits turning on or off to produce the right digit.
And today, we have lots of digits we require because we store and process lots of data. And so advanced semiconductors today have millions or often billions of these tiny circuits etched into them that provide the 1’s and 0’s that modern computing requires.
Ezra Klein
Tell me about that size. When you say you have billions of these circuits on a chip, how small are we talking? How is it possible to be etching, or really doing anything, at that scale?
Chris Miller
Today, if you go to an Apple store, for example, and buy a new iPhone, just the primary chip in an iPhone will have around 15 billion transistors on it. And so each one of these tiny switches is smaller than the size of a virus. They’re measured in a number of nanometers, which is a billionth of a meter. And so these are the smallest devices that humans have ever mass produced. And we produce more of them than we’ve produced any other device in human history.
Ezra Klein
Tell me a bit about how quickly we’ve been able to shrink the scale at which we’re working here and increase the density of the chips. I mean, these aren’t a very old technology. As you point out, Silicon Valley, which has not been around forever, gets its name from the silicon of which these chips are made. So when this starts, what is the level of complexity? When is that? And what is the process by which we get to today?
Chris Miller
The first chips were invented in the late 1950s. They first became commercially available in the early 1960s. And at the time, they would have had a handful of transistors on them. And the rate at which we were able to pack more transistors onto a chip, which was also the same as the rate that we’re able to shrink transistors down to enable more of them to fit on a piece of silicon, has increased exponentially. So there’s been, basically, a doubling of the number of transistors you can fit on a given sized chip every two years since the 1960s. And that’s come to be known as Moore’s Law, named after Gordon Moore, who was one of the early engineers that created the industry and eventually went on to found Intel.
And what that’s meant is that the chip industry has produced improvements that have gone far beyond any other aspect of the economy. There’s nowhere else in the economy that we’ve had exponential growth rates persist for not only years but half a century.
Ezra Klein
Let’s talk for a minute here about Moore’s Law, because there’s a — I think a misleading way in which it’s called a law. It’s not like the second law of thermodynamics or something. It isn’t a law. It’s an early observation that ends up being weirdly predictive. So what is he looking at — Gordon Moore, who actually recently just died — what is he looking at when he makes that observation? And then why, in your view, does it not just come true but come true beyond his own expectations for it?
Chris Miller
So he made this observation in 1965, which was just seven years after the first chip was invented. And he noticed that the number of transistors per chip was doubling every year or two. And he predicted, given the technology that he saw being developed at the time, it would last for at least another decade through 1975. And that proved true.
But as that was proven true, chips became more powerful, also cheaper because you could get more computing power with a smaller and smaller chip. And they found more use cases across the economy. So the first chips were used primarily for defense systems, but as the cost of computing power fell, it became possible to apply them to more and more uses — to corporate computers, for example, then to pocket calculators, then to automobiles.
And as the use cases proliferated, the investment dollars going into further shrinking transistors and further packing more computing power into chips also increased dramatically. And so there’s been a virtuous cycle between the cost of computing declining and even more investment dollars going into driving that down further because people realized that there were a lot more uses for computing than anyone really imagined at the time that Gordon Moore first coined the concept of Moore’s Law.
Ezra Klein
Which direction does that causality run? Were there more uses for computing than anybody imagined, or are there more uses for computing than anybody imagined because such computing is now possible?
Chris Miller
I think it’s actually both in some ways. Gordon Moore himself wrote a couple of essays looking into the future of computing. At the time, he predicted devices like what he called personal portable communications equipment, sort of like a smartphone, if you will. He envisioned home computers that would be networked together, sort of like the internet.
So it was possible to envision some pretty futuristic uses, but I think even he was shocked by the diversity of applications of computing and the ways in which they transformed society. He could predict portable communications devices, but I think even he was shocked by the iPhone when it first emerged a half-century later.
Ezra Klein
I want to key in on an example of what it has taken to keep Moore’s Law going for as long as it has, because I also think having this in people’s minds is important for the geopolitics and the policy that’s going to come in this conversation. So you sent some time that I would describe as somewhere between loving and awed describing the development of EUV lithography. So tell me that story in some detail. What is it, and how did it get from a hope to a reality?
Chris Miller
One of the process steps in manufacturing chips is projecting a pattern onto the silicon, the pattern that describes where the transistors will be. And at first, you could actually do these patterns by hand because transistors were large enough to be carved out by hand. But as they’ve become smaller, you need to project them using a microscope backwards. Microscopes take optics to make something small big, and we do the opposite to make a big pattern project in a very small form onto a chip.
And for a long time, the optics involved were pretty straightforward, and you could use visible light to project the patterns and interact with chemicals in specific ways to carve transistors onto chips. But as they’ve gotten smaller and smaller, the wavelength of visible light has gotten far too broad to actually carve transistors in the way that we want. So visible light has a wavelength of several hundred nanometers, depending on the color, whereas the transistors on your smartphone are far smaller than that in dimension. And so around three decades ago in the early 1990s, scientists began developing a new type of lithography, more precise, using smaller-wavelength light in the ultraviolet spectrum.
And this was necessary to get the precision, but it was also extraordinarily complex to produce. And so today, there’s just one company that is capable of producing the machines that are capable of providing this light at the scale and with the precision necessary. And these machines are the most complex machines humans have ever made. They require one of the most powerful lasers that has ever been deployed in a commercial device. They have an explosion happening inside of them at 40 or 50 times hotter than the surface of the sun.
And because of all this precision, they require $150 million per machine to produce, require multiple airplanes to move. They’re extraordinary accomplishments of human engineering, but also wildly complex. And that complexity has made modern chipmaking more and more difficult, but it’s the only way to get the precision that we require.
Ezra Klein
They also, from the way you tell the story, represent remarkable accomplishments of supply chain management and, to some degree, globalization. So it’s a Dutch company making these systems, but they are a company that does a lot of sourcing. They don’t just make the system in a factory somewhere. You talk about just the laser needed for the system, which comes from another company which is called, slightly weirdly, Trumpf, with a P and an F. And you say that the laser itself requires exactly 457,329 component parts, many of which need to be made by different players. So you’re dealing with the sourcing when you then scale up to the entire machine of a number of parts that seems almost unimaginable.
Chris Miller
Yeah, that’s right. And the engineering doesn’t simply happen on the machine itself. The supply chain itself is an engineered process carefully sculpted to select the suppliers that this company knows they can trust, suppliers that they know they can deliver on time, and suppliers that they know that can deliver high-quality products. Because if you think, for example, of what it takes to keep a machine with hundreds of thousands of component parts operational, the mean time to failure of each of those parts has to be measured in the decades, or else the machine never works. So that level of precision and reliability has been extraordinarily difficult to produce, and it’s why there’s just one company in the world that is capable of producing them.
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Ezra Klein
So something you trace in your story is that for some time now, chips have been this hidden geopolitical force. You tell it in part through the changes in military power and what got called in the U.S. the offset strategy beginning late in Vietnam, as that war was failing but then building into something that created an era of quite profound American military dominance, which was then noticed by everybody else, and others are trying to match. Can you talk a bit about how these ended up changing not just warfare, but America’s military position vis-à-vis competitors?
Chris Miller
The U.S. military was actually one of the early drivers of innovation in semiconductors. The first chips that were created were created for guidance computers in both space systems and in missile systems. And the Pentagon funded a lot of the early research in semiconductors and still is a major funder of a lot of cutting-edge research today. The military was interested in semiconductors because it wanted to miniaturize computing power to distribute it across battlefields.
If you think back to the earliest computers in the 1940 and 1950s, they were the size of rooms, far too large to be deployed in systems in the field. And so the military wanted to find a miniaturization technique, and chips were the answer. And over the course of the Cold War, the U.S. military deployed chips in all manner of devices — in airplanes, in satellites, in missile guidance systems.
And a lot of the precision that we take for granted today in military systems — the idea that you could launch a missile and have it hit a target hundreds of miles away with pretty close to perfect accuracy — is only possible because of lots and lots of semiconductors — chips in the missile that guide it, chips in the satellites that send signals as it identifies its location over the course of its flight, chips in the sensors that are collecting targeting information, chips in the communication systems that are distributing this data across the battlefield.
And so the U.S. military was actually the first institution to show the ways that the distribution of computing and sensing that chips provide can transform how organizations work and can provide extraordinary value in terms of networking different devices together. And so that was important both in explaining why the U.S. jumped ahead in military power during the late Cold War, but it also provided an example for the rest of the world to see not only how militaries but how all institutions could take advantage of semiconductors to provide new types of capabilities they previously hadn’t imagined.
Ezra Klein
The point you make towards the end of the book is that one reason Russia has struggled so badly in its effort to invade Ukraine is that they’re using a lot of pretty technologically rudimentary military hardware, that a surprising number of their munitions we’re seeing are unguided. They’re not modern smart weapons. A lot of what we’re giving and Europe is given to Ukraine are more precision-oriented, like the Javelin missiles that people have probably heard about. Can you talk a bit about how that’s played out into the balance of military power and force there now as we speak?
Chris Miller
It’s been hugely important in a number of different ways — partly, as you say, because the Russians just have less sophisticated equipment than we’re able to give to the Ukrainians, partly because even in the relatively sophisticated equipment that the Russians have, they’re using pirated or smuggled-in version of Western microelectronics, Western chips, which are not custom-made for their defense systems and which Russia’s never sure whether they’re getting counterfeit versions or the real thing. So even when Russia is able to acquire more advanced Western chips from abroad, there’s all sorts of issues it creates in their supply chain and their systems integration as a result.
But then perhaps the most important is that Ukraine has benefited from all of the intelligence gathering and processing capabilities that the U.S. military has, which is largely today a question of signals intelligence, of satellite photos, of radio signals being gathered, decoded, processed. And this is intensely reliant on computing power, both to understand what’s being said and then to dissect signal from noise and give the Ukrainians the useful information. So when you think about a HIMARS rocket, for example, the easy part of the computing is actually guiding the rocket towards its target. The hard part is identifying where the targets are in a rapid enough fashion so that the target hasn’t moved by the time you want to fire it. And that is thanks to U.S. intelligence-gathering, which today is more dependent than ever on semiconductors.
Ezra Klein
The next turn of this wheel, both militarily and, more broadly, economically, seems to be different forms of machine learning, of artificial intelligence. And that’s a story we tend to talk but in terms of data — you’ll hear things like data is the new oil — a story we sometimes talk about in terms of training algorithms and theories like deep learning. And it’s a story that is very much grounded in semiconductors, that if you’re talking about training next-generation artificial intelligence systems, you’re talking about these chips. So can you talk a bit about the interrelationship there and what kinds of chips have become crucial for A.I. and the way that has also begun to play into different major countries’ conceptions of what you need for geopolitical primacy?
Chris Miller
If you want to train a sophisticated A.I. system, you do need lots of data to train it on. But that data is only possible to process and to remember by deploying lots of advanced chips. And so today, for training A.I. systems, there’s a type of a chip called a G.P.U., a Graphics Processor Unit, which was actually originally invented for computer graphics. But the math that the chip was capable of processing turned out to be useful for training as well. And so today, there’s just a couple of companies that produce or design the most advanced A.I. chips.
And in particular, a company called Nvidia based in California produces the majority of the chips used for A.I. training in the world. And Nvidia manufactures all of its leading chips at one company, TSMC in Taiwan. So underneath all of the A.I. training happening around the world, whether in the U.S. or in Europe or in China, are chips produced by just a couple of companies. And that produces a level of political influence that the U.S. in particular has tried to wield in recent years.
Ezra Klein
So you brought up Taiwan here, which is a helpful bridge for me, because you spent a lot of the book focused on this one Taiwanese firm, TSMC, which produces 90 percent of the world’s most advanced chips, 90 percent. And let’s start here by talking about why. Why does TSMC have this hammerlock over the most advanced chips? I think the number you have in the book is they’re producing — or Taiwan is producing more than a third of new computing power every year. How?
Chris Miller
So there are only three companies in the world that are anywhere close to being able to produce cutting-edge processor chips — TSMC in Taiwan, Samsung in South Korea and Intel in the United States. And the complexity and the cost involved of cutting-edge production means that these three firms will be the only three firms close to the cutting edge for at least the next half decade, probably longer. So there’s just extraordinary concentration in the industry when you get close to the leading edge because of the expense and the sophisticated technology involved.
TSMC is the leader of those three because when it was founded in 1987, it was founded with a unique business model. Morris Chang, the individual who founded the company, had a vision of not designing any chips, only manufacturing them. And before that point, almost all chip firms both designed chips and manufactured them in-house. But Morris Chang realized at the time that the complexity of both design and manufacturing was growing in a way that would require firms to specialize. And so he set up TSMC promising never to design any chips but only to manufacture them.
And he was able, as a result, to serve many different customers.
Today, he manufactures chips for Apple, for Nvidia, for AMD, for Qualcomm, many of the biggest chip design firms. But he doesn’t compete with any of them because TSMC doesn’t do any design itself. And so TSMC is now the world’s largest chipmaker. Because it’s the world’s largest chipmaker, it has reaped extraordinary economies of scale, letting it drive down costs. And what’s most important is that there’s a pretty clear relationship between the number of chips you produce and your ability to hone your technology over time, because you get data for each chip you develop.
And so TSMC has been able to develop the most advanced manufacturing technologies as a result of its scale. And so today, TSMC produces, as you said, 90 percent of the most advanced processors, the types of processors that go into smartphones, P.C.s, data centers. The other 10 percent are produced by Samsung of South Korea. And Intel right now is a generation or two behind what either of those firms are capable of producing.
Ezra Klein
Tell me about the political economy of TSMC’s birth and rise. Because when you tell the story of Intel, you have a bunch of scrappy young weirdos. They’re one firm and then another and then they go to another — or found another, I should say. It’s a very Silicon Valley story.
And TSMC isn’t like that. It’s a public-private hybrid institution. So tell me a bit of their story.
Chris Miller
So TSMC was founded in 1987 by Morris Chang, who, at the time, had been a tech executive at Texas Instruments for almost three decades. He was passed over for the C.E.O. job and so was looking for something else to do. And he was approached by the government of Taiwan, which wanted to create a chip industry that was moving up the value chain. At that time, Taiwan was a producer of relatively low-value electronics and wanted to produce higher-value semiconductors.
And the government gave Morris Chang a blank check to set up a new firm. It provided half the capital for the company and got a number of Taiwanese businesspeople to invest another 25 percent in the firm and was very supportive of the company’s early development. And so in some ways, it was very much a public-private partnership, but in other ways, the company had to survive from day one by selling to the international market because the domestic market in Taiwan was far too small to sustain a semiconductor industry. So the firm had to sink or swim by selling manufacturing services to largely U.S. firms from day one.
And so in a lot of ways, TSMC has grown up alongside a new set of semiconductor design firms that previously didn’t exist, because there weren’t companies like TSMC that manufactured chips, but have been able to thrive because they haven’t had to worry about manufacturing. They’ve outsourced all of that to TSMC and have designed chips instead. And so companies like Apple, which manufactures all of its key chips at TSMC or Nvidia, the company that makes the chips that train A.I. systems, they’ve never had to build their own manufacturing facilities because TSMC handles all of the cost and understands all the manufacturing technology. So they don’t have to worry about it. And that’s been a very effective business model both for TSMC, but also for the U.S. chip design firms that have always been TSMC’s largest customers.
Ezra Klein
Let’s say I designed a computer virus tomorrow that — what it did is it simply targeted every TSMC location worldwide and knocked out all of their electronics. So effectively, the company ceases to, in any way, function tomorrow, and there’s no real way to get it back online. What happens to the global economy after that?
Chris Miller
We’d face an economic crisis globally akin to the disruptions that we saw during the Great Depression. It’s not just tech devices like smartphones or P.C.s that would be catastrophically disrupted. And we’d certainly struggle to build a cell phone anywhere in the world for the next year or so. We’d have P.C. production fall easily by a third, maybe by half. Data center rollouts would grind to a halt. It would be hard to build a cell phone tower anywhere in the world because cell phone towers are just big metal poles with lots of chips on top of them.
But it’s also all other manufactured goods, so dishwashers and microwaves and automobiles. They don’t necessarily need the most advanced chips, but Taiwan doesn’t only produce the most advanced chips. They produce lots of less advanced chips as well. And the semiconductor shortage of the last couple of years illustrated that it’s not only the tech sector that’s reliant on chips. It’s companies like car firms too.
During the chip shortage of 2020-2021, the world’s car industry faced an estimated $200 billion worth of losses because they couldn’t sell as many cars as they’d hoped because they couldn’t get all the chips that they needed.
And there’s lots of different countries that produce chips in cars, but if you think of a typical new car having a thousand chips inside and figure 10 percent, 20 percent, 30 percent of those chips generally come from Taiwan, replacing those would be an extraordinary challenge. And we’d see huge disruptions across the entire world’s manufacturing sectors. And the final point is that it’s not just the U.S. that’s reliant on chips from Taiwan. It’s everyone. It’s Europe. It’s Japan. It’s China. The entire world’s manufacturing sector requires TSMC’s chips.
Ezra Klein
And so there’s TSMC’s chips, but we also mentioned this Dutch manufacturer, lithography. This is a place, you say, where the oil metaphor misleads, but probably not in the direction that people would think. If I say chips are like the new oil, you might think, well, that’s great because we know that there’s only oil in so many places, and chips, all you need is a manufacturing facility. But you write that unlike oil, which can be bought from many countries, our production of computing power depends fundamentally on a series of choke points — tools, chemicals and software — that are often produced by a handful of companies and sometimes only one.
So beyond TSMC, tell me a bit about the level of vulnerability and choke points here.
Chris Miller
Every step in the production process of an advanced semiconductor, whether it’s the software tools that are used to design them, the machine tools like the lithography systems that are used to manufacture them, the actual manufacturing, often at TSMC, there’s usually just a couple of companies that are capable of producing the most cutting-edge capabilities. And that’s just because it’s very expensive and very hard to do so.
And specialization has been critical to the industry. That’s why we’re able to produce semiconductors with 15 billion transistors on them at a price that all of us can afford. But it’s also created risks and vulnerabilities, because in some cases, there’s only a single source for certain types of materials or tools, and that creates single points of potential failure.
And the world, I think, has done a reasonable job of managing many of these risks. We’ve made an error, somewhat, in putting a lot of our chipmaking capacity in seismically active zones like Silicon Valley and Japan and Taiwan. But actually, we’ve been able to manage that risk somewhat too.
But obviously, the biggest risk hanging over the industry today is the concentration in the Taiwan Straits where, compared to 5 or 10 years ago, there’s far more concern that something might go wrong. And if it does, we’re guaranteed to get vast disruptions in chip supply.
Ezra Klein
So this, to me, has been a very under-noticed part of America’s commitment to Taiwan and America’s concern about China potentially taking Taiwan. I think most people hear this, and they think, in reality, why would we really care that much about Taiwan? I mean, we don’t want China becoming territorially expansionist. Taiwan is our friend. But why do we really, realpolitik, care about Taiwan?
And one reason seems to be that you lose Taiwan, and you lose the semiconductor industry — that Taiwan is a point of vulnerability for the entire world. And that really raises the stakes on this. So can you talk a bit about the ways in which the geopolitics around Taiwan have become merged with the dependence we all have on semiconductors?
Chris Miller
Well, if you ask the Taiwanese government, what they’ll tell you is that Taiwan’s position in the chip industry creates what they call the Silicon Shield, the idea being that it would be too expensive for anyone to disrupt the chip supply coming out of Taiwan, and therefore, no one would be willing to do so. And I think that might be true, but I’m not sure about it.
It’s also the case that Taiwan’s chip production guarantees that the U.S. is interested in ensuring ongoing good relations between the U.S. and Taiwan and peace between China and Taiwan. And that dynamic is certainly true as well. I also think it’s probably an oversimplification to argue that semiconductors are the primary reason or a primary reason that either China or the U.S. are interested in Taiwan because, of course, both countries have been involved in the Taiwan question since 1949 before the first chips were invented. And so in some ways, we have semiconductors sitting at the center of the competition in the Asia region between the U.S. and China, but in other ways, the competition is largely driven by political and military factors that intersect with chips but are far from guaranteed to ensure that their supply is uninterrupted.
And so I do worry that, actually, chips don’t provide a deterrence against conflict or don’t guarantee that conflict won’t happen. But actually, they would be the first disruption and the most dramatic disruption that we face in case conflict does materialize. So as a result, I finished my study of the chip industry and the ways that it intersects with the China-U.S. relationship much more worried, thinking that perhaps it’s stabilizing, but perhaps it’s not. And if it’s not stabilizing, we’re in a very vulnerable position.
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Ezra Klein
Tell me a bit about the chips question from China’s perspective. You make the point that China now spends more money importing chips than it spends importing oil, which is a striking fact. How does this look to them?
Chris Miller
Well, for China’s leaders, it’s an extraordinary vulnerability, both because they’re well aware of that in case of a crisis, they’re likely to lose access to the most advanced chips produced in Taiwan, also in Korea, Japan, and the United States. They also see it as an economic vulnerability because for China’s electronics industry, moving up the value chain requires producing semiconductors.
If you look, for example, at a smartphone — most of the world’s smartphones are assembled in China, but most of the high-value components of the smartphone are semiconductors. And so even in Chinese-branded smartphones assembled in China, most of the bill of materials ends up going to Taiwanese, to Japanese, Korean firms because they’re producing the chips inside of these phones. And so if China wants to progress technologically and economically, they believe they’ve got to domesticate production of semiconductors.
And the challenge they face is that the Chinese government has been struggling to do so. They’ve been spending billions of a year since 2014 to try to produce cutting-edge chips domestically. They’ve made some progress in a number of spheres, but in aggregate, they still remain fundamentally dependent not only on importing chips, but also, the chips that China does produce domestically are produced almost exclusively using imported machine tools like the lithography tools that I described. And so although China is a manufacturing powerhouse, it’s actually a small player when it comes to the production of semiconductors, especially when we’re talking about cutting-edge semiconductors.
Ezra Klein
Can you talk about the idea of weaponized interdependence?
Chris Miller
Well, this is a phrase that was popularized by two political scientists several years ago who noted that, in theory, many people had thought that interdependence would produce peace, it would increase the incentive for political actors to cooperate because they had economic incentives to do so. But in reality, what we were seeing in the world was that interdependence was not only relevant in terms of building bridges between countries, but it was also a sphere of competition and that countries were using their privileged position in certain networks to try to cut out or to punish their competitors. And we’ve seen this in cyber networks, for example, where the U.S. has a unique capability to conduct cyber espionage because a lot of the world’s key data centers and cables transfer through the U.S. We see it in financial networks, where the U.S. also has a unique position.
We also see it increasingly in semiconductors, because the U.S. sits at the center of many of the world’s semiconductor supply chains. And the other key nodes are close U.S. allies like Taiwan, like Japan. And what that’s meant is that the U.S. government, over the past 10 years or so, has been able to surgically cut China out of certain parts of the chip industry while keeping China dependent on many other types of chips. And so whether it’s cutting-edge tools, cutting-edge software or certain types of chips, like the chips used to train A.I. systems, the U.S. is able to say China can’t have access and is able to force the world’s chip firms to basically comply.
Ezra Klein
I think the political history of our policies here is interesting. There’s a pretty sharp discontinuity between Obama and Trump and then quite a bit of continuity on this from Trump to Biden.
So first, can we talk about the Obama to Trump change? What is the Obama administration’s perspective on semiconductor competition, dominance, particularly around China? What do they do about it? And then how does the Trump administration change that? What do they actually do differently than the Obama administration had done?
Chris Miller
I think the Obama administration, in their final year or two in office, was beginning to actually trend in the direction that the Trump administration eventually took things. But it certainly was the Trump administration that was first willing to disrupt supply chains, first willing to take costly measures and first willing to characterize tech competition as more zero sum than positive sum when it came to China. And so as a result of this new worldview, the Trump administration took a variety of steps in the semiconductor space to cut off China and to punish China for efforts to steal technology from Western firms.
So for example, the U.S. put out of business a company called Fujian Jinhua, which had been found to be stealing technology from a U.S. chipmaker called Micron, by banning this firm from accessing machine tools that are made in the United States, without which it’s impossible to produce semiconductors. And so overnight, this company went out of business because it couldn’t get the requisite tools. And this was a really dramatic step. It was very different from the prior U.S. strategy of starting W.T.O. cases, for example, or trying legal measures. This was just an executive measure that said this Chinese firm can’t access the tools anymore. And that began to illustrate the power that the U.S. regulators had to determine who got access to chips and chipmaking tools and who didn’t.
Another example is Huawei, the Chinese telecoms firm. The U.S. banned Huawei from accessing certain types of chips and forced Huawei to divest entire business lines. And that, again, illustrated that even China’s leading tech firms were producing technology that required foreign semiconductors — U.S., Taiwanese, Japanese, Korean — inside. And U.S. policymakers, I think, were impressed, and in some ways even surprised, by the power that this demonstrated. And that explains why the Biden administration has, in somewhat different ways, but in a large sense, carried on the weaponization of semiconductor supply chains that the Trump administration started.
Ezra Klein
Let’s talk about the Fujian Jinhua story in more detail, because the way it sounds there, it’s like, mean America comes in and puts out the business of this Chinese company. But you tell the story in some detail in your book, and what was happening before that, which was, in some ways — I don’t want to exactly call it normal, but a common complaint of American businesses dealing with China, which then the Trump administration decides they’re not going to stand for anymore. It’s pretty interesting getting, I think, at the other side of the frustrations here. So can you walk through that a little bit more slowly?
Chris Miller
There’s a U.S. firm called Micron which produces memory chips and had a facility in Taiwan, actually. And a number of the engineers there began stealing internal documents with the aim of quitting the firm and then bringing this inside information to the Chinese firm, Fujian Jinhua, which was trying to ramp up production of the exact same type of chips in China. And this is a type of chip that Chinese firms have never produced at the cutting edge before. And this was quickly discovered by the company. Legal cases were brought.
There’s very clear evidence, for example, of some of the employees in question typing into their computers, “delete Google search records,” for example, to try to cover their tracks. So there wasn’t much ambiguity as to what —
Ezra Klein
Top-flight espionage, googling how to delete your records.
Chris Miller
Exactly. So there wasn’t much ambiguity as to what was going on. And I think in prior instances, this would have produced the legal dispute or diplomatic discussions. But the legal mechanism simply didn’t work. Micron brought a suit against Fujian Jinhua for stealing intellectual property in China, but in Chinese courts, they actually ruled in favor of the Chinese company against Micron, alleging that Micron had stolen the Chinese companies’ intellectual property, which was, of course, a bogus ruling. But for Micron, China was a critical market, because China is the world’s largest consumer of chips. And so getting locked out of the Chinese market was a real risk for any chip firm. And it had made them all hesitant to actually take on Chinese companies or the Chinese government when they faced legal issues.
And the Trump administration saw this, believed that the previous strategy hadn’t really worked, hadn’t changed China’s behavior, and so had very little faith in any legal or diplomatic mechanism and just said, we’re going to put Fujian Jinhua out of business. And via executive order, that’s exactly what they did.
Ezra Klein
Do you think they were right?
Chris Miller
I think they were right. I think that the track record had been that the legal mechanisms had failed to address intellectual property theft. The fact that Chinese courts, despite all the evidence, had intervened on behalf of the Chinese firm suggested that there was really not much hope for legal mechanisms working. And the alternative was just to let intellectual property theft like this keep happening, which doesn’t seem to me like a very viable alternative strategy.
Ezra Klein
So you can look at that case as a case of reprisal. We are going to punish you for doing something wrong. And I think that it’s a pretty clear-cut case that something was being done wrong by China repeatedly there. Then you have Huawei, which is more about not wanting a Chinese company to build the backbone of 5G internet and a lot of telecommunications fears that, on the one hand, there were security risks couldn’t be addressed then, and even if you could address that, that the dependence on China was a kind of dependence we didn’t want. And you can tell me if you think that’s an unfair characterization of it.
And then under Biden, there’s another pretty big step up in these export controls on semiconductor chips, which isn’t just that we don’t want to be dependent on you, but we actually want to slow down your advance. We don’t want you to have a semiconductor industry moving towards equality with ours, to say nothing of getting beyond ours, and we’re going to weaponize the supply chain to stop that from happening. So can you talk a bit about that change to the Biden administration? Where did they go that the Trump administration had not, and why?
Chris Miller
As you have this escalation in U.S. policy, you also have technology trends developing in important ways that I think are key to understand. And the key shift here is the training of artificial intelligence systems and the realization that training the most advanced A.I. systems will increasingly require vast volumes of data that grow every single year, and therefore, cutting-edge chips.
And so the Biden administration, I think, not only had the concerns of the Trump administration when it came to IP theft or came to China’s role in telecoms networks, but was also looking at the future of A.I. and realizing that it was going to be U.S. chips that were going to be training the world’s A.I. systems over the subsequent decade and that A.I. systems are going to be even more powerful than people had thought 5 or 10 years earlier.
And so it was hard to predict for them how A.I. systems would develop, but it seemed inconceivable that they wouldn’t have, in addition to transformative economic ramifications, also vast military and intelligence uses. And so given the tremendous growth in A.I. plus the reality that training A.I. required U.S. hardware, to them, I think this looked like a risky moment, actually. If A.I. was unleashed and the chips that could train I were unleashed to the entire world, the results would be unpredictable.
And so I think in addition to the Trump administration’s concerns, they were also looking at these trends saying, we want to have some control over how U.S. chips are used to train A.I. systems. And that explains why, last year, they rolled out two different prongs of a new export control regime, the first which limited the transfer of certain A.I. training chips to China, made it illegal to transfer Nvidia G.P.U.s above a certain threshold to China, and then also said because these chips are so important, we want to make sure that China can’t produce them domestically.
And so to do that restricted the transfer of any advanced machine tools to China as well. And so this is a very zero-sum view of the world that Jake Sullivan, the national security adviser, outlined when these controls were announced. But it’s a zero-sum view of the world that I think is informed by a lot of concern and uncertainty about how A.I. systems will be deployed by other countries for military uses and for intelligence gathering.
Ezra Klein
These export rules were announced six months ago. What has their effect been so far in China?
Chris Miller
We know the effect of the machine tool restrictions, which have caused pretty substantial challenges for Chinese firms at the cutting edge or close to the cutting edge in production, because all of China’s leading-edge production has required tools from the U.S., from Japan, or from the Netherlands. And those three countries are all implementing roughly similar controls right now. It’s harder to say what the impact of the ban on A.I. chips has been because China still has a large stock of existing A.I. chips that it imported before the ban was in place.
And so these controls won’t begin to have an impact for a couple of years, when the rest of the world builds next-generation data centers or the generation after that, and China’s unable to. And at that point, we will begin, I think, to see some differential open up in terms of the ease of training A.I. systems in the U.S. or in Europe or in Japan and the comparative difficulty of doing so with less advanced chips in China.
Ezra Klein
The other side of the Biden administration’s thinking on semiconductors has been to build or rebuild American semiconductor manufacturing. So tell me about the CHIPS and Science Act. What does it want? What is it trying to achieve, and what does it actually do?
Chris Miller
So there’s two major facets of the CHIPS and Sciences Act. The first puts around $10 billion into R&D spending, which is intended to increase innovation in the chip industry and keep the U.S. at the cutting edge in many different spheres.
The second is to provide incentives for firms that open up new manufacturing facilities in the U.S. And here, the goal is to address the fact that it’s more expensive to build chipmaking facilities in the U.S. than it is abroad, 20 percent or so more expensive than in Taiwan or in Korea, which over the last several decades has been one of several factors encouraging companies to build more facilities in other countries rather than in the U.S. And so the $39 billion in incentives is intended to help companies defray the cost differential and, thereby, encourage them to build more capacity in the U.S.
Ezra Klein
Do you think it is likely to succeed in doing that?
Chris Miller
Well, I think there’s no doubt that it will succeed in the short run. If you pay companies to build factories, they’re going to build them. That’s straightforward. I think the harder challenge is to have an impact after we’ve spent these first $39 billion of subsidies. I’m skeptical that there will be a second round of CHIPS Act spending to defer cost differentials in the future.
And so I think the real challenge is to say, can we get the chip industry investing more in the U.S. over the long run even after we’re no longer subsidizing them? And I hope the answer is yes because I don’t think subsidies indefinitely into the future are likely. But it’s going to be much more challenging because a lot of the drivers of the cost differential still exist.
The labor costs are higher in the U.S. It’s more difficult because of environmental permits, for example, to build facilities in the U.S. And so we’ve got to produce an environment that does address some of the cost differential but also make sure we’ve got other assets — more productive workers, for example, or closer integration between CHIPS and the software firms that they’re serving — that make up for the cost differential. And that’s an ambitious goal. I think it’s a worthwhile goal, but it’s far from guaranteed that we’re going to achieve it.
Ezra Klein
Well, I’ve been spending a lot of time looking at the CHIPS Act for a big story that, I guess, will probably out by the time this publishes. And you and I spoke for this piece, and something that looking through the Notice of Funding Opportunity, which is the publication that explains how the U.S. government is going to evaluate applications for this money. And I think I’m prepared to say now, having spent more time with the document and talking to people, that this does not lower the cost differential.
It has subsidies, and it has a lot of, I think, good ideas. But aside from funding R&D to try to create innovative breakthroughs, it doesn’t lower the cost of what it takes to build or operate FABs or labor or, through immigration, bringing in more technicians. It really just doesn’t do much to change what it costs to run one of these in America and, in some cases, very arguably, will make it higher. They add on a lot of standards. People have talked a lot about insisting that there’s high-quality child care in the FABs. But even beyond that, there’s a lot of language about creating pathways for marginalized workers and trying to increase the representation of women in the construction industry.
And a lot of these ideas might be good ideas. But if you start from the perspective that U.S. chip manufacturing fell behind because it’s very costly to build and operate factories here, it is very, very, very hard for me to look at this document and say what they are trying to address is a cost differential. They’re subsidizing on one side. They’re adding a number of regulations and standards on the other. But if you’re starting from a place where you’re already non-competitive on cost — I mean, I’m curious if you think I’m being too harsh on this. Knowing a little bit more now about what has been the problem for American semiconductor manufacturing, it doesn’t really look like it has a solution to that problem.
Chris Miller
Well, I think I would say a couple of things in response. I think you’re right that in any program like this, there’s a risk that it loses focus and that multiple different political interest groups managed to make an imprint on it. And I think keeping focus on the cost differential is going to be a key determinant of success or failure in the long run. I think if you look at what the Commerce Department has said about a lot of the preferences that were on child care, for example, or around profit sharing that have been controversial, I think a lot of these end up being preferences rather than requirements. And the Commerce Department, I think, has signaled a willingness to be flexible on some of them. So we’ll have to see how exactly they’re implemented and how firms decide to deal with them.
I think on the permitting question, which I think is really quite important, this is a tricky issue because it’s not just about the federal government. It’s also about state and local governments. And so I know the Commerce Department is aware of the importance of this issue. But it’s also about making sure that the Arizona state government and the Portland, Oregon city council all agree that they’re going to approve permits rapidly rather than slow them down because of NIMBYism concerns.
And this is a challenge. In Taiwan, TSMC is the island’s most prestigious employer. It’s the country’s largest exporter. And so when it has a request, its request is quickly granted, whereas in the U.S., semiconductors are one important industry among many, and so they just get less political priority as a result. And when they face problems, they’re solved less quickly for that reason. And so I think we still have a lot more work to do, as you say, to make sure that we’re actually taking steps that are addressing the cost differential issues, both at the federal level but also a lot at state and local levels.
Ezra Klein
In one thing I should say on this is when I spoke with Secretary Gina Raimondo, who runs commerce, and when we talked about the environmental permitting and talked about the immigration side, she said very clearly on the record — and it’ll be in my piece — she would love that. She would love Congress to come to her and do streamlined environmental permitting. She would love Congress to come to her and work with her on easing immigration status for semiconductor technicians. And she also said that she has made clear to governors that if they want a FAB, that a grant application from a company where they’ve partnered with the governor or the mayors or whatever to have permitting sped through will affect what commerce does.
So if you’re a governor and you want this to happen in your state, and you’re able to give a company assurances that they can take to Commerce that it will and that you will have this speedway, they will take that into account.
That gets me to one of my final questions here, because I know we’re running quite out of time, which is when I read the history of the semiconductor industry in your book, what it seems to me was one of the single most effective things we did was have a fairly open immigration policy during a bunch of these periods, that a lot of the industry has its roots in high-skilled immigrants to this country, particularly coming out of World War II.
And it raises a question as to whether or not one of the best things we can do for this industry and others is actually high-skilled immigration or targeted immigration because labor is at such a shortage in skilled semiconductor manufacturing in America. How do you think about immigration as a technological competitiveness policy?
Chris Miller
Well, I think that’s right. And if you look at the individuals who founded the chip industry in the U.S., a disproportionate number of them were foreign-born, whether it’s Andy Grove, the longtime C.E.O. of Intel, born in Hungary, or Morris Chang, who I mentioned, who built up chipmaking in Texas Instruments before he moved to Taiwan. He was born in mainland China. You can go through a lot of the key C.E.O.s and founders of the early chip firms or the C.E.O.s of today’s biggest U.S. chip firms, and you’ll find a disproportionate number of immigrants there as well.
So I think Secretary Raimondo is right that we ought to have more pathways to have firms bring in the talented engineers that they need. The fact that the industry has a really internationalized supply chain today allows a lot of efficiency, but from the U.S. perspective, it’d be even better to have a less internationalized supply chain if more of those people could move to the U.S. And many of them would like to. They just can’t get the visas or the work permits that they need.
Ezra Klein
I think that’s a good place to end. Always our final question: What are three books you would recommend to the audience?
Chris Miller
Well, I’d start with “The World for Sale,” which is an extraordinary account of commodity traders who play an unseen role in the middle of the networks that deliver oil and minerals and metals that we require, an eye-opening view as to how all the world’s raw materials get shipped around the world.
The second book I’d recommend, which picks up on a lot of the discussions we’ve had about networks, is a book called “Nexus” by Jonathan Winkler, which is a study of telegraph cables during the early 20th century. And what’s striking about it is the extent to which all of the world’s governments saw telegraph cables as not only economically important, but also important for military and intelligence uses. And when I think about Huawei today, I think back to the telegraph cables debates of 100 years ago. And in some ways, not much has changed.
And then a third book which was published last year which I strongly recommend is a book on decision-making in China called “Prestige, Manipulation, and Coercion,” which is an extraordinary account of high politics in China over the last half-century that illustrates, with really exceptional archival documentation, how Chinese politics has shifted and the key drivers in it. And so in my efforts to understand Chinese decision-making around semiconductors, I found the framework that he set out very, very useful to understand how it is that Chinese leaders make decisions.
Ezra Klein
Chris Miller, thank you very much.
Chris Miller
Thank you.
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Ezra Klein
This episode of “The Ezra Klein Show” is produced by Annie Galvin, Emefa Agawu, Jeff Geld, Roge Karma and Kristin Lin. Fact checking by Michelle Harris, mixing by Jeff Geld, original music by Isaac Jones, audience strategy by Shannon Busta. The executive producer of New York Times Opinion Audio is Annie-Rose Strasser, and special thanks to Pat McCusker and Kristina Samulewski.
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