Claire Lin is currently an Associate Engineer at Taiwan Instrument Research Institute, NARLabs, Taiwan. Her research focuses on China Studies, Non-traditional Security and Southeast Asian Studies.
Chong-Lun Wei received his Ph.D. in the Department of Materials Science and Engineering from National Yang Ming Chiao Tung University. He is currently an Assistant Engineer at Taiwan Instrument Research Institute, NARLabs, Taiwan.
Vincent Hsiao received his Ph.D. in the Department of Mechatronics Engineering, from National Changhua University of Education. He is currently a Research Fellow at Taiwan Instrument Research Institute, NARLabs, Taiwan.
The US is locked in a long-term comprehensive confrontation with China to keep its hegemony or balance the power. Innovation in emerging technologies could transform society, create new industries, foster new dependencies, and alter the character of warfare. Whichever country secures a lead in key technologies will have the balance of power tipped in its favor and will reap economic benefits far.[1]
The competition between the US and China is like an innovation race. In order to get ahead, you either run faster than others or you try to slow them down. The US semiconductor competition strategy is to run faster than China in advanced process and ban selling of cutting-edge, chip-making equipment and soft tool to China to slow down the development of China. Under these circumstances, China is trying its best to develop mature process due to the US’ export restrictions and containment. This article will compare the semiconductor competition strategies between the two countries and put forward the possible scenario.
Every Semiconductor Sub-industry is a Part of the Competition Between the US and China.
There are more than 30 types of semiconductor product categories. Developing those products requires deep hardware and software expertise, and advanced design tools and IP. In the production process of IC (integrated circuit) chips, the designed circuit diagram is first transferred to the semiconductor wafer. Through a series of procedures, an IC is formed on the surface of the wafer, which is then cut into a piece called dies. These dies are finally wrapped in a protective shell, forming the final chip.[2] Semiconductor manufacturing involves a complex series of processes that transform raw materials into finished devices. Each step has its own unique set of challenges and opportunities.
The semiconductor industry chain can be divided into three major sectors: (1) upstream-IC design: production of IC design drawings, (2) midstream-IC manufacturing: IC manufacturing, wafer fabrication, related production process testing equipment, masks, and chemicals, and (3) downstream- IC packaging and testing: after having passed testing, the wafer is cut into bare dies, and packaging into chips.
Before manufacturing a chip, engineers must first plan the functions that the chip needs to have according to requirements, and distribute these functions on the chip. Hardware Description Language (HDL) describes the chip’s functions and puts it into program code. An Electronic Design Automation (EDA) tool allows the computer to convert the program code into a circuit diagram. Chips can be divided into 4 categories according to their functions: (1) Memory IC: used to store data, (2) Micro Component IC: a component with special data processing functions, (3) Logic IC: IC that performs logic operations, (4) Analog IC: an IC that processes analog signals, mainly used in Power Management, Amplifier, and Converter. In the IC design industry, in addition to the IC design itself, IC design tools are also part of the IC design upstream of the semiconductor supply chain.[3]
EDA software is used by engineers to design the chip specs. While chips contained thousands of transistors in the 1970s, they have more than a hundred billion today, and it’s impossible to create these designs manually. EDA software is a small but mighty part of the semiconductor supply chain, and it’s mostly controlled by three Western companies: Cadence (American), Synopsys (American), and Mentor Graphics (American but acquired by the German company Siemens in 2017). These control about 70% of the global EDA market. That gives the US a powerful point of leverage.
On August 12, 2022, the US announced a multilateral export control on certain EDA tools, blocking China and over 150 other countries—essentially any country that isn’t a traditional the US ally—from accessing them without specially granted licenses. EDA software became a weak link in the PRC’s efforts to build a leading domestic semiconductor value chain.
Once completed, the IC design enters the IC manufacturing process where the foundry must transfer the designed circuit diagram to the semiconductor wafer. These IC manufacturing equipment and IC manufacturing materials are also part of the IC industry. After the circuit on the design drawing is placed on the wafer to form the IC, it is necessary to test and package it. If the IC is usable after testing, foundry will cut the IC on the wafer into a piece of die. Because these bare dies are very fragile, they must be protected by wrapping in a shell. This encapsulated die is now the final finished “chip”. IC packaging and testing manufacturers also use chip testing and packaging equipment and materials.
US Tends to Strengthen the Development of Advanced Processes to Build a Safer and More Stable Supply Chain
The US launched three crackdowns in three years on China’s semiconductor industry. On October 7, 2022, the US Department of Commerce imposed semiconductor restrictions to expand scope of sanctions from logic ICs to memory sector.[4] On October 17, 2023, the US announced a new package of export control measures that refines and significantly tightens controls put in place almost exactly a year prior. These were intended to restrict China’s ability to obtain advanced computing chips, develop and maintain supercomputers or manufacture advanced semiconductors. On December 2, 2024, Biden-Harris Administration announced a package of rules that include:
1. new controls on 24 types of semiconductor manufacturing equipment and 3 types of software tools for developing or producing semiconductors;
2. new controls on high-bandwidth memory (HBM);
new red flag guidance to address compliance and diversion concerns;
3. 140 Entity List additions and 14 modifications spanning PRC tool manufacturers, semiconductor fabs, and investment companies involved in advancing the PRC government’s military modernization;
4. several critical regulatory changes.[5]
China has recognized the importance of high-bandwidth memory (HBM) chips as a key component of AI semiconductors, particularly as it faces challenges in AI research and development due to US export controls on AI chips. This has led China’s memory chip maker, ChangXin Memory Technologies, started producing second-generation HBM while Korea’s SK Hynix currently leads the HBM sector. Nonetheless, China still has relatively immature capability in many aspects. Although China recently began mass production of HBM2, there will be a large gap between the performance of its memory devices and those of more advanced providers in Korea and the US.
The Framework for Artificial Intelligence Diffusion, introduced by the Biden administration on January 13, 2025 before it departed office, incorporates measures designed to make developing frontier AI models off-limits to all countries in the world except the United States and a select group of allies. The framework divides the countries into three groups. The first one (whitelisted countries)features 18 US allies that have explicitly aligned themselves with Washington in their stance and policies toward China, particularly in the area of export controls. The second (prohibited countries) includes China and other countries regarded as adversaries by the US, such as Russia, North Korea, and Iran. The third (all other countries) is the largest and comprises the rest of the world.
Biden-Harris Administration chose a “small-yard, high-fence” strategy to place strict restrictions on a small number of technologies with significant military potential. It aimed to slow the PRC’s development of advanced AI that will change the future of warfare such as advanced-node integrated circuits and the equipment used to produce them.[6] The US is not only restricting China’s access to chips, but trying to boost its own industry and the US-led supply chains thus further widening the technological gap.
China is Forced to Development Mature Process IDM to Establish “Made in China” Price
China has ramped up spending on semiconductor development since the US-led export controls have explicitly targeted the Chinese chip industry, seeking to starve it of the critical components needed to accelerate progress in artificial intelligence (AI) and military innovation.[7] These strategies, while partly successful in slowing China down in the short term, have made China seek to achieve self-sufficiency in all facets of the semiconductor industry, simultaneously reducing its reliance on foreign competitors while attempting to build competitive enterprises.
Making the most advanced semiconductors requires cutting-edge lithography to print the small, complex circuit designs onto microchips. Netherlands-based ASML is the only company in the world that can make those machines.
But the Dutch government has banned the sale of its most advanced deep ultraviolet (EUV) machines to China for several years. China appears to be taking a leaf out of its traditional playbook such as electric vehicles (EVs) that has involved multi-year plans and subsidies to support semiconductor development to create a “huge and protected market” for Chinese companies to quickly build up scale.
China’s mature-node chip market produced at 28 nanometers (nm) and above is well-recognized, augmented by rapidly expanding markets for electric-vehicle batteries and solar cells. Mature process technology is far more pervasive across global supply chains than technologies such as EDA software and compound semiconductors, increasing the importance of China’s leverage in the domain. China’s share of global mature-node production is expected to grow from 33% in 2023 to 37% in 2032.[8] TrendForce reports that China is planning or constructing at least 32 large-scale wafer fabrication plants, which focus on the 28nm+ processes widely used for commodity chips in household appliances and the car industry.[9]
China could lead to oversupply in the global market and the dumping of certain chips that drives prices down and inducing foreign manufacturing firms to buy more of them. Domestic subsidies allow Chinese semiconductor firms to compete in markets without the need for market-based rates of return. This could leave Chinese chipmakers in control of a strategically important segment of the semiconductor market.
If Chinese production prices make western manufacturers out of the market, China’s chipmakers could gain control of a strategically important segment of the global semiconductor industry. This issue is strategically important partly because mature-node chips are constantly being refined in line with new requirements and applications – and are foundational to the aerospace and defence sectors.
Semiconductor Development is About to Enter “One World, Two Systems”
There are potential implications for other nations and international alliances from the rivalry between the United States and China in these areas. Moreover, the outcome of this competition may influence future technological norms and standards, affecting global markets and innovations.
With the confrontation continuing to escalate, China is ramping up its investment and R&D activity in terms of critical industries such as semiconductors to accelerate the development of a closed-loop tech ecosystem. While Chinese firms would likely take years to catch-up with these established global players, China and the US have certainly lost trust in each other. The threat of a schism developing in the global economy and semiconductor supply chain is certainly growing.
It does seem as if the “one world, two systems”, is fast becoming a reality. The development of the whole semiconductor industry in the world will be divided into the US-led towards advanced process-oriented supply chain and China-led towards mature process-oriented. The Chinese government is taking the lead in priming the pumps in supporting this massive capacity expansion to pursuit total self-reliance. After that, Chinese low price chips will flood into foreign markets to hurt other country’s vendors. The question for friends and allies of the United States is how to balance the increasingly difficult and competitive relationship between China and the United States.
Conclusion
Biden administration’s containment policy on semiconductor may encourage China’s local development. Chinese vendors can’t buy foreign equipment, but turn to buy local equipment, which gives them more opportunities for “trial and error” to optimizes Chinese products. In Graham Allison’s book “Destined for War: Can America and China Escape Thucydides’ Trap?” showed that when a rising power threatens to displace a ruling one, the most likely outcome is war. International relations scholars John Mearsheimer and Robert Kagan also affirm that China’s ability and willingness to reshape the international order are increasing, just as the United States’ capacity to preserve the status quo is declining.
However, Trump 2.0 may willingly move the United States away from path dependency to avoid war with Beijing. Trump and his team should utilize the strategy of “America first” to steer US–China policy toward an aversion of conflict. That centers on two policy directions. The first is promoting American jobs and economic interests, which rely on stable relations with Beijing. The second is consolidating core US alliances and partnerships in Asia, rather than proliferating security agreements and overextending American security commitments. As such, Trump and his vision of “America first” just might be capable of improving the Sino-American relationship. [10]
[1] Ardi Janjeva, Seungjoo Lee, Harish Bhaskaran, Seoin Baek and Hyunjin Lee, “Semiconductor Supply Chains, AI and Economic Statecraft: A framework for UK-Korea strategic cooperation,” CETaS Research Reports , April 9, 2024, https://cetas.turing.ac.uk/publications/semiconductor-supply-chains-ai-and-economic-statecraft
[2] What Is the Semiconductor Supply Chain? Market Prospects, Jul 26, 2021,
https://www.market-prospects.com/articles/what-is-the-semiconductor-industry-chain
[3] What Is the Semiconductor Supply Chain? Market Prospects, Jul 26, 2021,
https://www.market-prospects.com/articles/what-is-the-semiconductor-industry-chain
[4] U.S. Department of Commerce Again Imposes Restrictions on China, Expanding Scope of Sanctions from Logic ICs to Memory Sector, TrendForce,
https://www.trendforce.com/presscenter/news/20221008-11411.html
[5] Commerce Strengthens Export Controls to Restrict China’s Capability to Produce Advanced Semiconductors for Military Applications, December 2, 2024, Bureau of Industry & Security,
[6] Commerce Strengthens Export Controls to Restrict China’s Capability to Produce Advanced Semiconductors for Military Applications, December 2, 2024, Bureau of Industry & Security, https://www.bis.gov/press-release/commerce-strengthens-export-controls-restrict-chinas-capability-produce-advanced
[7] Ardi Janjeva, Seoin Baek, Andy Sellars, “China’s Quest for Semiconductor Self-Sufficiency: The impact on UK and Korean industries”, CETaS Research Reports , 4 December, 2024, https://cetas.turing.ac.uk/publications/chinas-quest-semiconductor-self-sufficiency
[8] Raj Varadarajan, Iacob Koch-Weser, Christopher Richard, Joseph Fitzgerald, Jaskaran Singh, Mary Thornton, and Robert Casanova, “Emerging Resilience in the Semiconductor Supply Chain”, Boston Consulting Group and Semiconductor Industry Association, May 2024, p14.
[9] Dan Robinson, “Fear of commodity chip flood sparks EU probe into China silicon ambitions,” The Register, 8 July 2024, https://www.theregister.com/2024/07/08/eu_china_commodity_chips/.
[10] Nicholas Borroz, Hunter Marston, “How Trump can Avoid War with China”, Asia & the Pacific Policy Studies, 31 August 2017, https://doi.org/10.1002/app5.191.
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