Semiconductors Ignite Global Race for AI Dominance

In May 2024, China pledged $48 billion to its National Semiconductor Fund, aiming to bolster its domestic chip industry, which fuels the new era of artificial intelligence (AI). In contrast, the United States provided approximately $80 billion in grants, loans, and tax incentives in January to advance its semiconductor industry, as part of a broader package of over $140 billion.

Overall, government cash flows from East and West have surpassed $350 billion, aiming to dominate the semiconductor market and thus steer the “helm” of AI. Semiconductors, small electronic components, are integral to almost everything, from children’s electronic toys to military industries and space technology. These components store and transmit data in electronic devices, with the capability to store unlimited amounts of data, classify it, and display it again.

Trillion-Dollar Revenues

A recent report by the chip industry consultancy International Business Strategies reveals that global chip industry revenues will reach $580 billion in 2024, up from $530 billion last year. Revenues are projected to grow steadily, reaching an expected $1.2 trillion by 2030, indicating an extraordinary surge in global demand for semiconductors. According to data from the Semiconductor Equipment and Materials International (SEMI), about 70% of total manufacturing capacity is concentrated in South Korea, Taiwan, and China, with the Americas ranking fifth after Japan, which held a 13% share in 2022.

American Dominance

Decades ago, the United States accounted for 37% of semiconductor manufacturing capacity in 1990, while Europe held 44%, followed by Japan with 19%. Japan was a stronghold for semiconductors in the 1980s, making up 51% of global chip sales in 1988. On 28 March, President Joe Biden stated that the US invented semiconductors “thanks to our space program.” He added, “For 30 years, America manufactured 40% of the world’s chips, then something happened, and the backbone of our economy became hollow.”

Industry Influx

Currently, funds are flowing from the US government to chip manufacturers as part of the CHIPS Act, but other nations in the race have their own aid packages. Last month, South Korea unveiled a $19 billion support package for its chip industry, and China raised around $48 billion in the third and largest installment to date from its National Semiconductor Fund. Japan and the European Union have also provided billions in government support for semiconductor companies to advance research, development, and manufacturing.

Companies such as Intel, Taiwan Semiconductor Manufacturing Company (TSMC), Samsung Electronics, and Micron Technology received funding under the CHIPS Act. However, no company has thrived amid the chip frenzy like Nvidia. The smart chip design company reported record revenues and profits in the last quarter of 2023, with its market value surpassing $3 trillion, making it the second-largest US company listed on Wall Street.

Sanctions on China

China, which started almost from scratch in the semiconductor industry 20 years ago, surpassed the United States, which then controlled 37% of the market, before losing its leadership to Taiwan, which Beijing claims sovereignty over. This irritated Washington, prompting it to impose sanctions on Chinese tech companies, particularly Huawei. Chinese companies responded by purchasing large quantities of chips in anticipation of any export ban, creating a shortage in the international market, exacerbated by the supply chain crisis caused by the COVID-19 pandemic.

In October, Washington restricted semiconductor exports to Chinese companies, requiring US firms wishing to export chips to Beijing to obtain prior licenses. The US also pressured allied countries, such as Taiwan, the Netherlands, and Japan, to halt their semiconductor and manufacturing equipment exports to China. Japan joined the US and the Netherlands in deciding to restrict the export of chip-making equipment to Beijing.

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