In response to this escalation of Japanese military aggression, President Franklin D Roosevelt (along with Britain and the Dutch) imposed economic sanctions and froze Japanese assets in the US. Japan effectively lost access to almost 90% of the oil it imported and without which, its war machine would soon grind to a halt. But if the sanctions were designed to mollify Japan, they failed. With oil reserves running low, Hirohito decided an invasion of the East Indies was even more imperative and preemptively attacked Pearl Harbor to protect his flank from the US Pacific Fleet. Is the story starting to rhyme? For Japan in the 1940s, read China in the 21st Century. for oil then read semiconductors now; for East Indies, read Taiwan. Just as Hirohito was hampered by a lack of domestic oil supplies, China is unable to create the most important building blocks of the global economy: silicon chips. China buys about 60% of the world’s semiconductor supply. Almost 90% of them are manufactured either outside the country or by foreign companies operating within its borders. Indeed, Beijing spends more on buying computer chips than it does on importing oil. The situation, of course, is not directly analogous. China is not in open conflict with anyone and has managed to exist in a state of bloodless competition with Taiwan for over seven decades. It’s also much easier to grab oil wells than semiconductor foundries. However, there are several similarities that deserve attention. It would certainly be naïve to ignore the fact that China has adopted a policy of “wolf warrior” diplomacy and that the text of the Fifth Plenary Session outlining the Communist Party’s strategy until 2035 contains a phrase that has not been used for half a century: “prepare for war”. That the West needs to be more careful in its dealings with China was evident long before Beijing took an ambiguous stance on Vladimir Putin’s illegal invasion of Ukraine. The crackdown on pro-democracy protests in Hong Kong, Australia’s political intimidation, the disinformation campaign around Covid and the Uyghur camps were already prompting a rethink in the UK, for example, about the wisdom of allowing Huawei to build the 5G and CGN infrastructure to build our nuclear power plants. But the USA in particular has gone further. Is there a danger, after decades of hoping that free trade would create “habits of freedom” in China, that the West is now overcorrecting and that a containment policy by Beijing is actually hastening the outcome it seeks to prevent? China is already struggling to keep up in the technological arms race. China’s “champion” in the foundry industry – which consists of those companies that make integrated circuits (or “chips”) – is Semiconductor Manufacturing International Corp, which last year announced plans to build a facility that will produce chips 28 nanometers. Such technology is about 12 years behind the 3-nanometer chips produced by Taiwan’s TSMC. As for the circuit, the smaller the better. TSMC’s dominance is why Taiwan is responsible for about 63% of the world’s foundry business. In the other half of the industry, nine out of 10 “myth” companies, which design rather than build the chips but tend to drive the innovative leaps, are based in the US. The other – MediaTek – is based in Taiwan. Overall, the US accounts for about half of global microchip production and China just 5%. Beijing has deep pockets, but they are not deep enough to close this huge qualitative and quantitative gap. Even as it pours billions into a chip-making moon, the world’s three biggest chipmakers alone – TSMC, Samsung and Intel – have pledged to invest $300bn (£255bn) over the next ten years. China has been trying to achieve semiconductor self-sufficiency for nearly two decades with very limited success. And this was before the economy came under pressure from a disastrous zero-Covid policy that led to rolling lockdowns.
