Everyone is talking about this book. It won the Financial Times Business Book of the Year award. On the slopes of Davos this year attendees repeatedly dropped it into conversation. So you need to have something to say about Chip War -- especially as much has changed since the book went to press. America introduced its CHIPS Act, which is supposed to boost domestic production of semiconductors, and then introduced new restrictions on China’s chip industry.
Ideally you would read the book cover to cover. But you could simply buy a copy, crack the spine a few times before displaying it on your bookshelf -- and then read this short review. Rather than simply give an overview of what the book says, which is what most reviews do, we want to provide something different and, hopefully, useful. Therefore we have collected opinions from people at Generation who read the book. Below we present the four lessons we think you should know about Chip War.
The first is that chips are big business. You hear a lot about Chinese oil consumption, and how its soaring demand has reworked global supply chains. Yet, as the book points out, China spends more money importing chips than it does importing oil. At the global level, we reckon that monthly chip sales are worth about 20% of monthly oil sales.1 Yet if anything chips are more important than oil to the modern economy.
They are in practically everything and becoming ever more pervasive. Following Russia’s invasion of Ukraine, the country faced a barrage of sanctions. Its car industry, deprived of chips, collapsed: at points last year production was down 90% year on year.2 Chips are also critical for sustainability. They enable the electrification of the economy and the management of grids powered by ever more renewable energy. Chips also become more energy-efficient over time, enabling greater computing power for lower power consumption.
The second lesson is that chips are insanely complex. It is quite hard to get your head around exactly what players such as ASML, a Dutch company that is a big supplier to the chip industry, truly do. In the company’s lithography systems there are mirrors so precise that “they could be used to aim a laser to hit a golf ball as far away as the moon,” as Miller explains. Indeed designing this stuff is harder than putting a man on the moon.
This complexity explains why many chip challengers have come and gone. First it was the Soviets, who failed to develop their own chip industry, even as America’s took off. The USSR did its best to steal intellectual property (and actual property) from Silicon Valley, but it was always one step behind. “One of the most sensitive and secretive industries in the USSR…functioned like a poorly run outpost of Silicon Valley,” Miller memorably explains. Then, in the 1980s, Japan came along, and for a time it looked as though they were going to steal a march on America. But before long it faded, with Japanese chip firms missing the meteoric rise of the personal computer.
And then there is Taiwan. Today roughly 90% of the world’s most advanced chips are made there. Taiwan Semiconductor Manufacturing Company (TSMC), founded in 1987, keeps the global economy on the road.3 Chip War cannot really explain just how TSMC became the world centre of chip-making. But it’s presented to be a vague combination of a lot of government help, clever partnerships with firms in the West, and the sheer bloody-mindedness and ingenuity of Morris Chang, TSMC’s founder and himself already a legend of the chip industry in the US. Chang was so obsessive about chip manufacturing that he came out of retirement, retaking his role as head of the company, because he didn’t think his successor was good enough.
What is clear, though, is that it will be hard for countries to build homegrown chip capacity -- an explicit aim of the Chinese government. Chipmaking is the globalised industry. TSMC is successful because they backed ASML early on. Each has learned from the other. ASML has a huge global supply chain across Europe and the US. Other big firms in the supply chain have been enablers for TSMC, but they have been beneficiaries too. To replicate all these links is challenging. If you want to replicate ASML or Cadence (a key provider of software for chip design), you’re looking at decades of accumulated lessons with your customers. At the same time the industry is moving forward at breakneck pace. Where does one start?
America’s new export controls on China’s chip industry will make it even harder for China to achieve its goals. America has, in effect, forced its citizens working in China to choose between quitting their jobs and losing their citizenship. Chinese firms have lost access to a large number of suppliers. The industry is facing a huge, perhaps existential, challenge. That said, there is no guarantee that America’s own push for homegrown chips -- under the CHIPS Act -- will be any more successful. China has power too. Yes, China is being forced to focus on the lagging edge (chips for cars, for healthcare and so on). But this is still strategically important. It is possible China will be able to build dominance there in the same way the Koreans have in memory. They could use this as a bargaining chip (pun intended) in the future.
This leads to the third big lesson: that chips are extremely political. You can only understand the history of the chip industry by understanding the geopolitical objectives of governments. Fairchild, one of the first semiconductor firms, got its big break after NASA chose it to make computer components for the first manned mission to the moon. Texas Instruments, which designs and manufactures semiconductors, helped produce laser-guided bombs for the American military in Vietnam. In 1972 US aircraft dropped 24 of these bombs on a bridge, “which until that day had been still standing amid hundreds of craters, like a monument to the inaccuracy of mid-century bombing tactics.”
Politics still matters for chips. For America, Taiwan is an indispensable partner. China, of course, also has strong opinions about the future of Taiwan. For now, it relies on TSMC as much as everyone else. It would be in everyone’s economic interests to maintain the status quo. Yet, as recent events in Ukraine have shown, people do not always act in their economic interests. The book shows in scary detail that an invasion or even a blockade of Taiwan could send the global economy off a cliff. The disruptions of the COVID-19 lockdowns in 2020-2021 would look like a walk in the park. Everything would go the way of the Russian car industry.
The fourth lesson is that Chip War is a good read. It is not, to be clear, superbly well written. Some of the chapters are oddly short, making it feel at times as though the book was cobbled together. The book does repeat certain points a few times. In addition, there are lots of lengthy explanations of the scientific intricacies of chipmaking: your eyes may glaze over. Aside from this, though, Miller maintains a clear and crisp tone throughout the book, making it easy to zip through. He has assembled a winning cast of characters, showing that chips are just as much about personalities as they are about tech. He has certainly focused the world’s attention on this most important of technologies.
- Global chip sales are worth roughly $50 bn a month. https://www.semiconductors.org/global-semiconductor-sales-decrease-2-9-month-to-month-in-november/. Global oil demand is roughly 3bn barrels a month https://www.eia.gov/outlooks/steo/report/global_oil.php. At an oil price of roughly $80 a barrel, you’re looking at global oil demand of about $200bn a month.
- Generation is an investor in TSMC.