The fresh US export restrictions on chips to China and Russia seem to have pushed the decoupling of the semiconductor technology a step further. DIGITIMES Asia had an exclusive interview with Abishur Prakash, co-founder and geopolitical futurist at the Center for Innovating the Future (CIF), on how the fragmented and divided vertical camps of globalization will be a new status quo for geopolitics due to US-China competition.
Q: The US wants chip production lines back in America, and China is playing the self-sufficiency card to replace foreign makers. In theory, there is nothing to fight about: China does its own, and America builds its own production lines. Why has the chip war become so complicated?
A: The world is beginning to fragment and divide, in large part because of technology. Since 1945, since the end of World War II, there has been a certain design of the world: economic barriers have been brought down, economies have opened up, and societies have opened up. So as a corporation, whether you were based in Taipei, in Tokyo, Tel Aviv, or as a talent, you thought about the whole world a certain way, accessing the whole world was their key objective in some shape, or form. Now, in the past several years, this paradigm has begun to erode. And instead of the world being open and accessible, now it's becoming full of walls and barriers, many of which are technology-based, so vertical, these walls and barriers are vertical.
So in the backdrop of this is the US-China competition, arguably the biggest driver of the vertical world. Now, why is the US moving chip production back home such a big deal for China? It's a big deal for several reasons. Number one, the US and China are not on par. When it comes to semiconductor capabilities, or the technology ecosystem, the US remains several years ahead of China, whether it's semiconductors, robotics, artificial intelligence (AI), quantum computing. And so because the US and China are not on par, when the US begins to move, or at least attempts to move production and manufacturing back home, the Chinese are trying to figure out: "What does it mean for us, because we're trying to rise up?" That's number one.
Number two, the US is moving production back home in a way to wall-off China from this critical technology. So what the US is doing with domestic manufacturing of semiconductors to American cities, and now you have companies like TSMC supporting - that is an indirect barrier to China's rise as a semiconductor hub for the world. If you look at the recent comments that the Taiwanese president made, she wants to build "democracy chips" with the US and Western allies - another sign that ideology is becoming a wall.
And lastly, the US is trying to reclaim its position as a chip manufacturing arm. In the late part of the 20th century, it did manufacture semiconductors before it started outsourcing that manufacturing. As the US reclaims its position, it's doing so by also imposing sanctions on China. The Chinese face limits on what they can do - from foreign investment in Western companies to foreign acquisitions. And so the Chinese again are being locked out. And they're trying to figure ou: "Well, how do we protect this industry that's so vital to us? If we can operate the way we want to?"
Q: The chips are seen as a strategic resource. Of course, both the US and China want to secure their supplies. Now since the US has become alarmed, they have ringfenced productions and weaponized technology exports by restricting first the chip equipment under 10nm and now extending to 14 nm. They are also requiring subsidy recipients not to expand their capacity of chips under 28nm in China. The US also has invited allies including South Korea, Japan, and Taiwan to form CHIP 4. It seems the US has a landslide victory already. As a futurist, what is your opinion of the competition between the US and China at the next stage? How would things pan out?
A: I feel that when a lot of people have been analyzing the US-China technology competition, they have been building their analysis based on a very narrow set of filters. They look at things like who controls the semiconductor equipment in the world. Ok, it's largely American, or you have ASML in the Netherlands. When they look at who is producing the most semiconductors, okay, 90% of the advanced semiconductors are produced in Taiwan. They look at where's the most semiconductor talent coming from. Or how far behind are the Chinese in terms of what kind of chips can they manufacture? As you said, 10 nanometer, 14 nanometer, etc. But if you look at what SMIC has just announced that even with US sanctions, it's been able to manufacture 7-nanometer chips. I feel that that should be a sign that the way in which the world has been analyzing what China can or can't do, or how far behind China is, does not fit that black-and-white geopolitical template that we've been applying. Most people are falling short.
In reality, the real competition is yet to begin. The US has been using diplomatic pressure or taking some provocative steps like delisting Chinese companies from stock markets. The Chinese have not responded, and they have been very quiet and very calculated in how they react. They're not reacting impulsively. And so the question is: Once all of the diplomatic channels are exhausted, and once all of the mild options have been tapped, what does the US do to stop China's rise with technology? What would the Chinese do to maintain their rights with technology? So there are numerous options.
I think we're going to start to see the nationalization of companies become at least a threat, if not an actual move on. If you look at Arm, for example, their Chinese subsidiary has gone rogue. And they're basically saying, we're not going to listen to our parent company in the United Kingdom. If you think about what recently emerged in the Chinese media, which is proposing that smartphones sold in China that use foreign chips, not Chinese chips, should face a 400% tax.
I argued in my book "Next Geopolitics" that China would start to force foreign companies, and technology companies to use Chinese technology in their products if they want to sell it to the Chinese market. So we're starting to see such an idea being floated. Now, the rise of the proposal of Chip 4 to me is a big indicator that the US is accepting that its sanctions haven't worked. It has tried those tactics, that strategy, but it isn't really doing much. And so now the goal is to build an alternative technology ecosystem from the scratch that excludes China from the get-go. Again, this goes back to the vertical world. And instead of there being one system, one model, one set of protocols for everyone, now countries are descending into tribes, many of which are ideology-based.
The real competition is yet to begin. And I wouldn't say that the US already has a victory, because the Chinese may have maintained their speed, their propulsion, their direction, as a technology power, and the Chinese maintain their hold over very strategic parts of the technology world, for example, rare earth metals, which are required in all of the world's technology goods. The US may have some projects underway, for example, using rare earth minerals in Australia, or Canada. But it's still just ideas. It's not there yet to replace what the Chinese have.
Q: So ideology is really in the center of this competition, and obviously, we probably have to take a side. TSMC has already said something like, we are with the democracy side. Besides choosing sides, what should companies do to mitigate risks? Can things get worse?
A: Well, then this is already happening outside the technology world. We've seen firsthand with Ukraine that the entire Western world has picked sides - McDonald's, Siemens, Adobe, these companies have exited Russia and Belarus, not because of sanctions, or because of their geopolitical beliefs; they've taken a geopolitical stance. Now, whether companies are walking away from their Chinese operations because they feel that it's just too hard to comply with the Chinese government's rules, for example, handing over source code, or whether they're like Jeep, the American carmaker controlled by Stellantis, announced they're exiting China because they're just seeing that the requirements from China are just becoming so much that they can't compete, they can't remain the brand that they want to be in the Chinese market. So we are going to start seeing more and more foreign companies leaving by choice or being forced to amend their operations and footprint in a way that makes them more Chinese than from whatever country they came from.
And so if you now apply this to Microsoft operating in China, or Google operating in China, or Samsung operating in China, you now have a serious predicament. And these, all of these companies are going to have to make a fundamental choice, which is: Are they picking profits over patriotism and politics? Or patriotism and politics over profits? That's a fundamental question every company is going to have to ask themselves now.
Can things get worse? Absolutely. Because as I said, the Chinese have remained eerily quiet. And as their silence grows, their development in certain areas continues to propel forward one key development that really has been looked over. And I did discuss this in my third book: I believe geopolitics of AI, which the Chinese are building or have built an operating system for their smartphone and operating system. It will be loaded onto Chinese smartphones around the world. It's a smartphone OS built by Huawei, and it's, in my belief, going to become the flagship operating system for China, at least for smartphones. And once it's loaded onto Chinese smartphones around the world, consider that in places like Africa, and Southeast Asia, the majority of smartphones are Chinese. Once it's loaded onto these smartphones, for the first time, in American history, American companies will have to use a foreign operating system to access customers. Think about that for a second.
Currently, companies like Uber, Airbnb, and Amazon, when they're talking about apps, they're loaded onto iOS, or Android. These are American operating systems. So it doesn't matter if somebody is in Kenya or somebody is in Thailand, or somebody is in Ecuador. It's the same American operators. Now for the first time, if Uber wants to access a customer in India, or Airbnb wants to access a customer in Morocco, they may be loaded onto a Chinese operating system. And this gives the Chinese an unbelievable amount of power. That the next time the US conducts an operation, whether it's through the Taiwan Strait, or in the South China Sea, but the Chinese don't like for whatever reason, the Chinese can threaten to shut off American companies operating there. And that will paralyze Silicon Valley. It'll paralyze financial capitals like New York, London and Tokyo. What do you do? And so the Chinese have a lot of, you could call them nuclear cards at their disposal. And, again, it's going to put these companies in a hot seat. So these things can get a lot worse. And I think we're at the precipice of this increased rivalry and competition.
So the speed in which China can develop its offerings is increasing. At the same time, China is making leaps and bounds in other areas, in my opinion, that exceed the list. China's electric cars and electric cars ecosystem is significantly ahead of America's and the Western world. Not even close, you look at what Horizon Robotics has done with AI on a chip, where Chinese appliances can communicate with one another, even without the Internet. So the Chinese in some areas, to give them credit, have exceeded America. But holistically, they are still behind.
Q: Many semiconductor companies have depended on China as the market contributing the largest share of their revenue. Unfortunately, they are squeezed between the US and China. How can companies navigate in the neo-geopolitics or the next geopolitics era to survive?
A: We are now witnessing, because of technology, the clash of ideology, and again, democracy versus nondemocracies, free societies versus socialists that are not being true. And the biggest transformation that I see is that it's not just government striking an ideological tone, it's companies. And, you know, we work with the private sector, the private sector is our biggest client. And the idea that a large multinational would walk away willingly from hundreds of millions, if not billions of dollars in revenue is unheard of, that executive would approve that; but now it's becoming more and more likely.
So you're 100% right, that ideology has returned to the forefront. Now, as for whether there's going to be an armed conflict between the US and China, well, whatever is happening now, in this technology war between the US and China isn't reducing tensions between the two countries. It's only ratcheting them up. And so whether there will be an armed conflict in the future, that's anyone's best guess. You talk to certain people, they say yes; you talk to other people, they say it's quite unlikely considering the economic integration. But one thing is for sure: the US and China, the decoupling between these two countries are only going to accelerate and amplify.
And that these two countries and others, are going to coexist in their own spheres of influence. It's not going to be the Chinese operating in the American sphere of influence. Nor are the Americans operating in the Chinese sphere of influence. Those predictions that China will become the next global superpower, overtaking America? These are predictions that are falling flat on their head. Because we're entering a world where there can be no global superpower. America cannot lead the whole world anymore, and neither can China. And countries like India, countries like Russia, blocs like the EU, there's nothing to stop them from creating their own spheres of influence. Why should they join the American or Chinese camp? So, this decoupling globally is going to continue. This vertical fragmentation of the world has been amplified.
And to answer your last question as to what should companies do? One of the biggest pieces of advice that I give to corporate executives is that you have to accept that certain markets are going to become off-limits. Now I know your audience is mainly the supply chain industry. But regardless, whatever sector an organization is in, that organization wants to acquire more and more customers. An era where you can access customers all over the world and generate revenue from different markets is really ending. And it's not just ending for small startups, it's not just ending for companies from emerging economies. The biggest example is Huawei. Huawei has had to read this sign. I mean, its founder is saying that "We are in survival mode." I mean, this is a company that was talked about as China's IBM or China's Cisco, or China's most important technology company. And this is now a company fighting for survival because it's lost access to the Western world. And now it is redesigning its offerings, it's focusing more on sustainability, and stuff like that. The tough pill every business is going to have to swallow is accepting the possibility of being forfeited. And consumers will be lost in this vertical world.
Q: And companies will have to pay attention to secure their intellectual properties or trade secrets from now on because they really need to safeguard their assets. So that if one day part of their operation is forfeited, they still keep what's important to themselves.
A: Absolutely. This ultimately goes back to once an organization has picked sides, how do they maintain their position? How do they redesign their operations with this new geopolitical position that they've picked? And whether it's protecting intellectual property, whether it's ensuring that the talent that an organization is hiring, that's also a very, very important part of what companies have to start thinking about. You know, during the Ukraine war, at the very beginning, the largest bank in France, BNP Paribas took such an unprecedented step - it stopped its staff in Russia from accessing computer systems. Just think about that for a second: it stopped its employees from accessing systems because of their ethnicity. When we talk about business, and we talk about the workforce, executives always use the phrase, "we're one big family." But now, in the vertical world, it's a different paradigm that's being applied. So talent and protecting IP are very important. But it all goes back to accepting that this is the new status quo in the world. And if an organization continues to neglect or ignore this new status quo, they aren't going to succeed. They're simply kicking the can down the road, and ultimately, their side will be picked for them. And then that's when the real firestorm will begin.
Abishur Prakash, a co-founder and geopolitical futurist at Center for Innovating the Future (CIF)
Photo: Abishur Prakash
BIO:
Abishur Prakash is a co-founder and geopolitical futurist at Center for Innovating the Future (CIF), an advisory firm based in Toronto, Canada. CIF works with organizations to help them understand what is next for geopolitics. He has been a frequent commentator for international media outlets such as CNBC, South China Morning Post, Asia Times, etc. Prakash is also the author of five books, including his latest, "The World Is Vertical: How Technology Is Remaking Globalization."
