In 2012, Zongchang Yu left his job as an engineer at ASML, the only company in the world that can make the most advanced semiconductor chips or microchips. Afterwards, he started two new companies in the US and China. US and ASML lawyers would later allege that Yu recruited other ASML engineers to his US company, bringing with them allegedly stolen information about AMSL’s machine, backed by the Chinese government. This story is just one small piece of China’s monumental effort to transform the semiconductor industry, which has locked it in a struggle with the US.

This struggle is not about market share or tariffs, but about security. It began with the invention of the first semiconductor chip in the 1950s by US engineers, which had four transistors. Every year, engineers figured out ways to add more transistors, making chips more powerful. The US government believed a partnership with chip companies would ensure they had access to the most advanced ones. Chip companies moved their manufacturing and assembly to factories in Japan, Taiwan, South Korea and Hong Kong, while the US government banned them from sharing technology with its rivals.

In the 1970s and 80s, Toshiba in Japan and Samsung in South Korea began designing and manufacturing chips that rivaled the Americans’. In the 1990s, a Taiwanese company, TSMC got so good at manufacturing chips that many companies in the US stopped doing it. This meant that US companies were no longer the only ones who could make the most advanced chips anymore. As the chip industry in each country became more reliant on other countries for materials, software, and equipment to make more complex chips, the US and its allies advanced chip technology while China lagged behind. This was due to the US blocking China from accessing chips during the Cold War, as well as the Chinese government’s push to catch up. By the 2000s, China had dominated the end of the supply chain, but was still importing a majority of chips to feed its assembly industry, which put them in a tricky position. Thus, the Chinese government began pouring money into its own chip design and manufacturing companies, with the goal of creating a chip supply chain that was entirely within China. However, the US, Japan, and Taiwan still held a majority of the chokepoints in the chip supply chain, which the Chinese government was unwilling to continue relying on. In response, they began actively and passively supporting IP theft, which angered US and other governments, leading to a more security-focused issue with tariffs and bans imposed on Chinese tech companies. In 2019, the US banned US companies from doing business with China’s biggest tech company, Huawei and its affiliates, which nearly bankrupted ZTE and dealt a significant blow to Huawei. In 2022, President Joe Biden took this a step further, banning all US companies from selling advanced chips to China, as well as blocking Chinese design companies from using US made design software and manufacturing equipment. Furthermore, global companies who use US semiconductor technology were also banned from selling advanced chips to China. In an effort to defend the US lead, the US passed a law that would invest billions of dollars into its own chip manufacturing companies and finalized a deal with Taiwan’s biggest manufacturer, TSMC, to build manufacturing plants in the US. This has put extraordinary pressure on the conflict between China and the US over Taiwan, as Taiwan owns the most important choke point in the chip supply chain and Taiwanese companies manufacture 63% of all chips and about 92% of all advanced chips. As a result, Taiwan’s companies are being forced to make a choice between defying the US and keeping selling to China, or complying and cutting off China from some of its chips.