[Interview] 'Chip War' Chris Miller: "China's Semiconductor Fund Will Deliver Results but Faces Limits Due to US Sanctions"

[Insights from US Scholars and Experts] ①
'Chip War' Author Chris Miller, Professor at Tufts University
China Focuses on Localizing Production with Massive Investment Over 10 Years
Limits to Semiconductor Self-Reliance for Now
US to Introduce Chips Act 2.0
Korea Faces Challenges in Expanding Design Role and Developing AI Chips

Editor's NoteWith the U.S. presidential election just five months away this November, global macroeconomic uncertainties and geopolitical risks continue to persist. The U.S.-China technological hegemony war surrounding advanced industries such as semiconductors and artificial intelligence (AI) is intensifying, and the U.S. has raised tariffs on 'overproduced' Chinese imports, signaling a second trade war. While global financial markets are solely focused on a U.S. interest rate cut, the Federal Reserve's pivot timing remains uncertain as the U.S. economy continues to thrive. Countries around the world, including South Korea, are closely monitoring the repercussions of U.S.-China conflicts, U.S. industrial and trade policies, and macroeconomic changes, seeking appropriate responses. Accordingly, Asia Economy has planned an interview series covering four sectors?U.S. macroeconomics, trade, China, and semiconductors?featuring interviews with American scholars, experts, and former trade officials to review key issues, future prospects, and response strategies. The interview articles will be published in the order of Chris Miller, Professor of World History at Tufts University's Fletcher School; Yasheng Huang, Professor of International Management at MIT Sloan School of Management; David Wessel, Senior Fellow at the Brookings Institution and Director of the Hutchins Center on Fiscal and Monetary Policy; and Barbara Weisel, former Deputy U.S. Trade Representative (USTR).

Chris Miller, a professor of world history at the Fletcher School of Tufts University and author of the global bestseller "Chip War," which highlights the origins of semiconductors and the power struggles among nations surrounding them, recently gave an interview to Asia Economy at the Fletcher School in Boston while having his photo taken. Boston=Photo by Kwon Haeyoung

"China has already reached cutting-edge technology in NAND flash, threatening South Korea's memory market share, and is a competitive player in chip design as well. Through the government's recent large-scale new semiconductor subsidy fund, China aims to further strengthen the semiconductor manufacturing capabilities it has invested in over the past decade and achieve results. However, due to U.S. sanctions, China's semiconductor technological competitiveness is expected to remain relatively inferior for the time being."

Chris Miller, author of the global bestseller Chip War, which sheds light on the global semiconductor hegemony war, and Professor of World History at Tufts University's Fletcher School, recently met with Asia Economy in Boston, U.S., and commented on China's third semiconductor fund established last month: "Although China faces substantial challenges such as the Dutch ban on importing extreme ultraviolet (EUV) lithography equipment, its capabilities should not be underestimated."

He assessed that "China has devoted itself to localizing semiconductor production through massive investments over the past decade," but also predicted that due to U.S. sanctions, technology is lagging by several years, making it reasonable to expect that "China's semiconductor competitiveness will remain relatively inferior for the time being." He forecasts that China's semiconductor self-reliance will face limitations due to U.S. export controls.

He also anticipated that the U.S. will introduce a follow-up to the 'CHIPS Act'?the 'CHIPS Act 2.0'?which invests $52.7 billion (approximately 73 trillion KRW) in subsidies to build a domestic semiconductor supply chain.

Professor Miller advised, "For South Korea to maintain its dominance in the semiconductor market, it is a key task to take on a larger role in the design sector and find other ways such as developing AI-supported products."

Below is a Q&A with Professor Miller.

- China has established its largest-ever third semiconductor fund worth 344 billion yuan (approximately 65 trillion KRW) to boost semiconductor self-reliance. Do you think China's efforts will bear fruit, or will they hit limits due to U.S. export controls?

▲ Since 2014, China has identified semiconductors as a core technology for local production. Recognizing the critical importance of semiconductors, China has sought to build a broad technological manufacturing ecosystem. Additionally, due to high dependence on semiconductors?spending as much as on oil imports?China wants to localize production. Over the past decade, China has already reached cutting-edge technology in NAND flash and is a competitive player in semiconductor design. This recent semiconductor fund is part of a decade-long effort, demonstrating China's commitment to localizing semiconductor production.

However, since 2022, the U.S. has imposed semiconductor export controls on China. This has blocked exports of NVIDIA's AI graphics processing units (GPUs) to China, forcing Huawei's AI GPUs to dominate the Chinese market. If China replaces NVIDIA chips with relatively lower-performance Huawei chips due to U.S. export controls, it may benefit Huawei but is not good for China overall. It is reasonable to expect that the competitiveness of China's AI chip ecosystem will remain relatively inferior. However, since the sanctions are still in the early stages, we need to observe further developments.

- The Biden administration has raised tariffs on older Chinese semiconductors. What is your assessment of this move?

▲ The U.S., Japan, Europe, and Taiwan are the world's largest producers of older semiconductors excluding China. These countries are concerned that China building its own production capacity for older semiconductors could threaten the profitability of their domestic companies. If China produces older semiconductors through government subsidies in a non-market manner, Chinese companies will expand their market share. This tariff increase aims to exclude Chinese producers from the older semiconductor market. The Biden administration's announcement of regulations on connected cars, which contain many semiconductors, also signals that it does not want Chinese semiconductors installed in automobiles. The U.S. government is increasingly making purchasing Chinese semiconductors illegal and costly, sending a message to U.S. companies not to buy Chinese semiconductors. Japan and Europe share the same view.

- What impact will the U.S. presidential election have on the global semiconductor industry?

▲ There is bipartisan consensus on nurturing the semiconductor industry. The CHIPS Act passed with bipartisan support, and there is no difference in views on export controls against China. Therefore, the U.S. election results are unlikely to have a major impact on the global semiconductor industry.

- There are forecasts that the U.S. will introduce CHIPS Act 2.0.

▲ Since the CHIPS Act expires at the end of 2026, the likelihood of CHIPS Act 2.0 is very high. Many key senators and representatives who supported the CHIPS Act are interested in CHIPS Act 2.0, and bipartisan discussions are currently underway. However, budgetary pressures on Congress are a concern. If CHIPS Act 2.0 is introduced, the scale of subsidies and investment tax credits will likely be smaller than the current CHIPS Act.

- Some argue that the U.S.-led semiconductor subsidy war is a 'zero-sum game.'

▲ I agree. However, the biggest player in the subsidy war is China. Before the U.S., Europe, Japan, and South Korea enacted their CHIPS Acts, China was the first to execute large-scale national investments, starting the subsidy war.

- The U.S.-China semiconductor war poses significant challenges especially to South Korea, which is closely linked to the semiconductor supply chain with China.

▲ There are both opportunities and challenges. The semiconductor supply chain is being reorganized, and both Samsung Electronics and SK Hynix have production facilities in China, incurring costs, which is certainly a difficult issue. Korean companies face a regulatory environment different from a few years ago. However, the U.S. views South Korea as a key global partner in the semiconductor industry. Two Korean companies (Samsung and Hynix) will also benefit from the CHIPS Act. We should also consider the Korea-China semiconductor war alongside the U.S.-China semiconductor war. Semiconductors are one of the few fields where South Korea holds a significant technological advantage over China. In NAND flash, where Korea is strong, China's Yangtze Memory Technologies Co. (YMTC) is expected to rapidly catch up. What if YMTC's semiconductor equipment purchases were not restricted by U.S. export controls? The Korea-China semiconductor war is already underway and is as interesting an issue as the U.S.-China semiconductor war.

- Korean companies are expanding semiconductor investments in the U.S., but concerns about rising production costs are also raised.

▲ The key factor causing differences in semiconductor production costs is the development of the ecosystem. The U.S. has historically invested less in semiconductor manufacturing and focused less on ecosystem building. In contrast, South Korea and Taiwan have built much more active semiconductor ecosystems. With recent shifts, as the U.S. semiconductor supply chain and ecosystem develop, the production cost gap with other countries will gradually narrow over time.

- What impact will AI semiconductors have on the overall semiconductor industry?

▲ Demand for semiconductors will greatly increase. Big tech companies building new data centers filled with AI semiconductors is good news for semiconductor companies producing AI chips such as NVIDIA, TSMC, and SK Hynix. Also, applying AI to various devices like smartphones and PCs will require new types of semiconductors, increasing semiconductor consumption.

- How long will NVIDIA's dominance in AI semiconductors last?

▲ Currently, NVIDIA holds a very strong position not only due to the quality of its semiconductor designs but also because of the software ecosystem built around them. To catch up with NVIDIA, one must design excellent semiconductors and provide an ecosystem simultaneously, which is difficult. This is why NVIDIA's dominance in AI semiconductors is expected to continue for the foreseeable future.

- What are the tasks for the South Korean government and companies to maintain semiconductor market dominance?

▲ South Korea already has a competitive ecosystem in semiconductor manufacturing. While there is room for growth in manufacturing, in the future, focus should be on the design sector, which has greater growth potential. The main tasks are to play a larger role in semiconductor design and find ways to develop AI-supported semiconductors. Considering South Korea's advanced manufacturing base, it can play a key role in AI-based product development and manufacturing.

About Professor Chris Miller

Professor Miller is a rising economic historian in the U.S. He is the author of the global bestseller Chip War: The Fight for the World's Most Critical Technology, which highlights the origins of semiconductors and the hegemonic struggles among nations surrounding them. He is an Associate Professor of International History at Tufts University's Fletcher School, a graduate school specializing in U.S. diplomacy and security. He focuses on technology, geopolitics, economics, international history, and Russia-related issues, including the U.S.-China semiconductor war. He holds a bachelor's degree in history from Harvard University and master's and doctoral degrees in history from Yale University.