electronic chip war

There's a trade war going on

between America and China, which is dominating global politics and a lot of that is to do with more traditional goods like cars or soybeans, but actually quite a lot of attention is being paid to semiconductors as well. So semiconductors are a vital ingredient in computer chips. They have electrical characteristics that make the chips work. If you look in your car, you'll find not just one, but probably dozens of different computers. Your smartphone, obviously in your pocket whenever you do anything with your bank, that transaction will almost certainly be handled electronically, and they're only going to become. More commonly, as computers spread further and further into modern life, America is really the dominant player of the top 15 biggest companies. None of them are Chinese. China does have an industry, but a lot of it is dependent on imports. So semiconductor imports actually cost it more than oil and a lot of what it imports are components that then go into finished goods. So you think of things like your iPhone, which is assembled in China, but all of the designs for the chips and the chips themselves come from outside.

And semiconductors are important really for two reasons. One is economic and they underlie huge parts of the global economy. So the entire e-commerce industry, for instance, was had revenues of about $2 trillion. A year would be impossible without semiconductors. There's also a national security angle, and America in particular has always seen its lead in this technology as a a vital national security asset, and America's military was actually one of the earliest and biggest customers for Silicon Valley chips.

And even these days, you know armies, like everything else, are becoming increasingly digital, and semiconductors are vital to make that happen. In order to build up its domestic industry, China's willing to spend a lot of money. So it's established an investment fund designed to boost the local industry and it's capitalized. That $150 billion and it's made semiconductors, one of the priority areas in its made in China 2025 initiative, which is a general attempt to boost manufacturing across the country. America sees semiconductors as a strategic good, so it's quite worried by China's attempts to build up a domestic industry. Earlier this year America forbade its companies. Of selling chips and intellectual property to ZTE, which is a Chinese maker of smartphones and telecom equipment. And because it's dependent on American chips, the company was pushed to the brink of bankruptcy almost overnight and was only saved at the last minute when Trump decided to rescind the ban. The ZT affair proved 2 things. One was that America's technological lead translates into political power. It can use this lead to frustrate Chinese ambitions, but it also made it very clear to China just how dependent their companies are on American products. There are several ways in which America could respond to this, and the first might be to try and work with its allies. Countries like South Korea, Japan, Taiwan, which have big chip manufacturing industries of their own to make sure that China doesn't get an unnecessary leg up, but also to try and work to establish standards so that both sides can start to trust each other's product a little bit more. A second idea is innovation is to try to push the cutting edge out further, to run faster to stay ahead of China in the race, rather than trying to hobble the Chinese. But I think the final thing America should do as well is just to prepare for a world in which China is more of a power in this industry and does have more of an influence over the digital economy. I think it can probably try to slow China down. I'm not sure that it can prevent it entirely. And of course, trying to do that would be quite an aggressive move that would also do quite a lot of damage, potentially to a really vital industry that underpins the entire global economy.