VIDEO: The 'New Tech War' in the 21st Century: Inside the US-China Race for Tech Dominance

Transcript

Evan Delly: Hello everyone, we appreciate you joining us today. Apologies for being just a little bit late. We had some technical difficulties, but I am pleased to welcome you to "The 'New Tech War' in the 21st Century: Inside the US-China Race for Tech Dominance." My name is Evan Delly and I'm Co-founder at Luminint. Luminint is a risk intelligence firm that focuses on reputational due diligence, operational risk, and geopolitical risk analysis to inform management strategies. We emphasize the importance of creating intelligence over simply collecting information and managing risk. Our approach includes using open-source intelligence to create bespoke reports for each client, and we employ a flexible, globally-distributed, fully-remote team structure, allowing us to draw on diverse regional and functional expertise. This approach enables Luminint to deliver tailored strategic insights efficiently and effectively.

So many of us on the team have been thinking about, writing about, and talking about issues relating to US-China strategic competition, but this is the first time we've pulled together some of our key thinkers into a panel to articulate their perspectives. And I'm thrilled to be moderating today as we dive into a discussion on the uniquely geopolitical role of key new technologies, particularly related to AI and machine learning, and more importantly, the fundamental machinery and IP to manufacture the cutting edge, most advanced silicon needed to power these breakthrough technologies into the future. Before we dive in, I want to take a moment to introduce our panelists. Today we're joined by Yueh Chen, Samuel Jardine, and David Palmer. 

Yueh Chen is an Operational Risk Analyst at Luminint. Born and raised in Taiwan, Yueh earned his B.A. in International Liberal Studies at Waseda University in Tokyo, with a particular focus on United States foreign policy and geopolitics regarding Europe and Japan. He went on to earn his master's in United States Studies, History and Politics at University College London. His postgraduate dissertation analyzed how a constellation of decisive factors, including external and internal pressures, contributed to the modern rise of China's assertive foreign policy under Xi Jinping and eventually changed the long term trajectory of US-China relations. 

Sam Jardine is a Senior Advisor here at Luminint. He specializes in the geopolitics, policy, and security of the polar regions, space and climate conflict, and great power competition, and has advised a range of government, armed forces, NGO, and industry clients. Sam is also the Head of Research at London Politica, a Consultant with RUSI's Defense Industries and Society program, a Research Associate for the Climate Change and (In)security project, jointly hosted by Oxford University and the British Army Center for Historical Analysis and Conflict Research, as well as a Research Fellow at the Foresight Institute and a current Affiliate and 2023 Research Fellow of the Open Lunar Foundation. 

Finally, David Palmer is also a Senior Advisor here at Luminint and an accomplished Operations Planner and national security and Arctic security specialist. He has planned and commanded air operations globally and has advised senior military and government decision makers on strategic priorities and security-related infrastructure development. He served over 20 years in the United States Air Force as an Air Battle Manager with experience in airborne command and control operations management, defense infrastructure development, and large scale operations planning. David was formerly the Lead Global Integrations Planner for NORAD's Future Operations Division, focusing on Arctic operations planning, adversary perception management, and influence operations. He's also a former Fellow of the Arctic Institute, former Operations Analysis Fellow at Logistics Management Institute, and former Director of Operations of the 962nd Airborne Air Control Squadron at Joint Base Elmandorf-Richardson.

Really happy to have you all on the panel. So what we've been talking about essentially here is a complex new relationship that's emerging between the US and China, underscoring the increased uncertainty, the increased risk, but also the need for coordination and cooperation between the world's two largest economies. More often than not, at the center of this growing competition is Taiwan, and not just for the political ambitions of the CCP to subsume the physical territory of Taiwan, but also pivotal to this discussion is the extraordinary advanced manufacturing capability that's emerged on the island. Over 90% of the most advanced silicon on earth is manufactured at scale, thanks to Taiwan.

Our distinguished panelists each bring a unique perspective and insights to the topic of discussion today. And as I turn it over to the panel, I want to encourage the audience to submit any questions that you may have to panelquestions@luminint.net, and we'll turn to them in the last 10-15 minutes of our presentation today. So with that, let's begin our discussion. 

Yueh, your recent article for IntSights was the catalyst for this discussion. Can you kick things off for us with a brief overview of how you view the current competition between the US and China?

Yueh Chen: Yeah. So now I'm going to talk about why the US is so concerned about China's ability to make semiconductor chips. Well, the main reason is that China has become a strategic challenger to the US over the last couple of years, and it is investing heavily in areas such as AI, nanotechnology, and quantum computing. And semiconductors in particular are able to unlock the potential of AI. AI enables computer systems to solve problems and adjust tech at a speed and performance beyond humans' capacity, and is also expected to help military commanders make decisions by processing a large amount of data simultaneously.

If one of the United States' political adversaries leverages the power of AI for military decision making, human operators won't be able to compete with AI's capacity to multitask in different domains of warfare, and also they won't be able to compete with AI-enabled missile attacks, cyberattacks, and other forms of new warfare in the 21st century. This is why semiconductors not only play an important role in maintaining strategic advantage, but also play an important part in maintaining an upper hand in the conflicts of tomorrow. So this is why the US is so concerned about China's ability to make advanced semiconductor chips, and why Washington has expanded the restrictions on semiconductor chips over the last couple of years.

And currently China is about two or more generations behind in terms of the semiconductor industry technologically and is leveraging all of its power to catch up with the US by applying a variety of methods and using a variety of resources. The US Trade Representative released its Special 301 Report in 2018, which concluded that China is using a variety of methods, including export restrictions, access to technology, and forced technology transfer to steal high-end semiconductor chip technology from US companies. And this resulted in the loss of billions of dollars from US technology, intellectual property, and research and development. 

And China has been using economic espionage as a national strategy, and one of the most famous examples is the Thousand Talent Plan, or TTP. TTP is a state-sponsored program that encourages Chinese citizens and foreigners to acquire or transfer sensitive technology from American businesses to Chinese institutions. Those who participate in the TTP are required to steal or transfer intelligence or technology that is necessary to advance Chinese technology to the Chinese government, and in return, the Chinese government will provide them with generous benefits packages, including cost-of-living supplies. And although the Chinese government abandoned TTP due to sanctions on the US, it secretly rebranded TTP as "Enlightenment" in 2019. The Enlightenment contains an even more generous package, and it targets specific industries, including AI and nanotechnology.

To maintain a strategic advantage in a tech war with China, the Trump administration put companies such as Huawei and SMIC on the Entity List between the years of 2018 and 2020. American businesses are not allowed to sell technology and software to companies on the Entity List without permission from the US government. And these sanctions pose a tremendous impact on Huawei's ability to make high-end semiconductor chips, and the company's market share has fallen out of the top five in the fourth quarter of 2021, and over recent years, the tech war between Huawei, sorry, the tech war between China and the US has expanded to other countries as well. 

In 2018, Canadian officials arrested a daughter of Huawei's founder, Meng Wanzhou at Vancouver Airport over allegations of fraud and violating the sanctions. China retaliated by arresting two Canadian diplomats in the same year and pressured the Canadian government to dismiss a case against Meng Wanzhou. It would take years of negotiation and phone calls between Xi Jinping and the Biden administration before the two Canadian diplomats were released in 2021, and Meng Wanzhou was released in the same year and a case against her was dismissed in 2022. 

When Biden became President in 2021, he followed his predecessor's footsteps by imposing even more sanctions on China. Congress passed the CHIPS and Science Act in 2022, which aims at keeping the US the leader of the industry of tomorrow, including in AI, nanotechnology, and quantum computing. The CHIPS Act also contains a $52 billion package which aims at supporting companies in the aforementioned categories. The CHIPS Act also contained more sanctions on China. In October 2022, the US government imposed more sanctions, imposed more restrictions, on companies such as Nvidia and AMD, and the bill restricted companies from selling the most advanced semiconductor chips to China that are used to make sub-14 nanometer semiconductor chips. So basically, the tech war between the US and China has intensified over the last couple of years. Although the US is facing a lot of issues in domestic politics, the tech war against China received bipartisan support, and the tech war is only going to be more intensified over the next couple of years. 

Evan Delly: Thank you. Thank you, Yueh, so much for that key background. 

Sam, can I come to you? I know that you've been giving this a lot of thought as well, especially from the perspective of how great powers have used technologies to outmaneuver each other in terms of great power competition in the past. Can you speak a little bit to the historical precedent? Give us some context in that way?

Samuel Jardine: Yeah, of course. Thanks, Evan. And thanks for inviting me on the panel. It's fantastic to be here. Very exciting topic to sort of get my teeth into. So, yeah, historical context. Simply put, the advancement and development of new technology provides a competitive advantage to varying degrees in all great power competitions. Each new development does this, though, in three interconnected ways. So, directly, it provides a usually comparatively specific advantage in one particular area of competition, or creates a new one. An example of this is during the Dutch-Portuguese rivalry of the 1600s for Asian trade networks, when the Dutch creation and deployment of the Fluit ship allowed them to quickly usurp Portugal's 100-year dominance. This was because the Fluit was smaller, faster, more efficient, took advantage of new developments in shipbuilding, and was less manpower-intensive than Portugal's stock of Carracks and Galleons. And this allowed the Dutch to effectively seize significant market share because of these efficiencies. 

Related then, to this, first point of direct advantage is indirectly. And this small, narrow advantage I've just spoke of translates into additional, or indeed new, economic opportunities that impact beyond that narrower arena, positively impacting the ability and efficiency of a state to compete through increasing, or allowing it to better marshal its, resources, or mitigate any deficiencies it might have--be that capital, human industrial output, or in raw materials.

And again, to keep with the sort of Dutch example I've used, the Fluit ship. Its facilitation of the Dutch East Indies trade dominance between 1602 to 1640 was a key part in providing the wealth and trade monopolies on spices and other luxury goods that allowed the small, fledgling Dutch state the sort of resources and power that it needed to successfully gain independence from, frankly, the superpower of its day, the Habsburg Spanish Empire, during the 80 Years War, and also, at the same time, diminish the revenues of a Hapsburg-aligned competitor, which was Portugal. So again, there's this spiraling level of impact for technological development and changes.

And then finally, there's a cumulative effect. So, by focusing on developing new and refining existing technologies across the board, either through direct funding and innovation of governments or the government or state agency, sort of facilitating the creation and maintenance of a socioeconomic system, that facilitates the educational support, the infrastructure, all the stuff you need that allows innovators and entrepreneurs to sort of think and develop new tech. It allows the states to create a clear overall tech, or economic or strategic, edge in a sort of general way that contributes to perception, or if not reality, of dominance in specific areas of technology, with all the knock on effects this has for strategic messaging and all that kind of other fun stuff. So to know an example of this is to use an example of the cumulative development series. Sorry, my screen just went funny there, but back on track now.

But an example of the cumulative effects: there was the success of the US moon landings, which is effectively a lot of different technological developments built in a lot of different areas coming together, which effectively, for the US, won the first space race and essentially ensured that arena of competition was done and dusted. Until now, of course; we'll get into that later. But the sort of ability, though, for that impact of the cumulative effect will depend on the sort of area of what kind of strategic importance it has. The space race was quite a good one for sort of its prestige and reputation, but didn't necessarily have a direct impact on USSR-US competition in other geopolitical areas. 

And again, also it's important to note that in terms of technological developments, it usually starts a race between the two powers. If one or more sort of great power competitors realize that someone's developing or getting ahead, they'll usually put their resources to funding to catch up. And so the real advantages of individual technologies being this competitive advantage in a modern context especially, tends to be very fleeting. An example of that I'd use was the successful development of the atomic bomb. It was a strategic advantage for the US, but only for literally a few years. The USSR catching up in 1949, courtesy of Soviet intelligence networks... it's very easy, when it comes to espionage, to sort of catch up even without that, as I get onto in a bit as well, and because of how fragile these leads are then even without espionage.

An example of this, of course, is Japan's rapid industrialization and technological adaptation from 1869, which allowed it in the sort of subsequent 30 years to deal with European empires and the US geopolitically on an increasingly equal footing. This means that states then have to keep developing their tech to maintain that advantage. Just because you've got a lead doesn't mean it's sort of set in stone that you'll always have that. So the most worthwhile or game-changing areas for states to concentrate on in this sort of tech competition tends to be in the areas of sort of emerging or frontier techs. And this is where strategic and economic advantages are, and tend to be the greatest if successful. It also, though tends to be the most resource- and sort of time-intensive, capital-intensive, and the most difficult.

And again, this is why government frameworks are important for investment here, because the private sector generally needs that sort of, at least a strong, framework to support them engaging in these areas. Or it needs the state to sort of fully step in and take control there, which is why you have the US, DARPA, and of course then China recently in its March 2023 reforms (so it's sort of how its Science and Technology Ministry is formed to give it greater state control of those). And essentially in these areas then of emerging tech, the state is heavily influenced then in picking which areas will be focused on, and so which areas will be competitive and which areas then its competitors will pick up on to compete with it with.

And so currently, again, for China's example, we found out in March that it's focusing on AI, space, and quantum communications. And these are likely to be the key kind of technological battlegrounds going forward. And again, this is especially an important point, because it's far easier to play catch up and build upon technological developments that someone else has done the hard work for, and sort of put in that massive time investment, and suffered the dead ends in the first place, than it is to actually be on the bleeding edge there. So these tech fields tend to be very narrow. It's why you don't go broad with it. 

And again, an example of this in terms of how quickly it is to catch, how able states are to catch up, is the US. And it's looking at the US with none other than Alexander Hamilton and Thomas Jefferson themselves playing a sort of very small role in this, in what was essentially a sustained campaign during the 1800s and 1900s of attempting to steal and pirate British industrial technology, particularly in the textiles industry. And this is where Jefferson indulged in sort of creating bogus patents and Hamilton was party to smuggling British textile workers just to sort of get the technology that Britain had spent a lot of time developing--to get that leading edge in textiles. The US was then able to quickly sort of take that on, adapt it, build on it from there. And so by 1890, the US had actually overtaken Britain in terms of economic output and productivity, and has gone on to be a creative powerhouse.

And this historical case study is interesting because it highlights those in sort of the China-US debate at the moment, who assume that China, because it's had a history of rapidly copying and sort of engaging in espionage and playing sort of catch up that way, that China somehow has stunted its ability to innovate. It hasn't. There's no historical example of that in existence that we can draw on, really, to say that, no, China is not going to be good at developing new, innovative tech.

So with all that, then, regardless then, of seizing on emerging tech as sort of the key or what areas you're looking at, essentially, it's emerging and frontier techs that are the game changers, that are what states will be concentrating on. And you know, going again, it's iron for the Hittite empire, it's the Fluits for the Dutch, it's spinning jennies and steam engines for Britain, radar, splitting the atom. All of these radically alter the landscape for varying degrees of time. Sometimes it's only a few years, sometimes it's a permanent change that opens up a whole new arena like the Internet. So it's key then for states to really concentrate on these areas and funnel into them.

Evan Delly: Absolutely, Sam, thank you so much for that incredibly important context. The historical perspective is just absolutely, incredibly important when we look at getting a deeper understanding of the new kind of great power competition emerging between the US and China and how we can better understand it. Okay, so with this issue, that is: at this point in time right now, with regard specifically to advanced AI and machine learning, and you said quantum, there's really a kind of uniquely defense element to this particular emerging tech. So let's turn to the defense aspect a little bit.

I know we can speak to that here, but in terms of the audience, what we're talking about specifically is the advanced silicon to create and employ AI machine learning that can, for example, really improve the speed and accuracy of military decision making, planning, logistics, maintenance is huge. But we're talking, in addition, about leaps forward in cognitive electronic warfare, radar, signals intelligence, jamming, and this type of thing. At the center of this are private companies. These are private companies. And so I'd like to really quickly bring it back to Yueh.

Yueh, could you tell us a little more about the specific private companies, the key players, in the middle of this competition today?

Yueh Chen: Yeah, so companies with the ability to produce advanced chips find themselves caught in the middle of a tech competition between great powers. And as a result, these companies have to reach a delicate balance between adhering to ever-changing regulations and safeguarding the national interests of the US and its allies. 

And one of the tech companies is Nvidia, which is the world leader in AI computing and the largest supplier of AI hardware and software. Due to the importance of semiconductor chips in the development of AI, the US government has put immense pressure on Nvidia over the last couple of years. In August 2023, Washington expanded its restrictions on the export of Nvidia's A100 and H100 chips to China and some countries in the Middle East and North Africa region. These chips are some of the most powerful products of Nvidia, and they can be used to accelerate machine learning tasks. The founder of Nvidia, Jensen Huang, opposed such restrictions in a Financial Times interview. He believed that the new restrictions will bring enormous damage to his company's global earnings and cut access to China, one of the most important markets of Nvidia. He also believed these restrictions will only force China to develop its domestic semiconductor industry, which would undermine the effectiveness of sanctions from the US. 

Another tech company that is affected by a tech war is ASML, a Dutch company which is the largest maker of lithography machines with about 100% of global market share. Lithography is not only one of the most significant technologies in making semiconductor chips, but also the most efficient microprocessing technology in the world. Due to pressure from the Trump administration, the Dutch company was forced by the Dutch government to restrict the export of its DUV machines to China in 2019. In 2023, the Dutch government added even more restrictions to the export of the company's most powerful DUV machines to China. After intense discussion between the Biden administration and the Dutch Minister of Economic Affairs and Climate Policy, the CEO of ASML also expressed his concerns about the tech restrictions. He believed the tech restrictions will cut access to China, one of the company's biggest markets, and it comprised 46% of the company's sales in the third quarter of 2023. He also believed the restrictions on exports of these DUV machines will only force China to develop its own semiconductor chip manufacturing capacity.

The tech war between China and the US also affected other corners of the world, and one of those companies is the Taiwan-based TSMC, which is one of the most important players in the tech war between China and the US. TSMC is the largest contract chip maker and it produces around 90% of the world's most advanced semiconductor chips used in AI and quantum applications. When President Biden visited TSMC's plants in Arizona, he called the factory a game changer. And President Biden also believed TSMC's investments in Arizona will help the US build its own domestic supply chain. Although President Biden welcomed the investment of TSMC in Arizona, the company is now facing a series of unprecedented challenges, including backlash from local unions, disagreements between local and international workers, and a lack of safety measures.

The founder of TSMC, Morris Chang, also expressed his concerns about the US decision to build its own semiconductor industry and TSMC's decision to build a new facility in Arizona. During his conversation with Nancy Pelosi, who visited Taiwan in August 2022, Morris reiterated the complexity of the semiconductor industry, and he believed that the US won't be able to build a sustainable supply chain with short term investments. And the best course of action, according to Morris, is to invest in the security of Taiwan.

Evan Delly: Thank you. Thank you very much for that, Yueh. So you said something there and I wanted to drill down just a little bit. You mentioned Morris Chang, the founder of TSMC. The quote that you had mentioned, Morris Chang had said, putting billions of dollars into growing this new domestic chip industry--that is, he was referring to us, the US--and he basically asked, does that make as much sense as simply investing in the security of Taiwan in order to secure, or rather achieve, US National security goals? Does that make the most sense? And I'd like to come to Dave, please, if I could.

Dave, based on the campaigning operations that you've planned and the advising that you've done at the senior levels, do you think that it's more advantageous for the United States to just keep manufacturing in Taiwan and invest in the security of Taiwan? Or is it more advantageous for the United States, thinking in the long-term, to bring as much chip manufacturing and partnering back within US borders (as possible)?

David Palmer: Well, thanks, Evan. I think that's a really interesting question. I think the answer is complicated, and probably a little bit more complicated than we can cover all the facets in the time that we've got today. Thanks again for having me. Just like Sam said, this is a really interesting topic. One small piece of a broader topic of security and campaigning in terms of technological advancements. I mean, we're not only talking about chips, we're also talking about quantum computing, quantum communications. So these things are all really relevant right now. In the forefront now. For myself, I'm a practitioner, I'm a planner; I'm not an engineer, and I'm not a researcher.

But certainly looking at the longer term, potential multi-step consequences of some of these technological advancements and the things that the United States is trying to do to constrain Chinese advancement in terms of this chip manufacturer. So the first thing I'd like to point out is that I think we do need to be looking at this situation through a couple of different lenses. The first is competition. You mentioned competition, and I think competition is an important aspect for us to discuss, but the other is pure security. So now the goal of competition, in many cases, is to deter a potential adversary away from undesired behaviors, plainly in this case, to deter potential adversaries from taking any aggressive or violent actions against ourselves or against our interests. 

Now, great powers deter future aggression in a few ways. First of all, by maintaining advantages and capabilities, or in terrain, or by reducing a competitor's perceived advantages in those areas in order to get them to make decisions that draw them away from any aggression against us or our interests around the world. I do think it's important to keep potential consequences of our actions, such as moving advanced chip production out of Taiwan to safer terrain, in mind. Those actions are bold actions, but are not without potential first, second, third order consequences down the road. 

Now, when I was planning campaign and perception management and influence operations for NORAD and US NORTHCOM, the team I was working with always had to keep a keen eye on the potential downsides and risks associated with the activities and operations that we planned. Now, there are risks associated with competitive activities, including inadvertently provoking our competitors toward undesired behaviors by extreme overmatch, or triggering our competitors to invest in technology or infrastructure in order to counter our advantages, thereby putting us at a further disadvantage down the road in some cases. Now, there are some consequences that could be good or bad in the long term, and I'm happy to discuss some of those second and third order effects that actually might be advantageous if China does decide to go ahead and ramp up their internal production and research on advanced chips. But we'll save that for later on for the sake of time.

The current US administration, I would say, is absolutely right to impose stringent measures to restrict China's access to our most advanced AI supporting chips, because what we know is that China intends to use that technology to close the military-technology gap that they have, and potentially use that technology in violence against us or our interests. Now, additionally, the US administration is right to do everything possible to move chip manufacturing away from Taiwan and to the US. This not only secures US domestic supply chain, as Yueh brought up, but also helps to preserve Taiwanese technology and capability to continue their own chip advancement and manufacturing. 

Now, this is largely not for competition, but for the second aspect that we have to be considering here, and that is just pure security. Taiwan is simply too close and too much at risk from aggression and intellectual property theft from the Chinese mainland. Turns out, geography matters, right? In order to both deter aggression that could threaten the Taiwanese-based chip industry, and to ensure the security of the people of Taiwan and their advanced manufacturing capabilities, partnered production should be moved as much as possible to the haven of the United States or to some of our stronger allies and away from the island of Taiwan. Over to you, Evan.

Evan Delly: Thanks so much. Extremely important points. But can I ask just a quick question, then.

Back to Yueh really quick: so Dave mentioned that we're going to be seeing movement from China in this direction. The competition aspect is undeniable. And the question then is, are we already seeing kinds of steps being taken by Beijing reacting to the chip restrictions, reacting to just the US posture? 

Yueh Chen: Oh, sure. So although Beijing is facing more restrictions from the US, it's still using all its power to leverage its available resources. So there's a recent article on Bloomberg which discovered a chip made by TSMC on a laptop made by Huawei. So it seems that China is using the available chips to further its semiconductor industry and develop its AI capacity. And it seems China is also opening the gaming laptops from abroad and using the graphic cards within those laptops to develop its own AI. So it seems China is still managing to find some way to break through these tech restrictions and develop its own AI capabilities.

Evan Delly: Definitely. Thank you. Thank you so much. Yueh. So let me then just pose one more question, that's, I think, a natural follow-up, given the dialogue here. And we'll definitely come to everyone because this is one of the bigger questions. 

The big question is then, okay, well, given what we've said, given then what we've seen, given what we know, what would be the pragmatic approach to tech restrictions then?

Yueh Chen: So the most pragmatic approach will be a coherent restriction from the US and its allies. So although the US has imposed a series of restrictions already, the effectiveness will be undermined if other allies such as South Korea and Taiwan are not following these restrictions. So the most pragmatic approach, from my point of view, will be for Taiwan and South Korea and Japan to impose similar restrictions on China's access to semiconductor chips. So that will become a complete technical blockade and prevent China from getting access to the most advanced chips in the long-term.

Evan Delly: Thank you, Yueh. So I love that answer. I'm picking up on two large currents that are running through this entire issue. The first is the role of allies. Right. We need to coordinate this action. We need to enforce this action. The second is the over 9000-pound gorilla in the room here, which is just, frankly, espionage. It seems to me, as we've brought up, that this is not just espionage as usual, I guess if you could say it like that--this is a national strategy by Beijing. And we can expect, I think, in 2024, the reliance on espionage, industrial espionage, to jump through the roof as these restrictions really come into force. So then I'd like to take that question and move it also to the other panelists.

So starting with Sam, please, what are your thoughts on these two issues: the role of allies and the role of espionage?

Samuel Jardine: Yeah, I think Dave and Yueh both actually hit really well on this question with some of the points they've just made, in terms of the US approach, I would argue, from what the US wants out of it. Absolutely. You can understand it. It's to make sure that China is expending meaningful capital, be it political, be it time investing and sort of creating their own technological base, and they're not getting the quick sort of jump up from others. It's not really working at the moment, I'd say, just because there's no coherent approach from the US's partners. And that's kind of an issue where you have the EU, you look at the UK, for instance, four prime ministers over quite a frankly short time, each with a different tilt on the China situation and how to deal with China and how to engage.

You look at the Integrated Reviews debates for the UK and you can see the kind of confused picture where in certain areas it's engagement and support, and that means IP sharing, potentially it means companies co-investing, it means business as usual because it's economically beneficial. But at the same time then you see points about national security and how important that is and how China is a competitor and a threat, as some of the debates labeled it, to the UK's national security. But there's no joined up approach to that, there's no marrying of them. And so at the moment you've got this very piecemeal approach and I think you see that a lot through, you see that case replicated, a lot in the US's partners.

So it's quite tricky then to get this coherent approach that's needed to properly contain, as you would you know, if you go back to the Cold War, the USSR and the US's policy of containment against it, which was quite successful because you had a clear direction, a clear strategy that was focused on outcomes and not just the kind of focus on the process which is sort of piecemeal bit by bit. So I think it's very tricky. And without that kind of altogether containment kind of approach, what you have is, yes, China can use espionage. It doesn't need to, though. It's still got partners out there who are viable, from the US's partners, to get the sort of technologically- sharing, -engaging partnerships with. And so the idea that the US is containing China's technological development isn't really working.

So yeah, I think at the moment we need to sit down as partners and have a proper talk about: what is China to us and how then do we approach it?

Evan Delly: Thanks. So really makes sense. These are incredibly important points. Dave, could I ask you to weigh in as well? These two kind of issues, both what Sam said, what Yueh said, and these two massively important kind of currents running through the issue, one being the role of allies, the other being the role of espionage.

David Palmer: Yeah, for sure. China has a very long and robust history of theft of intellectual property. We know that's how they're trying to close the gap, in a large number of technologies. It's not just this one, it's not just chips. And so obviously that's something that the United States and the American allies are going to have to continue to contend with. Like I said before, geography matters. The closer you are to mainland China, the easier it is for the Chinese security apparatus to reach out and try and steal that intellectual property, all of that stuff. Living that close in Taiwan, separated by only 100 miles, it's only a benefit if you're going to partner up, move some of those technologies away from Taiwan. It makes it more difficult for the Chinese intelligence services to gain access to that. So I think that's certainly something that we're always going to have to contend with, is that theft of intellectual property. I really think that's the biggest point that you guys are hitting on here and the most important for us to consider as we move forward.

Evan Delly: Absolutely. But can we look forward just a little bit into the future? 

What are the implications here when we think about 2024 and the immediate future, to the extent that we can reason about it accurately? Yueh, can you take us through some of the implications as you see them, the current dynamics, how you see those current dynamics playing out a little bit, and what the implications are regarding the US-China tech war?

Yueh Chen: Yeah. So the first implication is there's an increasing conflict between national security and business interest. So, as we have already discussed, the tech war is likely to intensify over the next couple of years. So it will become more and more difficult for companies and countries to find a strategic balance point between national security and their own interest. During the Ronald Reagan National Defense Forum in December 2023, the Secretary of Commerce, Raimondo, openly criticized Nvidia for avoiding US sanctions by selling less powerful chips to China. She said, [effectively] "if any company redesigned a chip around a particular car line that enables China to develop its AI capacity, I'm going to control it the very next day." This is an unusually direct comment from the Secretary of Commerce. But it is also a demonstration of how American companies have to navigate themselves in an increasingly hostile environment. And the tech war has turned into a clash between national security and business interest. 

And the second implication is that there will be long-term consequences of the policy decisions made by the US. So the US is now facing a series of challenges, including financial sustainability of new facilities, the uncertainty surrounding the investment in the CHIPS Act, and the backlash from the US tech companies that prefer a business as usual approach to the Chinese market. And these are only a few of the hurdles faced by the US at the moment. 

Also, despite facing increasingly tough restrictions from the US, China is still able to leverage the full force of its state power to develop its own semiconductor chip industry. Companies such as Huawei are already receiving an approximately $90 billion investment from the Chinese government, and it is also building a secret supply chain within China.

And we also shouldn't forget the close connection between China and Taiwan, which is one of the most important countries in the global semiconductor supply chain. Some of the Taiwanese companies are discovered helping Huawei to build its own semiconductor chips. And the outcome of the Taiwanese presidential election, which is going to take place on this Saturday, is going to have long-term impacts on the global semiconductor supply chain. So the logical conclusion is that the US must carefully consider its options and the long-term consequences of its policy decisions.

Evan Delly: Thank you. Definitely. A lot that was touched on there that is just so important. And just the one thing that I would just say as well is you're absolutely right. And we really shouldn't look past or discount the fact that some of these companies, all of them–AMD, Nvidia--are reinvesting 35%+ of their raw revenue back into the R&D that keeps them and us at the bleeding edge of that tech. As Sam mentioned earlier, it's much easier to catch up and there's nowhere for us to catch up. So we've got keep on the bleeding edge. And it's important, you know, you can't replace just raw revenue from the global economy. No government can.

So that's really important, this idea, this notion, or rather the question of national security versus economics and when does a state allow one to overtake the other? It's a really difficult question. But I'm really glad that you brought that up, Yueh. Okay. So there's a lot to be thinking about here, clearly. Thank you, also, Yueh; I think your presentation was amazing and it helped package up a tricky topic and let us dive in a little bit and kind of dissect and address some individual component parts. So let's go then to the big question, which everyone is waiting for, which is, all right:

In the near future, if China were to invade and occupy Taiwan, what effect would that have on the global tech race between China and the US and globally, given again, that Taiwan produces over 90% of the world's most advanced semiconductors at scale? Dave, may I come to you first?

David Palmer: Yeah, for sure. I'm asking what is the effect? This is the easiest question to answer, I think, from my perspective, in the panel discussion today. So Sam talked and Yueh talked about one of the biggest challenges that the United States has in terms of gleaning positive effects from these restrictions against China. And that is, that strategy is hard, right? Strategy is really difficult, especially when you have such a large government apparatus as the United States trying to get all of those arms and bits and parts all on the same page and focus on the same objectives. Right.

And it gets even tougher when you start talking about bringing in your allies. Right. For this to really be effective, this is going to take a united front from the United States and a lot of allies in order to restrict the flow of some of those technologies into China. It's tough to get the allies on the same page because we're talking about a million other things, right? Like, you can go and talk to one of our allies and say, they're going to come back and say, "well, wait a second, we're talking about chips now? I thought we were just having a conversation about restricting the flow of weapons from North Korea and Iran into Russia being used against Ukraine. Now we're talking about chips in China." There's so many disparate things that we're trying to bring all together here. 

If China invades Taiwan, everybody gets on the same page. Everybody gets into the same conversation. Tech restrictions go through the roof against China. So absolutely not an advantageous decision for China to make to actually do any real world aggression toward the island of Taiwan.

Evan Delly: Thank you for that answer. Sam, coming to you, what are your thoughts on the issue? Again, if China were to invade and occupy Taiwan, the effect on the global tech race, of course, between the US and China, the impact would be very global.

Samuel Jardine: Yeah, I think Dave actually just hit the ball out of the park there and is spot on in terms of, it changes things dramatically in some ways. And the key point then is China invades Taiwan, you get the rally around the flag effect from the rest of the world. You get, as Dave said, there, you've got then tech regulation constrictions. You've got allies working together. You'll also start to see from partners, again; there's a lot of talk now about 'securonomics,' which is Rachel Reeves, Labor Shadow Chancellor's, term for it, where you've got this sort of liberalized globalization fragmenting trade networks, fragmenting currently. But again, a lot of back and forth over how that's working.

What you get then is a clear, crystal clear picture, because you've got a crystal clear threat, and China has shown itself to then not be a sort of helpful international actor and not be a team player, more so than it already has been, but the doubt's removed. And then you're getting the US and its partners looking at, okay, where best to friendshore, for our semiconductor supply chains, what partners can we trust? And a part of that equation then for friendshoring at the moment, it's just a state that you have some kind of positive relationship with. You're not really looking at the geopolitics of them necessarily, because of course geography matters, where materials are, where industrial capacity are. It's quite hard to move.

But you'll then get into the equation looking at, okay, well, when I'm friendshoring, what's the national security element for that state? Can they be disrupted? Are there issues regarding potential kinetic operations, gray zone operations there? So it will sort of change the formula for that and you'll get a more security emphasis on it. But overall the effects are very positive in terms of, for the US, creating a coherent alliance around its position to contain China.

Evan Delly: Thank you, Sam. Yueh, can I come to you for the last word on the question?

Yueh Chen: Yeah, absolutely. So from my point of view, there are long-term and short-term implications in case of a Chinese invasion of Taiwan. So the short-term implication is a disruption to the global supply chain because the Taiwan Strait is one of the busiest shipping lanes in the world. So a naval blockade from China will disrupt the supply chain and interrupt the supply of semiconductor chips to other parts of the world. And the long-term implication is the role of Taiwan in the tech war between China and the US. So as we have already discussed, Taiwan plays an important role in the global semiconductor supply chain. It has one of the most complete systems of producing semiconductor chips. So whoever holds control of Taiwan can turn the tide of the tech war to its own advantage.

So it's unlikely that China will damage the facilities in Taiwan as it will want to leverage the power of Taiwan in semiconductor chips manufacturing after the end of the conflict. But at the same time, the US is concerned about China's ability to take over semiconductor facilities in Taiwan. So the worst case scenario is that the US may try to destroy Taiwan's facilities to prevent China from gaining access to these sensitive technologies. But of course, these are only my speculations. So basically we have to keep monitoring the situation in the area and see how it goes. 

Evan Delly: Thank you so much for that, Yueh, thank you so much for that. Well, we are going to try to stay on time. I know we started a little bit late, but this has definitely been a fantastic discussion. Some great back and forth, some very important points made today. So for anyone still here, thank you so much for sticking with us. We definitely appreciate the tenacity. Thank you to the panel as well, and have a great rest of your week.

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