As Congress debates historic China bill, Beijing pulls ahead

Weeks before the House and Senate ended 13 months of wrangling and passed the $280 billion Chip and Science Act, China’s top state-backed chip maker hit a major technological hurdle that shocked the world a bit.

Experts are still evaluating how China appears to have moved ahead in its efforts to produce a semiconductor whose circuits are so tiny—about 10,000 times thinner than a human hair—that they can compete with those made in Taiwan, which supplies both China and the West. Biden administration traveled incredible distances to keep the highly specialized equipment for making these chips out of the hands of the Chinese, because advances in chip manufacturing are now seen as a way of determining national power—much like nuclear testing or precision-guided missiles during the previous Cold War.

No one knows yet if China will be able to exploit the breakthrough on a large scale; this may take years. But one lesson seemed clear: while Congress debated, amended, and argued over whether and how to support U.S. chip makers and a wide range of research in other technologies—from advanced batteries to robotics to quantum computing—China was forging ahead, making bet that it will take Washington a few years to gather strength.

“Our Congress is running at political speed,” said Eric Schmidt, a former Google chief executive who went on to chair the National Security Commission on Artificial Intelligence, which warned last year of the huge danger of falling behind in “foundational” technology. as a leading semiconductor manufacturing facility in a world of vulnerable supply chains. “The Chinese government is running at commercial speed.”

In China, the drive to catch up and produce the most advanced chips is part of the Made in China 2025 program. These efforts began in 2015. While few in Congress are willing to admit it, the technology that the United States will fund when President Biden signs the bill, as he promised he would on Thursday, is pretty much the same as China’s list.

This is classic industrial politics, although leaders of both parties avoid the term. The words convey a sense of state-controlled planning that runs counter to most Republicans and provides direct support and tax breaks to some of America’s largest companies, leaving some Democrats shaking in anger.

But 2025 is just around the corner, which means money will be flowing in as the Chinese and other competitors move on to the next set of goals. Meanwhile, the American semiconductor industry has withered to the point where none of the most advanced chips are made in the United States, even though the fundamental technology was born here and gave Silicon Valley its name.

All this does not mean that America’s competitiveness is doomed. Just as Japan once seemed like a 10-foot tech giant in the late 1980s and early 1990s, but then missed out on some of the biggest breakthroughs in mobile computing, Windows operating systems, and even chip manufacturing, China is discovering that money alone does not guarantee technological superiority. But it helps.

It took Congress much longer to come to the same conclusion. However, China proved to be one of the few issues on which Republicans and Democrats can come together – on Thursday, the bill passed the House of Representatives by a vote of 243 to 187, with one abstention. Twenty-four Republicans voted in favor, notably as GOP leaders urged their members to oppose the bill after Senate Majority Leader Chuck Schumer of New York and Senator Joe Manchin III of West Virginia announced surprise deal on climate, energy and taxes on Wednesday.

China immediately denounced the bill as an isolationist move by Americans seeking to break free from dependence on foreign technology, a strategy called “decoupling” that China itself is trying to replicate.

Chinese Foreign Ministry spokesman Zhao Lijian told reporters in Beijing that “no restrictions or suppression will stop” China’s progress, a clear reference to American and European attempts to deprive China of technology that will hasten its technological independence.

But the big question is whether those efforts have been thwarted by Congressional slowness to recognize America’s shortcomings in competitiveness. While Mr. Biden and lawmakers tried to rally support for the bill by calling chips found in everything from refrigerators to thermostats to cars the “butter” of the 21st century. This phrase has already been beaten three decades ago.

In the late 1980s Andrew S. Groveone of the pioneers of Silicon Valley and one of the early leaders of Intel Corporation, warned of the danger of the United States becoming a “tech colony” of Japan.

A Taiwanese semiconductor manufacturing company produces approximately 90 percent of the most advanced semiconductors. He sells them to both China and the United States.

And while Taiwan Semiconductor and Samsung are building new manufacturing facilities in the United States, responding to political pressure to fix problems with the American supply chain, the end result will be that only a single digit percentage of their production will be made on American soil.

“Our reliance on Taiwan for sophisticated chips is untenable and unsafe,” Commerce Secretary Gina Raimondo told the Aspen Security Forum last week. With the demand for more complex chips growing – each new generation of cars requires more and more semiconductors – “we are short of domestic supply.”

She argued that the $52 billion in federal subsidies provided by the bill would be backed by private money and turn into “hundreds of billions” of investments. In essence, she used an argument that the federal government has long used to justify incentives for defense contractors. Politicians knew it would be easier in Congress to sell risky new spy satellite or stealth drone technologies if they were seen as critical defense spending rather than industrial policy.

But now the logic is turned upside down. Defense contractors need the most advanced commercial chips, not just for the F-35, but for AI systems that could one day change the nature of the battlefield. The old distinctions between military and commercial technology have largely faded. That’s why the administration even brought Defense Secretary Lloyd J. Austin III into the pressure campaign to get the bill through, arguing that he couldn’t rely on the foreign arms suppliers of the future.

The bill’s sponsors say that although they are late in their task of rebuilding the industry, it is better to start today than to continue to watch American leadership wane. Senator Todd Young said that while China’s recent advance is “sobering”, he doesn’t think there is “anyone who can out-innovate the United States of America if we mobilize our many resources.”

America’s other advantage is “our relationship, economic and geopolitical, with other countries,” Mr. Trump said. Young, Republican from Indiana. “China has no friends; they have vassal states.”

Innovation was America’s forte; Here the microprocessor was invented. But again and again, American vulnerability is in production. And China is not the only competitor. To get money from Congress, Intel and others noted that Germany and other allies were trying to lure it into building “factories” — airtight, flawless chip manufacturing centers — on their own soil.

But in the end, it was China that won the votes.

One of the first evaluations of the new Chinese chip by Semiconductor Manufacturing International Corporation, came from researchers at a firm called TechInsights.

After reverse engineering a Chinese-made chip, they concluded that it used a circuit that was only seven nanometers wide. Back in 2020, Chinese manufacturers struggled to get below 40 nanometers.

Experts say that a chip designed for cryptocurrency mining may have been created or stolen from Taiwan Semiconductor. For now, Taiwan Semiconductor remains the most important manufacturer in the world, and its vast facilities near Taipei could be the island’s best defense against invasion. China cannot afford to risk its destruction. And the United States cannot afford to be destroyed.

But this delicate balance will not last forever. So China has both commercial and geopolitical motives for making the world’s fastest chips, and the United States has competitive motives to prevent Beijing from getting the technology to do so. This is the ultimate arms race of the 21st century.

During the old Cold War, the war against the Soviet Union a generation ago, “the government could afford to sit on the sidelines” and hope that private business would invest, Mr. K. Schumer said Wednesday. Now, he said, “we can’t afford to sit on the sidelines.”

Kathy Edmondson made a report.