Who Controls the Chips, Controls the World
Welcome to "The world, simplified", a weekly show that will break down some of the biggest developments in finance and economics that are shaping our world.
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In this episode, we break down two major stories reshaping our world:
The Chip War: US vs China
BRICS: A New World Order?
The Chip War: US vs China
Let's start with a question: What’s the most essential piece of technology in your life? You might think of your smartphone, laptop, or car. But what if we told you that, hidden inside all those devices, there’s something even more important—a tiny, powerful chip called a semiconductor. These small chips are in everything, from the smartphone in your pocket to the car in your driveway, from the data centers that keep the internet running to the supercomputers driving new breakthroughs in artificial intelligence. Semiconductors are the invisible engines powering modern life.
But now, these tiny chips are at the center of a major rivalry between the world’s two largest economies: the US and China. This story brings together technology, global politics, innovation, and economic influence—and it’s a story that could shape the future of our world. So join us as we explore the journey of semiconductors, from their roots in the Cold War to today’s race for technological dominance, and take a look at what could happen if the delicate balance of global chip production is disrupted.
Segment 1: What Are Semiconductors and Why Are They Important?
Let’s start with the basics: What exactly are semiconductors, and why do they matter so much? Imagine you want to control the flow of electricity—like turning it on, off, or even controlling how much flows through. Semiconductors are special materials that can do just that. They’re not quite like copper, which easily lets electricity flow, and not like rubber, which blocks it completely. Semiconductors sit in the middle, allowing for precise control of electrical signals. This control lets us build 'switches,' which are essential for computers because they allow computers to process information and make decisions.
The story of semiconductors began in 1947 at Bell Labs when the first transistor was invented. A transistor is basically a tiny switch that controls the flow of electricity in electronic devices. Computers contain millions of these transistors, much like our brains have billions of neurons. Before transistors, computers were huge, clunky machines filled with vacuum tubes that were inefficient, unreliable, and sometimes as big as a room. The invention of the transistor changed everything by replacing these vacuum tubes and making computers smaller, faster, and more reliable. Then, in 1958, Jack Kilby at Texas Instruments invented the first integrated circuit, which put multiple transistors onto a single silicon wafer. This innovation laid the groundwork for modern computers.
But semiconductors weren’t just important for gadgets like TVs and radios. During the Cold War, semiconductor technology became vital for national security. The U.S. government realized that stronger computing power could provide a critical edge in areas like missile guidance, radar, and space exploration. Integrated circuits, which are small circuits packed with many transistors, were used in the Apollo missions that took humans to the moon in 1969 and in the guidance systems of intercontinental ballistic missiles (ICBMs). The competition between the U.S. and the Soviet Union fueled massive government investment, speeding up the development of semiconductor technology.
By the early 1960s, the pace of semiconductor advancements skyrocketed. In 1965, Gordon Moore, one of Intel’s co-founders, predicted that the number of transistors on a chip would double roughly every two years, while the cost of computing would go down. He was more accurate than he could have imagined. This prediction, known as ‘Moore’s Law,’ guided the rapid growth of computing power and became a rule for the semiconductor industry.
Fast forward to today, and semiconductors are the brains behind nearly every modern piece of technology. They power smartphones, manage complex systems in electric cars, make artificial intelligence possible across industries, and are critical for defense technologies like self-operating drones and satellite surveillance. Semiconductors aren’t just parts of tech—they are the backbone of economic strength, national security, and military power. That’s why they’re so important—and why they’re at the center of a global competition.
Segment 2: How Are Semiconductors Made?
So, how are semiconductors made? It’s a blend of cutting-edge science and impressive industrial precision—a mix of chemistry, physics, and engineering that brings together expertise from around the world.
It all starts with silicon, one of the most abundant elements on Earth. Silicon is extracted from quartz sand and purified to an incredibly high level (99.9999% pure). The purified silicon is then melted, cooled into large cylinders called ingots, and sliced into thin discs known as wafers. Each wafer will eventually hold hundreds or even thousands of tiny chips.
Next comes one of the most intricate steps—photolithography. Imagine trying to draw an extremely complex circuit on the wafer, but at a scale so tiny that it’s measured in nanometers. This is done using ultraviolet light in a process called Extreme Ultraviolet (EUV) Lithography. Light passes through a mask, like a stencil, and projects patterns onto the wafer, creating billions of tiny transistors that act as switches. This process is so precise that each detail is smaller than a single red blood cell.
The machines that make this possible—called EUV lithography machines—are built by ASML, a company based in the Netherlands. Each machine costs around $200 million, has more than 100,000 parts, and takes years to assemble. These machines aren’t just expensive; they’re critical. Without them, making the most advanced chips used in AI, smartphones, and high-tech military gear wouldn’t be possible.
After photolithography, the wafers go through a series of additional steps, like etching, doping, and layering, to create multiple levels of circuits that all connect. Every step takes place in a cleanroom—an environment that is 10,000 times cleaner than a hospital operating room—because even a tiny speck of dust can ruin a wafer worth millions. Finally, the wafers are cut into individual chips, tested for quality, and packaged. It’s a months-long process that involves thousands of people and facilities spread across different countries.
Segment 3: The US-China Rivalry Over Semiconductors
This brings us to the heart of our story: Why are semiconductors such a big deal in the rivalry between the United States and China? To understand this, we have to recognize what semiconductors really represent. They’re not just components in our gadgets—they’re the backbone of technological power. Whoever controls semiconductors holds the key to the future of AI, defense, and economic influence.
For decades, the United States has led the way in semiconductor innovation, with companies like Intel, Texas Instruments, and Qualcomm pushing chip technology forward. But China has also recognized the critical role of semiconductors and has invested heavily to catch up. Through the Made in China 2025 plan, China aims to become self-sufficient in producing semiconductors. Since 2014, China has spent billions—around $47 billion—through a program known as the ‘Big Fund’ to strengthen its own chip-making industry.
However, China faces a major obstacle—it can’t produce the most advanced chips. To make chips at 5 nanometers or smaller, you need EUV (Extreme Ultraviolet) lithography machines, which are only made by ASML, a company in the Netherlands. The United States has pressured ASML and its allies to stop selling these machines to China, blocking China’s access to the technology needed to create the world’s most advanced chips.
To complicate matters further, the U.S. has imposed strict export restrictions on Chinese companies like Huawei and ZTE, preventing them from accessing the latest chips. These companies were poised to lead in building 5G networks worldwide, but these U.S. restrictions have severely slowed them down. This isn’t just about business; these chips are also used in military and surveillance systems, which is why the U.S. considers this a national security issue.
In response, China has turned to alternative methods, including espionage and innovation in less advanced technology areas. Reports suggest that China uses various tactics—from government-backed hacking to leveraging its citizens abroad—to try to acquire semiconductor technology. Despite these efforts, China still lags behind in producing advanced chips. The best Chinese factories can currently produce chips at 28 nanometers, far behind the cutting-edge chips made by companies like TSMC and Samsung.
Segment 4: Fabless Model and the Rise of TSMC
Now let’s talk about TSMC, the company at the heart of the global semiconductor supply chain, and how its rise fits into the bigger picture. In the early days of semiconductors, companies like Intel would both design and manufacture their own chips. But as technology advanced, making chips became incredibly expensive and complex. This led to the rise of what’s known as the fabless model.
In this model, companies like Apple, Qualcomm, and Nvidia focus solely on designing chips, while the actual manufacturing is handled by foundries like TSMC. By specializing in chip production, TSMC became incredibly skilled at one thing: making chips. Founded in 1987 with support from the Taiwanese government, TSMC has grown to dominate the market. Today, it produces 90% of the world’s most advanced processors right in Taiwan.
So, what makes TSMC so powerful? It’s their ability to produce the most advanced chips—those at the 5nm and 3nm levels—at a scale that no other company can match. Samsung in South Korea is the only company that comes close, but even they don’t have TSMC’s level of expertise in these cutting-edge chips. This makes TSMC—and by extension, Taiwan—a crucial part of the global tech supply chain, making Taiwan’s stability vital to the entire world.
Segment 5: What If China Invades Taiwan?
This brings us to one of the biggest “what ifs” in global politics today: What if China were to invade Taiwan?
Taiwan is at the heart of global semiconductor production. It’s not just a place with factories; it has an entire ecosystem needed to make chips. This includes highly skilled workers, a network of specialized suppliers, and infrastructure that provides everything from precision tools to materials. While other countries are working to build similar facilities, recreating this setup from scratch is extremely challenging.
If China were to invade Taiwan, this entire ecosystem would be in jeopardy.
The impact of such an invasion would be enormous. Think back to the chip shortage in 2021—car production halted, consumer electronics were hard to find, and the global economy lost around $240 billion in GDP. Now imagine a disruption on an even larger scale. It wouldn’t just be about gadgets; it would affect national defense, medical equipment, communications, and critical infrastructure worldwide. This is why the U.S. and its allies are working to spread out semiconductor production by investing in new facilities in places like the United States, Japan, and South Korea.
The U.S. is helping TSMC build new factories in Arizona through a $12 billion project aimed at reducing reliance on Taiwan. But building new semiconductor plants takes time—typically 3 to 5 years—and a lot of money. Until these new facilities are up and running, the global tech industry will remain heavily dependent on Taiwan.
Segment 6: The AI Race and US Restrictions
Another major reason semiconductors are so important is their role in artificial intelligence (AI). Advanced AI requires massive computing power, which comes from specialized chips like GPUs. Right now, Nvidia is the top company for AI chips, and these chips are manufactured by TSMC.
AI isn’t just about making our smartphones smarter; it’s about transforming entire industries, building autonomous military technology, and strengthening cybersecurity. The United States understands how crucial AI is for future dominance, so it has restricted the sale of these powerful GPUs to China. By limiting access to these chips, China’s progress toward leading in AI is slowed down. This is a strategic move to curb China’s strength in AI-driven military and economic technology.
In response, China is heavily investing in developing its own versions of these chips, but it still lags behind. The most advanced AI chips require extremely tiny transistors—down to 5nm or even 3nm. Since China hasn’t yet developed the capability to produce these advanced chips domestically, it faces a significant disadvantage in the AI race.
Segment 7: The Global Semiconductor Race and Investments
The global race for semiconductor leadership is in full swing, and it’s worth hundreds of billions of dollars. The U.S. CHIPS Act is pouring $52 billion into boosting U.S. chip production, while South Korea plans to invest a massive $450 billion by 2030 to strengthen its own semiconductor industry. Japan is also offering major incentives to reclaim its position as a key player in chip manufacturing.
Meanwhile, China is moving quickly, with 28 new fabs (factories) expected to be completed by 2025. However, most of these factories will focus on producing older, less advanced types of chips. This means that while China is increasing its production of basic chips used in appliances and cars, it still lacks the technology needed to produce the most advanced chips essential for AI and other high-tech industries.
The European Union has also jumped into the race, aiming to produce 20% of the world’s semiconductors by 2030. This effort includes partnerships with companies like Intel to build factories in Europe, highlighting the importance of semiconductors not only for technological progress but also for economic stability and national security.
Segment 8: Fun Facts and Surprising Stats
Before we wrap up this story, let’s take a look at some numbers to see just how crucial semiconductors really are. During the chip shortage of 2021, the global auto industry lost an estimated $210 billion in revenue, and 6 million fewer vehicles were produced worldwide because of a lack of chips. India felt the impact too. Car manufacturers couldn’t keep up with the demand for new vehicles for years, causing prices for new cars to rise by 50% in just five years. These chips aren’t luxury items—they’re essential, and their shortage slowed down the entire industry.
Building TSMC’s most advanced semiconductor factories costs over $20 billion each, and each EUV lithography machine—needed to make the world’s most advanced chips—has a price tag of $200 million. These machines are incredibly complex, requiring tens of thousands of parts from a global network of highly specialized suppliers to put together.
As we’ve seen, semiconductors are far more than just components in our gadgets—they represent power, innovation, and national pride. The fight to control chip technology is about more than just business; it’s about who will shape the future. And right now, the outcome of this battle could influence everything from our personal tech to global security. If the delicate balance of global chip production shifts, the effects will be felt across the world.
While the U.S. and China are squaring off over technology, there’s another important story playing out in the world of finance. Imagine a group of countries feeling left out of the current global financial system and wanting to create a new one—one that doesn’t revolve around the U.S. dollar or rules set by the West. That’s where BRICS comes in.
BRICS: A New World Order?
In October 2024, something unusual happened in Kazan, Russia. Vladimir Putin, the leader of a country isolated from much of the global financial system, hosted a summit that directly challenged the influence of the United States on the world stage.
Sitting alongside him were leaders from countries that together make up nearly half of the world’s population. This group was focused on finding new ways to do business and trade, separate from Western-dominated financial systems. This wasn’t just another international meeting—it was the first gathering of an expanded BRICS group, signaling a growing divide in how the global economy is organized.
Let’s take a closer look at what BRICS stands for today. It now includes 45% of the world’s population, accounts for 35% of the global economy (GDP), and produces 40% of the world’s oil. But what really makes it stand out is that BRICS represents growing frustration with the current global financial system, which many believe is structured to favor Western countries over others.
The journey of BRICS from an investment term to a major global alliance took time. In 2001, an economist from Goldman Sachs, Jim O'Neill, coined the term “BRIC” to describe four fast-growing economies—Brazil, Russia, India, and China.
After the 2008 global financial crisis, these countries turned BRIC into a real group to push back against Western dominance in the global economy. South Africa joined in 2010, turning it into BRICS. In 2024, Egypt, Ethiopia, Iran, and the UAE were added, driven by a need to counter Western control over the global economy—a push that accelerated due to the impact of the Russia-Ukraine war. This expansion underscored BRICS’ intention to reshape the balance of economic power.
To understand why BRICS matters, let’s compare it to Western-led organizations like the IMF and the World Bank. In these organizations, voting power is based on how much money each country contributes, giving the US and European countries significant control. For instance, the US holds 16.5% of the voting power in the IMF, enough to block major decisions. Now, consider the BRICS New Development Bank. Here, all founding members have equal voting rights, regardless of their size or economic power.
The G7, which includes the US, UK, France, Germany, Italy, Japan, and Canada, operates in a more formal way, with the US often taking a leading role. BRICS, on the other hand, is structured differently. It’s less formal, makes decisions by consensus, and rotates its leadership each year. While the G7 often works to promote similar policies across its member countries, BRICS focuses on respecting each member’s independence and avoiding interference in each other’s internal affairs.
However, this brings us to the internal conflicts within BRICS, which can make it seem less united compared to Western groups. For example, there is a significant rivalry between China and India. These two countries have serious border disputes, which even turned violent in 2020. They are also competing for influence across Asia, and their economic systems are very different—India follows democratic capitalism, while China has a state-controlled system. Despite these differences, they are expected to work together to reshape the global financial system.
The Middle East brings another layer of complexity. Iran and the UAE, both new BRICS members, have conflicting views on regional security. Iran’s nuclear program causes tension, while the United Arab Emirates maintains close military ties with the US, which Iran views as its main rival.
Ethiopia and Egypt, also new BRICS members, have a serious conflict over sharing the Nile’s water. Ethiopia’s Grand Renaissance Dam project has created major tensions between these two African nations.
Even among the original BRICS members, there are significant differences. Brazil’s democratic values don’t align with the more controlled, authoritarian systems in China and Russia. South Africa’s economy remains closely tied to Western countries, even as it tries to show support for BRICS. And Russia’s invasion of Ukraine has created uncomfortable dynamics, as other BRICS members try to stay neutral while still maintaining business ties with Russia.
Despite these differences, BRICS has made real progress in creating alternatives to Western institutions. The BRICS New Development Bank has already funded 96 projects, totaling $32.8 billion. The Contingent Reserve Arrangement provides $100 billion in emergency funds without the strict conditions often attached to Western loans. Trade between BRICS members is also beginning to shift toward their local currencies. For example, trade between Russia and China conducted in U.S. dollars dropped from 90% in 2015 to just 20% by 2023.
At the Kazan summit, BRICS announced BRICS Pay, a new system designed to replace SWIFT for international payments. If you’re wondering what SWIFT is, we’ve explained it in detail earlier. China’s Cross-Border Interbank Payment System (CIPS) is already processing over $50 billion daily. BRICS countries are also reducing their reliance on dollar reserves and now collectively hold more gold than the United States.
But replacing the dollar is much harder than it seems. The dollar’s dominance isn’t just because of America’s power—it’s built on strong advantages that are tough to match.
First, U.S. financial markets are incredibly deep and stable. The U.S. Treasury market alone is worth over $24 trillion and offers a safe, reliable asset that global investors and central banks depend on. No other market in the world can match its size and stability.
Second, the dollar benefits from what economists call ‘network effects.’ The more people use the dollar, the more valuable it becomes—similar to a widely spoken language. People learn English not because it’s necessarily the best, but because everyone else speaks it. Today, the dollar is used in over 80% of international trade transactions.
Third, there’s the legal and financial structure that supports the dollar. The U.S. has highly developed financial markets, strong property rights, and an independent legal system. When issues arise with dollar transactions, there is a clear legal process to resolve them. Building this level of trust has taken decades.
Consider China’s efforts to make the yuan more global. Even though China is the world’s second-largest economy, the yuan only makes up 2.5% of global payments. Why? Because China has strict controls on money leaving the country, and its financial markets aren’t fully open to foreign investors. India faces similar challenges with the rupee.
Even when BRICS countries try to trade using their own currencies, they face practical challenges. For example, if Brazil wants to trade with South Africa, they have to agree on which currency to use, manage exchange rate risks, and find banks that can handle the transaction. Let’s say Brazil sells something to South Africa and gets paid in South African Rand. Brazil can only use that Rand to buy something made in South Africa or find another country willing to accept the Rand. Using the dollar avoids these issues because there’s already a large and stable market for exchanging dollars.
Even the BRICS Bank, which was set up to reduce dependence on the dollar, still conducts most of its business in dollars—only about 30% of its loans are in local currencies. This shows how difficult it is to operate without the dollar, even for institutions that aim to do so.
Russia’s experience with Western sanctions also highlights this challenge. Even though Russia is largely cut off from the dollar-based financial system, it still prices most of its oil exports in dollars, even when selling to China. The global oil market is too deeply tied to the dollar to easily switch.
But dollar dependence isn’t the only hurdle. The BRICS Bank’s $32.8 billion in approved projects is small compared to the World Bank, which commits around $117.5 billion each year. BRICS payment systems are also fragmented—there isn’t a single unified system to replace SWIFT. Some BRICS members have even proposed creating a common currency, but that would require a high level of cooperation, which seems unlikely given their political differences.
At a basic level, many BRICS members don’t actually want to completely break away from the Western system. India has key security partnerships with the U.S., Brazil relies heavily on trade with Western countries, and the UAE hosts large U.S. military bases. Even China, while competing with the West, remains deeply connected to Western economies.
Expanding to BRICS+ also brings new challenges. Making decisions was already tough with five members; now, with nine, it’s even more complicated. Each new member comes with its own priorities and issues. The group now has to balance different interests across three continents while trying to keep everyone on the same page.
So, where is BRICS headed? The reality is that BRICS isn’t trying to replace the Western-led system but is instead building a parallel one. We’re moving toward a world with competing financial systems. Countries might use SWIFT for some transactions and BRICS Pay for others. They could borrow from both the World Bank and the New Development Bank and hold reserves in dollars, euros, and yuan.
This complexity brings both opportunities and risks. For developing countries, it means more options for funding and trade. For Western countries, it means they may have less leverage to use financial pressure as a tool of influence. For businesses, it means adapting to different systems and standards.
One thing is clear: the economic system created after World War II, centered on American financial power, is now facing its biggest challenge yet. Whether or not BRICS fully succeeds in creating an alternative system, the changes it is driving will shape the global economy for years to come.
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Thanks for explaining the semiconductor space in such great detail starting from ground zero, mentioning why it is a topic of national security and where each of the countries stand in the race for developing the most advanced chips and what a semiconductor chip crisis would look like.
Appreciate your efforts on gathering the information in such a detail level...Now I know why US will be a super power for another decade unless some miracles happen,and also thanks for enlightenment on semiconductor industry.I will request my wife not to leave the semi conductor company that she works for😊