The Race for Data: Toward A Bipolar Digital World

Dr. Nessrine Mesto-Assaad

At the end of the first millennium and the beginning of the second, after the dissolution of the Soviet Union and the decline of communist influence and the socialist model, the United States emerged as a global power based on the capitalist system and the market economy. It has become a dominant power capable of shaping the global economy and changing the direction of international politics. This influence emerged through the stock market, which significantly strengthened its economic power and financial control over global markets. Technological development and innovation have also played an influential role in facilitating the United States’ leadership and enhancing its role in global governance, especially after the development of the Internet, computing, and, more recently, artificial intelligence, which contributed to the emergence of the “unipolarity” that contributed to the monopoly of American companies on global technological markets.

For decades, the United States has enjoyed this luxury and expanded its economic, financial, digital, and military influence to include all capitals and governments around the world. Yet its most prominent role has been as a pioneer in technological and digital development and modernization, driven by American technology companies such as Microsoft, Tesla, Nvidia, Intel, Google, Apple, Meta, and IBM, which contributed to the spread of the Internet and modern technology around the world and made the United States a leader in this field. One of the most advanced technologies that distinguishes the U.S. from other countries is semiconductor design.

Semiconductor technology has played a prominent role in current technological development. It goes into designing almost everything. It is the basic material relied upon in modern machinery and equipment, including smart communications equipment. Semiconductors are integrated into smartphones and smartwatches, regular and portable computers, smart home devices and gadgets (TV, refrigerator, coffee maker, controls and monitoring tools, electronic gaming devices…), automotive systems ( airbags, ABS..), self-driving cars, multi-purpose robots, medical equipment (MRI systems, CT scans…), military industries ( missiles, spy and monitoring devices, satellite devices…), communications infrastructure (5G, routers…), industrial and electrical machines, renewable energy equipment (solar energy, wind energy generation systems…), and giant server equipment used in data centers. In short, semiconductors are the “oil” of this era. They are at the heart of all modern industries and are the brain that operates the machine. In other words, they are the mind of the miniature intelligent computer inside each machine, with the presence of which the machine can resemble the human mind in terms of thinking, analysis, responding to commands, and extracting results

Types and designs of semiconductors

Semiconductor designs vary according to their uses and functions. Some industries require raw semiconductors such as X-ray machines, surveillance sensors, and nuclear radiation sensors. Extrinsic semiconductors are the most widely used and have two types: N-Type, which transfers electricity through electrons, and P-Type, which transfers electricity through holes or so-called missing electrons. While N-Type transmits negative electrical charges, P-Type transmits positive electrical charges. When the N and P models are combined, they form the foundation of the chips that are used in all modern machines and are designed to deliver the desired outputs. In addition, Compound semiconductors are the most important and are used in the military, satellite, and 5G industries.

There is a wide variety of semiconductor types. The most important is the GPU, designed by Nvidia. This type is more closely related to the human brain and can solve large and complex calculations, analyze, and help with decision-making. Another type of semiconductor is the CPU, or the “brain,” which is made by Intel and AMD. Memory chips are a type of semiconductor dedicated to storing and preserving information. They are used in all smart devices and are manufactured by Samsung, SK Hynix in South Korea, and Micron in the United States. There are other types of semiconductors, but we will suffice with that for now.

Semiconductors’ trade under globalization and before trade restrictions

Semiconductors occupy a central position in the global economy and have an estimated market exchange volume of $134 billion because they are used in the core infrastructure of digital technology, cloud computing, and military platforms. The semiconductor industry relies on raw silicon, which is found in Brazil, Australia, Germany, China, and the United States.  Silicon is the primary material for manufacturing all types of semiconductors and is extracted from Quartz sand, then purified and melted to become raw silicon. China is the world’s leading exporter of silicon material, accounting for 80% of global exports, followed by Brazil and Germany. China purifies and processes raw silicon and then exports it to the United States.

In addition to silicon, semiconductor manufacturing includes rare metals, which are essential for the efficient transmission of energy, light, and heat with high efficiency. China has these metallic elements and is the world’s leading exporter of these minerals. It also refines and processes these metals and then exports them to major American technology companies to use in chip manufacturing processes. There are also other materials used in the manufacture of semiconductors, but these materials mentioned above are scarce and necessary in the manufacturing process.

China exports semiconductor raw materials to the United States; in return, it imports the final designs that are manufactured and programmed, including the “intelligence layer” that is designed by the American technology companies. China integrates semiconductors into computers, machines, phones, surveillance devices, and other equipment. Thus, it is considered a global hub for assembling technology devices, satellites, servers, equipment, etc., and a primary supply chain leader.

While China controls the export of silicon and raw metals, the United States maintains a dominant position in semiconductor chip design and architecture. Intel, Qualcomm, Nvidia, and AMD develop and design chip architectures, which define the functions and tasks of these chips. They also add the “intelligence layer” that determines how the semiconductor will operate and process information. Cadence and Synopsys develop software to automate electronic designs, allowing chip architectures to be translated into executable designs. Therefore, there is integration among these companies in terms of design architecture and design automation. On the other hand, the Netherlands plays a prominent role in advanced chip manufacturing, as ASMI has developed stone printing machines that operate on extreme ultraviolet (EUV) lithography, which are the basis for producing modern chips (3 nanometers, 5 nanometers). Japan also contributes to the chip manufacturing process through new equipment that improves and increases the manufacturing process. Taiwan is a major player in advanced raw chip manufacturing through TSMC, which has high manufacturing capabilities and covers the US market’s needs for ready-to-design and automate chips. South Korea, too, through Samsung, stands out as a strong competitor in this field.

The trade model before restrictions

This division of labor has contributed to the creation of a highly efficient and interconnected global system, but this reciprocal and integrated system has changed with the presence of a competitive geopolitical atmosphere and the emergence of artificial intelligence as a tool of control and power. Both China and the United States have recognized the importance of semiconductors as strategic assets with practical implications for strengthening global leadership, expanding influence, and, especially, for China, gaining international dominance and entering new markets. This expansion and dominance mentality has paved the way for the world to enter into an emerging system that reflects broader trends toward a digital world of bipolarity.

The beginning of the crisis: Made in China 2025, strategic plan

In early 2015, Chinese Premier Li Qiang announced a strategic plan called “Made in China 2025,” which was well received by President Xi Jinping, who quickly issued it officially through the Premier Council in May 2015. Before this initiative, China was viewed as a strong industrial and trading country, or as a global laboratory for low-cost production and export, compared with other competing countries. But this view changed after the Made in China 2025 plan, which serves as a roadmap for what the Chinese government wants to achieve by 2025, including enhancing the research and development capabilities of Chinese companies and empowering them economically and globally, especially in the industrial and technological sectors.

The plan includes ten main components, as follows: developing the next generation of information technology, creating digitally controlled machine tools and robots, creating aviation and space equipment, creating marine engineering equipment and high-tech ships, developing transportation equipment to keep pace with modernity, manufacturing low-energy vehicles, modernizing energy equipment and agricultural machinery, and finally developing medical equipment and pharmaceutical preparations.

Made in China 2025 aims to secure capital and facilitate access to it, enable companies to use state resources, enhance the role of research and development, and obtain modern technology from abroad and replicate it locally, thereby enhancing China’s competitive capabilities and helping it control global markets. This led the United States to describe China as an “unfair trader” and to intensify trade and digital competition.

The beginning of the competition – penalties

The United States has noticed China’s rapid economic growth and its attempt to dominate global markets. China’s unfair trade practices, which reflect its political system’s pursuit of monopolies and competition, have also annoyed the United States, prompting President Trump in early 2018 to impose tariffs worth an estimated $350 billion on a variety of goods, most notably exported technology, semiconductors, and related equipment. This move was intended to limit trade competition between the two countries and reduce the US trade deficit. In addition, the United States was aware that the China threat was not limited to invading new markets, but it could develop into a cyber nationalist threat. Therefore, rapid action was necessary, and restrictions were imposed on basic materials associated with the rapid development of technology.

After imposing restrictions on semiconductor exports, the United States also restricted vital imports from China, most notably operational infrastructure. America imports from China equipment and operational infrastructure for 4G and 5G mobile phones, as well as fiber optic cables, basic routing systems for Internet service providers, and hardware and software for telecom operators. Much of this equipment is manufactured by Huawei, the largest Chinese technology company. Because this equipment is used in federal government agencies and state facilities, the United States passed the NDAA 2019, a defense law that prohibits the use of any equipment manufactured by the Chinese companies Huawei or ZTE in federal agencies. The law also prohibits the import of any such equipment from Huawei and ZTE, and the final non-dealing or export of technology and software to any Chinese company. In the same year, the US Department of Commerce created a list of 44 companies included in the applicable penal code that prohibits the export of technology and equipment that contributes to their development to China.

Toward A Bipolar Digital World

U.S. sanctions have contributed to new trends in the Chinese government, which has been quick to promote self-sufficiency plans, offer generous benefits, and impose severe restrictions on exports of rare base metals used in semiconductor manufacturing. It has also activated the Made in China 2025 plan to more effectively confront and overcome the chip crisis. In addition, China has invested heavily in industrial substitution through Huawei to build a resilient domestic semiconductor industry.

What prevents China from dominating the digital world is access to semiconductor designs and architectures. Therefore, China has relied on a political strategy in the form of a new digital policy. This strategy facilitates capital for major private companies such as Alibaba, Byte Dance (TikTok), Huawei, Tencent, and ZTE, and, conversely, through the issuance of the Chinese Data Protection Law in 2021. The Chinese government requires these companies to store data exclusively on Chinese territory while preventing them from transferring it abroad. This law also gives the Chinese government the right to access and use data as it deems appropriate. This has raised concerns in Washington regarding unfair competition, national security and cybersecurity risks, and, most importantly, data acquisition and the development of the next generation of artificial intelligence.

China is considered a global trading center driven by the massive volume of exports to all countries around the world, with the United States being the top destination. China has a fleet of tech giants that support this approach and compete with American companies across all industries. It also has massive amounts of data, enabling it to develop the next generation of artificial intelligence, which puts more pressure on the United States. That’s what prompted President Donald Trump to impose these restrictions and then suspend them, because the restrictions affect the U.S. as much as China. The United States’ need for silicon and natural metals is as important as China’s need for semiconductors. Therefore, both countries know the importance of trading semiconductors and their tools in terms of global competitiveness. They both are fully aware of the importance of expanding production and development for data center infrastructure. Therefore, semiconductors today are the central arena through which technological conflict and digital competition take place. It is the main reason why we are moving toward a bipolar digital world.

About the Author:

Dr. Nessrine Mesto-Assaad is a Doctor of Business Administration and a researcher specializing in e-government, e-file, and Generative Artificial Intelligence (ChatGPT applications) research. Her work focuses on taxpayers’ behavioral intentions to use e-government, the electronic filing system, and the adoption of AI conversational tools when e-filing income tax returns. Currently, she focuses on the intersection between digital technology and its influence on global supremacy.