The geopolitics of the chips that make your tech work

The geopolitics of the chips that make your tech work

Why may a drought in Taiwan perhaps screw up your next computer purchase?

For one thing, the island is one of the world's top producers of semiconductors, which bind the electrical circuits in the tech we use in our daily lives. Cell phones, laptops, modern cars, and even airplanes all rely on these tiny computer chips. For another, Taiwan is now suffering its worst climate change-related dry spell in almost 70 years. This is a problem because Taiwanese chip factories consume huge amounts of water.

The wider issue, though, is a pandemic-fueled worldwide chip shortage that began way before it stopped raining in Taiwan, has wreaked havoc on entire sectors like the US auto industry, and is shaking up the increasingly contentious geopolitics of global supply chains.

COVID upended supply/demand. In the early stages of the coronavirus pandemic, auto makers around the world assumed people quarantining at home would probably buy fewer cars, so they ordered fewer semiconductors. Meanwhile, other companies were scrambling for all the chips they could get their hands on for personal computers and video game graphics cards, which have been flying off the shelves during COVID lockdowns.

A year later, car manufacturers have been forced to halt assembly lines because they can't get hold of chips for anti-lock brakes, air bags, navigation, and in-car entertainment systems. Sales of the products that locked up the inventory of semiconductors are booming.

So, why don't we just make more? Because it's not that easy. Semiconductors are highly specialized products that rely on global supply chains that have been severely disrupted by COVID. If one part is missing or late, you can't make the chips (this is precisely what happened with broken supply chain links after the 2011 Fukushima disaster.)

The US is the top global producer of semiconductors but consumes most of its own chips, while China — by far the biggest consumer — makes a lot itself and gobbles up most of the supply from South Korea, Taiwan, and India. Very little is left over for other customers from the rest of the world.

What are the US and Europe doing about it? Americans and Europeans were already thinking about ways to reduce their reliance on cheap Asian chip suppliers before the recent shortages hit — they're both teeing up tens of billions of dollars in subsidies to entice the world's leading suppliers to build advanced facilities within their borders, like Taiwan's TSMC in Arizona.

The current squeeze, which has cost Ford and General Motors a combined $4.5 billion in losses, has increased the political urgency for President Biden and Congress. But ramping up domestic production of semiconductors in the US and Europe will be immensely expensive, and will take too long to address the current shortfall.

Meanwhile, the Chinese are burning through cash to get a bigger slice of the global semiconductor pie. Chips are so essential to feed China's tech beast that last year Chinese firms spent over $35 billion in ramping up production, four times more than in 2019.

Beijing cannot afford to rely on foreign suppliers in its race with the US to dominate artificial intelligence or quantum computing. They don't want to go through hoops like Huawei, which was forced to stockpile chips following Trump trade war-related US export restrictions on Taiwanese semiconductor.

Taiwan is the big kahuna. One of the (many) reasons President Xi Jinping is pushing harder than ever to annex Taiwan is the self-governing island's outsized chip manufacturing capacity. TSMC alone makes more than half of the chips outsourced by all foreign companies, which means your iPhone runs on Taiwanese-made semiconductors. If China were to someday reunify Taiwan with the mainland, it would become such a chip juggernaut that it could bend individual countries to its will by controlling supply — as the Chinese often often do with their rare earth metals.

The US, for its part, has its own clear interest in propping up Taiwan as a global chip-making power. Taiwanese-made semiconductors are cheaper than those produced on US soil, and the more are sold to the US and its allies, the less China gets.

But if climate change makes not only droughts but also earthquakes and typhoons more frequent in Taiwan, global chip shortages will become a recurring problem — and geopolitical power struggle — for the entire world.

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Even with innovations in fintech and digital payments, roadblocks related to basic infrastructure like electricity and internet connectivity still prevent many migrant workers from being able to transfer money to their families back home with a truly digital end-to-end flow. While more workers can send money digitally today, the majority of people still receive funds in cash. Read more about why public-private partnerships are key to advancing the future of global money movement and why it matters from experts at the Visa Economic Empowerment Institute.

The European Union is, for better or worse, the most ambitious experiment in human history in institutionalized multinational cooperation. Its success depends on the willingness of its members to abide by its rules.

In recent years, the populist-nationalist governments of former Communist bloc members Hungary and Poland have flouted some of those rules in order to boost their own popularity with citizens suspicious of the EU's liberal values on issues like immigration and minority rights. In response, the EU has scolded these "illiberal" governments and threatened forceful action – so far without much effect.

The fight between EU institutions and Poland and Hungary has escalated.

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Some of the worst sectarian clashes since Lebanon's 15-year civil war (1975-1990) broke out in Beirut this week between supporters of Hezbollah and Amal, both Shiite political parties, and Christian, far-right Lebanese Forces. Shiite protesters were rallying against the state probe into the Beirut port blast, which occurred last year. They say authorities were singling out Shiite politicians for questioning and blame. Below is our original piece on the Beirut port explosions published on August 5, 2020.

The twin explosions at Beirut's port on Tuesday were so powerful that the aftershocks reverberated as far as the Eastern Mediterranean island of Cyprus, 150 miles away. The specter of fire and smoke was such that many suggested on social media that Beirut had experienced a nuclear blast.

In the days ahead, more details will come to light about why a deadly cache of materials was haphazardly stashed at a port warehouse, and why Lebanon's government failed to secure the site. So, what comes next for crisis-ridden Lebanon?

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Jon Lieber, head of Eurasia Group's coverage of political and policy developments in Washington, shares insights on US politics:

What does it actually mean to cut $1 trillion from the Democrats' $3.5 trillion social spending bill?

President Biden has proposed one of the most ambitious expansions of federal spending in recent memory. If he gets everything he wants, it would probably be the largest expansion of government since the Great Society, but he's not going to get everything he wants. Democrats have basically said they cannot do all $3.5 trillion in spending. They're probably going to end up around $2 trillion. So what gets cut? Well, we don't know yet. There's kind of two ways to go about this. They could either cut the number of programs that have been proposed, doing fewer things with more money on a permanent basis, or they could try to do more things, each program getting less money and potentially doing them on a temporary basis. So, a future Congress would have to extend it. What does this mean for you? Well, a lot of the money in here is designed to go directly to families, either in the form of cash payments, through the tax code, the Child Tax Credit and the Earned Income Tax Credit, or subsidies for things like child care, early childhood education, and community college. And if you cut these things back, it means less money is going to go out the door to the American people. It also means less tax increases to finance it. So the implications of what's being proposed could actually end up being a big deal for a lot of Americans who would qualify for benefits under these new programs.

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How will artificial intelligence change the world and especially the job market by 2041? AI scientist Kai-fu Lee just wrote a book about precisely that, and he predicts it'll shake up almost every major industry. AI, he explains, will be most disruptive to many so-called "routine" occupations, but the damage may be reduced by shifting "empathetic" workers to jobs that require human empathy. Watch his interview on GZERO World with Ian Bremmer.

Watch this episode of GZERO World with Ian Bremmer: Is a robot coming for your job? Kai-fu Lee explains AI

The Atlantic CEO Nick Thompson believes in tech firms doing business in China because connecting with people there is a huge social good for the world. But in demanding LinkedIn de-platform certain people, he says, the Chinese government crossed a line, and "you can't justify that."

Watch Ian Bremmer's interview with Nicholas Thompson in an upcoming episode of GZERO World, airing on US public television.

Sectarian clashes in Lebanon: As Lebanese supporters of Hezbollah and Amal, both Shiite political parties, were on their way to a protest in Beirut Thursday, gunfire broke out, evidently between Hezbollah militants and those of the Christian, far-right Lebanese Forces. The protesters were rallying against the ongoing state probe into last year's devastating twin blasts at a Beirut port, saying that state authorities were singling out Shiite politicians for questioning and blame. They have called for the dismissal of Judge Tarek Bitar — who is leading the probe and on Monday issued an arrest warrant for a prominent Shiite parliamentarian linked to Amal. Each side has blamed the other for starting the violence Thursday, which killed at least six people, injured dozens more, and threw the entire city into a panic. In a grim omen, the clashes, which are among the worst in recent years, erupted along one of the old front lines (dividing Muslim and Christian neighborhoods) of the 15-year sectarian civil war that devastated the country up until 1990. With the country mired in economic and political crises, the people of Lebanon can't seem to catch a break: just last week the country was plunged into complete darkness when its decrepit power grid ran out of fuel. Meanwhile, Najib Mikati, who became prime minister designate in July after months of political deadlock, declared a "day of mourning," but civil strife continues.

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35.4: The US has overtaken China as the country with the largest share of the world's Bitcoin mining networks, now accounting for 35.4 of the global mining presence. This comes after the Chinese government banned domestic cryptocurrency mining operations to promote its own digital yuan that would track every single transaction.

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