Chip Wars in a Trump 2.0 World
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So we often discuss war and conflict on this program, and today I want to focus on a non-traditional war, the chip wars. Over the last few decades, China has begun to catch up with the United States in several arenas. Its military might, its economic clout, innovations in clean energy. But one area where it is known to be significantly behind is

is in the manufacturing and design of the highest-end chips, or semiconductors. Now, a quick primer here. Chips are used in everything from microwaves to the smartphones in your hands. But the highest-end versions of those, the semiconductors that are truly special,

They are the ones that have exponentially more computing power, and they're the ones that are behind the big AI boom. And that is what both companies and countries are trying to control. Hence, the chip wars.

Now, US President-elect Donald Trump has a background here. He kickstarted many of the restrictions on China, on Huawei, on banning sales of Dutch lithograph machines, all of this in his first term. And then Biden expanded on them. All of this, on all sides, was designed to maintain America's advantage in artificial intelligence.

And the question now is what Trump might do in a second term and how that interplays with another big agenda item on his mind, and that's tariffs. Well, my guest today is the world's leading expert on semiconductor competition. Chris Miller is the author of Chip War, the fight for the world's most critical technology. He's also a professor at Tufts University's Fletcher School.

As always, we love hearing from you. Our email is live at foreignpolicy.com. Let's dive in. Chris, welcome back to FPLive. Thanks for having me back. So I'm going to start with some very, very basic questions. Why do we care where our chips are made? Well, I think there are two reasons why you might care where chips are made. The first has to do with supply chain security. Can you get access to the chips?

that you need. And because chips are in everything, in cars, in microwaves, in missile systems, you need thousands and thousands of chips per person to make an economy function. And today there's great concentration in the supply chain in Korea, but above all in Taiwan, which produces many of the most advanced chips, including 99% of the chips that are used for

training AI systems. That's the first reason. If you lose access to Korea or Taiwan, the entire global electronic supply chain will freeze up. The second reason why you might

where your chips are made is because data security really matters. And I think it doesn't take a frequent reader of spy novels to imagine ways that governments might try to use access to semiconductors as a means of gaining access to networks and devices for both espionage, but also for sabotage purposes, as we've seen with Israel's recent pager operation

vis-a-vis Hezbollah. That's the second reason why the provenance of chips is not just an economic question, it's also a political question. Now, you partially answered a question I was going to ask you. It's a subscriber question from Dale Ponikver. But the question is, what other countries are in the running in this big race? You mentioned Taiwan, but if you had to rank them all, how do they fare?

Well, it depends a bit on which types of chips you're looking at, because different countries specialize in different types of chips. When you're looking at the processor chips that make possible smartphones or PCs or AI systems, Taiwan is by far and away the world's leader.

But processors alone aren't enough to have a type of system that you'd use. You also need memory chips that can store data. And there, Korea is the world's leader for certain types of communications chips or sensors. There are companies in Japan or the US or Europe which also have important roles to play. China is the world's biggest buyer of semiconductors.

It spends as much money each year importing chips from all the other countries that I mentioned as it does importing oil. But it's trying to catch up. And so the biggest change in the chip industry over the last decade has been China's very active industrial policy as it seeks to move up the technology ladder and become self-sufficient in an increasingly large share of semiconductors. What about the United States? You didn't mention that.

The United States is a leader in chip design. Companies like NVIDIA, Qualcomm, Apple, and also big tech companies like Microsoft, Meta, and Alphabet, they are some of the most capable chip designers in the world. And if you look at valuation from an economic perspective, NVIDIA is the largest chip company by far, but NVIDIA has never manufactured a single semiconductor.

Most of the firms that I listed work with the world's biggest chip manufacturer to actually produce all of the chips they design. And that's Taiwan's TSMC, the Taiwan Semiconductor Manufacturing Company, which is the world's largest chipmaker and also the world's most advanced chipmaker.

which means that there's deep, deep interdependence between Silicon Valley's biggest tech companies and Taiwan's biggest manufacturer. Neither one of them can operate without the other. And that's been a great partnership in terms of driving technological progress, in terms of enabling new types of products. But it also entails extraordinary risk if something were to happen to Taiwan.

Now, at the start of this show, I sort of said that China is far behind the United States when it comes to chip design and chip manufacturing, at least at the highest end of it. I mean, tell me if what I said was correct. And if so, I mean, how far behind is China?

But it is correct, although China is trying very hard to catch up. And I think here you've got to differentiate between chip design, chip manufacturing, and then the production of the machines that are used to manufacture chips. And this is an entirely separate level of the supply chain where the US has a much, much bigger footprint than when it comes to just the manufacture of chips themselves. There are five

five big companies around the world that produce the most high-end tools that are used to make chips. Three are based in California, one is based in Japan, and perhaps the most important is based in the Netherlands, a company called ASML, which makes a type of tool called a photolithography machine without which you can't make the most advanced chips. And so if you go inside the most advanced chip maker in Taiwan,

TSMC, you'll find machines from each of these five companies inside of it. What's also true, if you go inside of China's most advanced chip making facilities, you'll also find tools from each of these five companies inside because China's even further behind when it comes to making the machines that make chips than it is to making chips itself. If you zoom in on your specific question, how far is China behind on chip making? We had a great data point come out this

this week, Huawei, the leading Chinese telecommunications firm, as well as China's leading AI hardware firm, just released its newest smartphone. And we had a breakdown of the chip that was inside of it, produced by China's leading chip maker, a company called SMIC. It was produced with a manufacturing process that in Taiwan, TSMC had pioneered around 2018, which means that the leading Chinese firm, SMIC, is around five or six years behind

TSMC. And just final point, that might not sound like a lot only being five years behind, but because of what's known as Moore's law, the computing capability of chips doubled roughly every two years. So if you're six years behind, you're three doublings behind the cutting edge. And so that's a position that China does not want to be in. And it's a position that makes Taiwan so extraordinarily important.

And that's two to the power of three, so eight times behind over the course of that period. So let's get to the nub of our conversation today. I mean, you've just described how China is behind. And I'm curious, what impact over the last few years have U.S. export controls had on that? How successful are U.S. restrictions on China?

I think the goal of U.S. restrictions has been the following. The U.S. has identified artificial intelligence as a critical sphere in which it wants to maintain as large a lead as possible over China. It also noted that key to training bigger and bigger AI systems is more and more capable semiconductors.

In particular, the chips that are designed by NVIDIA and manufactured in Taiwan by TSMC. These are the chips that undergird almost all of the world's leading AI models, whether trained by Google or Facebook or whether trained by Tencent or Baidu in China. NVIDIA is by far the largest player.

And the US has restricted both the high-end AI chips from being sold to China and the tools that are used to make high-end AI chips that China can't manufacture its own at scale. I think there's been a lot of loopholes in the way these rules have been written. Enforcement is tough on its own. And the way the rules have been written allow, for example, the shipment of certain tools to certain facilities in China that promise not to produce cutting-edge chips, but ban the shipment of the same tools to other facilities that

are producing cutting edge chips. And I think there are real questions to be asked. Well, how much should we really trust the Chinese firms that say, oh, no, we're not producing AI chips. We're just producing other types of chips when right next door there's a factory that's producing the cutting edge versions which are prohibited. There's probably a fair amount of subterfuge going on there with Chinese firms lying about

the types of use cases that they're actually undertaking. So the rules have been full of loopholes, but even then they've had a real effect. And the fact that you see smuggling of chips into China with people hiding GPUs, these AI accelerators in their suitcases into China, I think illustrates just how dependent China still remains on chips that are imported from Taiwan and designed by US firms. Hmm.

And so to close some of the loopholes that you're describing, one of the things reportedly that the Trump administration will consider is component tariffs. Can you explain what that is and how that might work? One of the concerns that both the Biden administration but also many Republicans have had is that

In the types of the industry, the segments of the industry where China's got the capabilities that it needs, so mid-range and low-end ships, China's building out tremendous production capacity, sort of like what we've seen in solar panels or more recently in electric vehicles. There's been a huge surge in production capacity, which over the next couple of years is going to spill into global markets and drive down prices.

And lower prices might seem like a good thing, and in some ways it is a good thing, but it's bad news for Western firms that will face a competition that's not dictated by market dynamics, but rather by the scale of government subsidies that Chinese firms are benefiting from. And we're already seeing Western firms decline to invest as much as they otherwise would because they're afraid future investments won't be profitable as they look at this large surge of Chinese production coming online.

And so to respond to that, the Biden administration has already increased tariffs on ships that are directly imported from China to the United States. The challenge is that China doesn't actually sell many ships directly to the U.S. They're often sold to Malaysia, packaged into a different component than assembled into a final device in Vietnam before they're brought to the U.S. And so if they're sent to the U.S. from a country other than China,

Or if they're sent in a final good rather than at the chip level, they pay no tariffs related to China or related to chips. And so the US tariffs that solely impact chips coming straight from China will have a very limited effect. And that's why one of the debates being had right now in Washington is whether you should look inside of a good and ask how many Chinese chips does it have in it? And if it has above a certain threshold, should it pay a tariff on its chip content inside? And

And this would, of course, be a major change to how the global trade system works, a major administrative burden for companies which haven't had to detail what components are inside of every washing machine or smartphone that they sell. But it would also be a way to get at the challenge of how do you impose trade measures in an era of very complex supply chains in which most trade is not bilateral between two different countries, but rather crossing multiple different national borders. Hmm.

And Chris, you know many of the players who are sort of making some of these decisions, both at the company level and at the country level.

What is your sense when you hear some of the proposals from the Trump administration about blanket tariffs on China versus some of the more detailed component tariffs that you're describing right now? What is your sense of how a Trump White House would gain out what kinds of tariffs to prioritize?

I think if you talk to companies, to start with their perspective, they're quite concerned about blanket tariffs because they fear that this would slow economic growth in general, make products more expensive, and ultimately hurt their bottom line. When it comes to more targeted component tariffs, it depends which type of company you are. Companies generally welcome any sort of measure that reduces their competition from China, but they oppose any sort of measure that would increase their cost.

And so for every company that would welcome a tariff on a component coming from China, there's a different company that assembling multiple components into a system that would prefer to access the lowest cost version possible, even if it's from China. And so we already see, I think, significant debates within industry about how exactly to best target any sort of trade response to Chinese industrial subsidies in this sphere.

If you turn to the new administration, which, of course, is still being formed, so we'll learn more over the coming weeks about the major players and their views inside of it. It's clear that Trump has signaled, not just in the current campaign, but also in its first term, that he believes in tariffs and he's focused on rebalancing the international trading system. He thinks that blanket tariffs are an important tool in the toolbox to do that.

But I also think there will be voices in the Trump administration who will warn about the economic costs, warn about the impact on inflation, warn about the impact on the stock market, and will be pushing for more targeted measures that can address the trade concerns that are most impactful, but do so in a targeted way that will minimize the broader cost to the economy. And that's a debate that we saw playing out in the first Trump administration. It limited some of the tariffs that the more

pro-tariff members would have liked to impose. And I think we're going to see that same dynamic playing out in the new administration as it forms.

So Chris, let me add one more layer to this, and I'm channeling here many questions we're getting in from our subscribers. And the layer is this: a big part of the success of constraining China's access to the highest-end chip capabilities has to do with Washington leveraging allies. And so I'm thinking of many of the countries you mentioned: the Netherlands, Japan, South Korea, Taiwan, of course.

And if the new administration ends up being less committed to alliances, what happens to its ability to corral support for many of the restrictions that you're describing? In other words, how critical is the sort of the role of alliances here?

I think the role of alliances is critical, but alliances work in two different ways. I think first, there's the ability to agree on a set of shared principles and take collective action. That's one aspect of alliances, and we've seen the Biden administration focus on that. Second is the ability to use leverage and to cut deals with allies. And I think that's where the Trump administration focused in its first term, and it will focus again

In the second term, and I think the Trump administration's critique of the Biden team would be that they had leverage they didn't use, and they promised not to use leverage at the start of negotiations that as a result got worse deals because of it.

I think it's not a coincidence that the fact that Trump is threatening tariffs on almost everyone has already induced some countries to take policy shifts that they hadn't previously taken. The headlines this morning about European leaders moving towards promising 3% of GDP and defense, that wouldn't have happened in the absence of Trump's tariff threats. And so I think we're going to see the new administration take a bit more assertive

a bit more negotiations-based approach to allies, but that doesn't mean they're going to abandon allies. They're just going to try to make sure allies are living up to a lot of the promises that they've made, but not always carried through on.

Yeah, so that's the country's element, but there's a company's element of this as well. And over the last several years, in part because of the restrictions on China that Trump began, a lot of companies have redone their supply chains. They've tried to get away from China, less reliant on China. And for example, they've rerouted a lot of their supply chains to say, for example, Mexico.

Now those same companies could face a bit of whiplash if there are blanket U.S. tariffs on a country like Mexico. And again, a lot of this could be posturing. Many of the tariffs that have been proposed may never happen. But what impact is all of this having on companies that have to think about supply chains and whether they need to move them around again?

You're right. I think this is a real challenge for companies. There are a lot of Western companies, not just American, but Japanese, European, Korean companies.

that will say, look, we undertook serious efforts to move some of our supply chain to places like Vietnam or like Mexico, and tariffs on these countries would punish us for having taken these steps in response to the China tariffs that Trump imposed in his first term. I think this is going to be a really vigorous debate within the administration. There's a school of thought that says Vietnam is just putting the final finishing touches on goods that were essentially assembled in China

and it's as a result largely a tariff avoidance scheme. I think that's probably not a fair assumption in general, but there's a school of thought that believes that. But that's going to be balanced against the view supported by companies that say, "Look at all the investments we put in places like Vietnam, building new factories, not just for the final assembly, but also for some of the key components as well to actually

provide the supply chain diversification that the first current administration was demanding. And so I think this will be an important debate to watch and companies are going to have a big role in how it plays out. And you are listening to Foreign Policy Live. Remember, you can catch these conversations live and on video on foreignpolicy.com. Subscribers get to send us questions in advance, which we often use, in addition to a range of other benefits, including the magazine. Sign up.

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Plus, every Friday, the hosts share reports highlighting the latest progress from across the globe. For a dose of optimistic ideas from smart people, listen to What Could Go Right wherever you get your podcasts. Another debate to watch is where you get the energy to

to build the data centers that are powering a lot of the growth and development in AI. So the needs are clear. We need much, much more power to keep up with demand. You need non-intermittent supply. So we know that wind and solar is not ideal. And the places that can do all of this and have the money tend to be, for example, in the Middle East, thinking of Gulf countries like Saudi Arabia or Qatar. Where do you think the future of AI is headed

in a geopolitical sense? Is the next decade going to be a lot of the United States and China trying to look to other countries and places that can help them build energy-sufficient data centers? One of the reasons we've heard the Trump administration as it forms talk so much about energy is because they don't want to be reliant on other countries to provide the energy that AI will require

in the United States. And this is a point of comparison with the Biden administration where they've had roughly similar views. It's been worth, I think, watching, for example, the request by the United Arab Emirates to import large volumes of high-end AI chips to build AI-capable data centers in that country. And it's been a real controversy with them

US government. On the one hand, the UAE is obviously a partner in many different spheres, but it's also a country that has close ties with China. There's been parts of the US government that have been very skeptical about the wisdom of transferring export-controlled chips that you don't send to China to a country that has such close relations with China as the UAE does, especially in the technology sphere. Yes, it's true that

Countries, especially in the Middle East, are going to say, we've got lots of capital and we've got lots of energy. Let's build AI data centers here. But I think we're also seeing the U.S. responding and say, if energy is the challenge, we can address that by permitting reform, by encouraging more energy production.

production. And I think this is going to be a challenge that we'll see how it plays out, whether the US can actually achieve the increases in energy production that will be required for AI. But the US government is going to try to because it doesn't want the situation where it's reliant on Middle Eastern countries to provide the energy that US AI firms require to build their AI systems.

Look, and a lot of that energy is going to end up being fossil fuels. And I know climate change is not your area of expertise, but let's just riff very quickly on the climate implications of a lot of what we're discussing, because, you know, the energy demands are immense. Some of the restrictions that we're describing also have energy impacts, particularly

Countries and companies, for example, trying to manufacture in one place, assemble in another, kind of to skirt tariffs, that is not good for energy either. And then a lot of the blanket tariffs that have been mooted, for example, and specific ones on electric vehicles, also not great longer term for climate change and trying to disseminate more clean energy tools around the world when they're cheaper.

What is your sense again of, you know, in the chips and AI industry, where does climate change pop up as an area of discussion?

So I think it's a very complex picture. If you look at the trade aspect of the debate, I think you're absolutely right that imposing tariffs on solar panel imports and increasing the price of solar panels is bad news for the solar build-out and therefore cuts against efforts to address climate change. But I also think that one of the factors, not the only factor, but one of the factors that has made China so cross-competitive

when it comes to many types of manufacturing over the last several decades, is a differential in environmental rules between Western economies and China. And in certain segments of industry, you see environmental arbitrage shifting manufacturing to China because it's cheaper, because there aren't the same types of rules in place. And so in those segments of the economy, you could imagine actually tariffs having a positive environmental impact if, in fact, they reduce the cost differential and

and make it equally cost efficient to produce in jurisdictions that have better environmental rules. And so how that balances out on that, I think is very difficult to say, but I don't think it's a fair assumption to say in general restrictions or rebalancing of the trading system would necessarily have negative effects on efforts to confront climate change. I think that the AI aspect is really quite difficult to deal with because I think you're right. There's going to be a

a great increase in demand for electricity that AI requires. And I think you're also right to suggest that at least in the short and medium term, because of intermittency issues, solar wind alone can't do it. And nuclear is a great idea for the medium or long run, but it's going to take years to build out serious nuclear capacity. There are people looking at carbon capture for gas, eothermal, many different types of technologies. But at the end of the day, it does seem to me like there will be some increase in use of natural gas.

to meet the power demands of AI. And I think this will be a complex trade-off for many different countries to deal with. And certainly countries that have been trying hard to decarbonize their power system are going to face some difficult choices about how expensive they want AI to be.

As we talk about the Chippewas, which you are the expert on, how long does it take for a country to really, from soup to nuts, to really build something? So under the Biden administration, through the CHIPS Act, you've seen TSMC get more than $6 billion to build a fab in Arizona.

Global Foundries is expanding production in New York and Vermont. How long does it take for these kinds of things to take off? And given that, how do you judge the Biden administration's work in trying to get domestic production up?

Well, shipmaking facilities are among the most complex manufacturing plants that humans have ever made. And so given that, it's no surprise they take a fair amount of time, a minimum a couple of years from the start of construction to high volume manufacturing, sometimes even longer when it takes time to

get a plot of land fully permitted with the power and the water and all the other minerals, uh, and, um, and supplies that are, uh, necessary. I think the fact that in Arizona, uh, TSMC has already got a facility up and running with manufacturing, uh, capabilities comparable to what, uh, they have in Taiwan. That's a real win. Um,

It's a win for the Biden administration, also a win, I would note, for the Trump administration, which first architected TSMC's investment in Arizona.

I think other aspects of the CHIPS Act as it's been implemented face more challenges. Intel, for example, the leading US-based chip maker, also poised to receive a significant amount of money from the CHIPS Act and just removed its CEO a couple of days ago as a result of poor financial results. And so there are real questions hanging over that specific company. We're going to have, I think, different companies facing challenges.

different types of scenarios. But at the macro level, if you look at investment in chip making facilities, there's been a huge increase driven by the CHIPS Act. And I think that responds to what Congress wanted when they passed the CHIPS Act, which was more diversification, a bit more manufacturing in the United States.

Okay, let's play Washington's favorite parlor game right now, which is what to make of Trump's picks so far in terms of what they mean for industrial policy trade for chips. So, you know, someone like Marco Rubio, Secretary of State, he is a noted China hawk.

You've got Robert Lighthizer, who has not yet been named to a position, but his former, I think, deputy, someone on his team, has been named to USTR. We know that both Commerce and Treasury will be run by Wall Street billionaires. What is your sense of what the picks so far, what we know of them, mean for USTR?

chip production in the United States, but also export controls and what it means for China.

Well, I think you're right to suggest that the key positions in the cabinet really run the gamut from quite protectionist to quite free trade oriented. And again, I think this is a similarity with the first Trump term where on the one hand, we had former Treasury Secretary Mnuchin advocating for very limited tariffs pointing towards the impact on the stock market and Peter Navarro advocating for a full coupling

from China. That's pretty much the gamut of the ideological spectrum when it comes to trade debates, and they were all present in the Oval Office. We're going to have a similar spectrum this time, which means both that the president himself will have a

a wide latitude to make decisions, but also that if you want to understand the dynamics, you should look not just at the personalities, but at the interests that way. And so look at Congress, which has been very stable in terms of its preferences over the past couple of administrations in terms of what it wants to be to be Taiwan and be to be China. Look at business interests, which will lobby regardless of who the president is. Look at the interests of the U.S. economy. No president wants to preside over a slowing economy, inflation,

or a sinking stock market. And so the president is going to have to think about all of these different interests as he devises policy towards chips in particular and tariffs in general. And so I actually think that thinking structurally is probably a better way to understand the potential paths forward than trying to guess the positions of different commerce secretaries when it comes to these issues.

That's a smart answer. But let's take on one aspect where there are actually clear differences between, say, the Biden administration and what Trump might do, and that's regulation. It's very clear that the Biden administration is seen by investors as

as being tough on business and that the business climate was not something that CEOs found favorable. And Trump has promised to pull back on that. He's obviously close to Elon Musk, to the tech optimist, Marc Andreessen. But on the other hand, you have Vice President-elect Vance, who publicly has supported the FTC chair, Lina Khan,

So what is your sense of whether the tech skeptics or the tech sort of accelerators are going to win out in a Trump administration? I think they might each win in different spheres. I think when it comes to what are not the legacy big tech firms, companies like Facebook, I think there's reason to think they're going to face some challenge. We've heard people

People like soon-to-be Vice President Vance take a pretty tough line on Facebook in the past. We've seen some of the picks for key antitrust positions also be quite skeptical of some of the big tech companies. But I think you get a different view if you look forward when it comes to the types of investments that

AI will require, where the Trump team has been very, very vocal, not just at the level of Elon Musk, but also the new energy secretary in trying to find ways to streamline the construction process, streamline the permitting process and facilitate major investments into energy and data centers.

in the United States. And so I think it's possible that you simultaneously get some victories for those parts of the administration that want to take on legacy big tech, while also victories for those who want to facilitate the build out of AI infrastructure, which benefits some of the legacy big tech firms in certain ways, but also benefits new types of players like OpenAI, Anthropic, XAI, some of the new AI-focused tech companies. Chris, do you ever worry that tech companies have too much power?

Well, I think it's to some degree inevitable that the biggest and most valuable companies in the United States will have a lot of power. Today, it's tech companies that 50 years ago, it was big industrial companies. Large financial players always have a lot of power. I think the good news is that they disagree among each other on a lot of issues. And so there's balancing of them out. But I think we saw in both the Harris campaign and the Trump campaign,

campaign, expressions of concern about the role of different tech companies in shaping public discourse and

shaping political outcomes. Now, how exactly one deals with that concern is a very thorny question. But certainly, I think in the political discourse and in general public sentiment, there is concern about this issue. Let's talk a little bit about China coming back to it. How is China preparing its tech industry and its desire to build supremacy in chip production? How are they preparing for a second Trump term?

I think there are a couple of strategies that China's pursuing. One is to continue trying to domesticate as much as possible the entire technology supply chain. They can't do it yet in advanced chips. They certainly can't do it in the tools that are used to make chips. But wherever they can, they're building up domestic producers and trying to become self-sufficient. That's strategy one. Strategy two is preparing to hit back.

against the Trump administration. We've already seen China threaten limitations on the export of critical minerals like gallium and germanium, where China has 90% market share in the processing of these minerals. These are minerals that are critical in chip manufacturing. And so China's threats to cut off US firms are something to be taken, I think, seriously. And then in addition to that, there's a second retaliatory measure

a method that China has, which is to restrict US firms access to the Chinese market. And because China's 20% of global GDP, it's a key market for many big US firms. Certainly chip designers like Nvidia and Intel need the Chinese market, but so too do Apple and Tesla. And so hitting back against big US firms can be a politically powerful way to retaliate against any measures that Trump takes.

You know, there's a quote in your book that has stayed with me. In 2019, Robert Hannigan argued against banning Chinese tech companies. And he wrote in the Financial Times that we should accept that China will be a global tech power in the future and start managing the risk now rather than pretending the West can sit out China's technological rise. A lot has changed since then, of course, but I'm curious how that quote strikes you today.

Well, it seems to me that the key Western players, I think the US in particular, but to some degree, other Western countries as well, are moving in a different direction, choosing instead to lock out Chinese firms from China.

access to their critical markets and also to lock out Chinese firms from accessing the most advanced technologies that they produce, at least when it comes to the absolute cutting edge in semiconductors and AI. And so rather than a sort of managed competition in which everyone is playing in the same markets, we're seeing actually more bifurcation where Chinese firms focus on the Chinese market, Western firms focus on Western markets. It's not in every segment, but the trend is certainly in that direction. And I think that trend will persist

through the next administration. You wrote a great piece recently, Chris, about how the AI race is turning into a cloud race. Just explain your thinking there on what that means and how it affects countries and companies.

This is a key point that's often missed. If you look at where many AI systems are trained, and more important than that, where access to AI systems for their actual application is undertaken, it's largely in cloud computing companies. So if you ask ChatGPT a question or go on to Cloud, Anthropic and ask it a question, this is generally pinged to servers that are operated by AWS or Microsoft or Google in the case of other platforms.

products. And these cloud computing companies today can generally offer services to companies around the world, including in most cases, Chinese companies. And U.S. cloud firms are by far the world's leader in market share outside of China, where there are restrictions on U.S. firms' ability to access. Everywhere else in the world, U.S. firms are the leaders.

which means if you want access to low-cost computing power, the best place to get it is with the U.S. cloud firm because they're the biggest and most efficient. And the U.S. is thinking carefully now about ways it can leverage the fact that U.S. cloud firms do have this leading market position. It's not exactly the same as the chip industry where there really are monopoly players that

I have no competition. There is some competition in the cloud space, but I think the U.S. is going to study carefully the implications of the fact that the biggest three companies in this segment are U.S. companies and where it's possible to gain foreign policy advantage from that fact, take advantage. And this is one data point here. We've already seen very active discussions in the U.S. government about

increasing the types of due diligence and restrictions that are put in place about Chinese firms' ability to access certain types of US cloud services. And I wouldn't be surprised if those types of restrictions increased in the future. Well, right on that point, and I want to take a couple of subscriber questions. I have one from Nathan McQuarrie, which is relevant to what you were just

saying. And he wants to know if you think the Trump administration is more likely to listen to the national security team when it comes to chips and closed loopholes on export controls, or listen to members in the team's orbit who are calling for keeping all of these loopholes open because they might benefit growth in the chip industry more broadly.

Well, I think it is going to be a push and pull between those two different factions. We saw that in the first Trump administration. We're seeing it right now in the Biden administration, where some loopholes have been closed, others have been deliberately left open. I think we should expect that same debate to play out repeatedly in the next administration. And I think either

The trend has been more loopholes get closed, more restrictions get put in place, but it's not a fully one-way direction of travel. And there's a lot of cases in which government has wanted to act, the security state has wanted to act, and big, powerful companies have stepped in with really influential lobbying capabilities and limited the ability of the security state to get what it wants. That's not going to be...

unique to the next Trump administration. That's been a feature of the Biden administration and was a feature of the first Trump administration as well. One of our subscribers from South Korea, SH Chu, wants you to describe a little bit about why you think Samsung's fallen from its sort of heady position in the industry. First of all, if you agree with that, and if so, then why? I think that is unfortunately correct. And I think there's three different segments where Samsung is facing problems.

pressure right now, first in the smartphone industry. Samsung's a big supplier of smartphones, but is really being squeezed right now by the success of higher-end Chinese smartphones in other markets, and so faces pressure in its smartphone business. Its business to make processor chips has lost share to Taiwan's TSMC, which, as I mentioned, has over 90% market share when it comes to high-end chips, which means that Samsung has less than 10%.

market share. And then third, when it comes to memory chips, which is the type of chips where Samsung has really focused over the last couple of decades, Samsung has lost to another Korean rival, SK Hynix, which has managed to be first to the market with a type of memory chip that's focused on AI applications called high bandwidth memory. And this has been a huge boon for SK Hynix.

But it's also been a huge embarrassment, I think, for Samsung not to be a leading player in this market at a time when this new high-end membership is absolutely critical for AI applications. And all three of these factors have been real headwinds for Samsung's business. And I think we've seen a series of leadership changes at Samsung over the past couple of months as the company tries to respond to these challenges.

Chris, I want to ask you a question that I think regular viewers of this program know is something I care about. And that is, you know, when you think about great power competition, in this case, when it comes to chips, what happens to smaller countries that can't really compete in that space? And, you know, this is a broader thing as the world continues to sort of think less about free trade and

feels disillusioned by globalization, turns inward more and more. One sector that is affected the most is smaller countries that don't have the clout, strength, size, salience to play the industrial policy game. The trickle-down effect from advances, they come to it, but with some delay.

And then they end up being sort of pawns in a sense that are sort of, you know, playing a part in a larger great power competition, which leaves them vulnerable. What is your sense of how that plays into the Chippewa spectrum and also in the fight over the future of AI and the energy behind it?

I think you're absolutely right that this dynamic is present and it's certainly how small countries feel. I've heard many different variations of the

the analogy of when elephants fight, the grass gets trampled. And whether I think you're South Korea or Malaysia or Singapore, you feel like you're the grass sometimes underneath the feet of very large elephants. But I think there's another side to the story, which is that small countries are also very good at learning to play both sides. And we see that in the chip industry as well. If you're neither the US nor China, there are times when you actually have better access to the world's two largest economies and companies that are

from the US or China, there's a benefit to being seen as a somewhat neutral player in the chip war. And so for

For companies, it does cut both ways. They're happy to talk about the ways in which they're harmed by great power competition. They're less public in the ways that they're helped sometimes by great power competition. But I think we shouldn't underestimate that the second category exists because it does. And I think companies are very strategic about how they try to take advantage of dynamics that might actually restrain some of their competitors from either China or from the United States.

Chris, the range of your knowledge is just breathtaking. We're going to have to leave it at that. Thanks for joining us. Thank you for having me. And that was Chris Miller, the author of Chipwar, The Fight for the World's Most Critical Technology.

Follow us on foreignpolicy.com slash live. You will see there that next week we have two separate sessions with two Biden administration officials, the climate envoy, John Podesta, and then Samantha Power, the head of USAID.

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Americans are more divided than ever. What can be done to start repairing trust between people of differing opinions? How about trying a little diplomacy? Join me, Annalise Riles, for season two of Everyday Ambassador, where we talk to experts and geopolitical thinkers from around the world to show you the small moves that make big change.

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