The Chip War: Technology, Economics, and Geopolitics

Fundacja Dobre Państwo • January 2, 2026 • 🇵🇱 Polski

Introduction

A chip is a marriage of physics, economics, and geopolitics. Physically, it's a silicon crystal; economically, a driver of productivity; and strategically, a tool for projecting power. This tripartite nature explains why the semiconductor dispute between the US and China is defining the global order. At its core lies Moore's Law: a self-fulfilling prophecy that has driven innovation for decades, linking physics with the relentless logic of economies of scale. This article explains the genesis of this power, the key fronts of the technological war, and the role of chips in the economy and military.

Moore's Law and Silicon Valley: The Genesis of Chip Power

The development of semiconductors was not solely the work of geniuses, but rather a convergence of military needs and market logic. It was the contract for Minuteman II missiles that transformed integrated circuits into a mass-produced product. Japan later took the lead, dominating DRAM memory, followed by South Korea with Samsung. The Taiwanese TSMC model proved to be a breakthrough, separating design from manufacturing and creating the 'fabless' logic. Today, TSMC controls 90% of the market for the most advanced chips, and the entire global economy relies on this specialized geography. This makes the Taiwan Strait a chokepoint for civilization.

USA vs. China: Fronts of the Technological War

A critical chokepoint is the Dutch company ASML, a monopolist in manufacturing extreme ultraviolet (EUV) lithography machines. Without these, producing the smallest transistors is impossible. The US, along with the Netherlands and Japan, leverages this dependency by blocking China's access not only to equipment but also to servicing. Beijing responds with export restrictions on raw materials and attempts to catch up, achieving 7nm technology using older machines. The sanctions are effective, but their success hinges on maintaining an advantage in the culture of process – an obsessive control over thousands of variables that cannot be replicated.

Semiconductors: The Heart of Modern Military Doctrine

Military and space applications have driven chip development from the outset. The Apollo program risked using integrated circuits in its onboard computer, forcing a leap in reliability. In space, a dilemma persists between expensive, radiation-hardened (rad-hard) circuits and cheaper commercial off-the-shelf (COTS) components, protected by redundancy. In the military, evolution shifted from precision-guided munitions (Paveway bombs) to the American 'offset strategy,' where technology compensated for the enemy's numerical superiority. Today, we are entering an era of autonomy, where drone swarms and unmanned vessels are becoming the norm.

Conclusion

The war over chips is a dispute over the architecture of the future world. Semiconductors have become the nervous system of the economy and a force multiplier for military power. Control over supply chains, from ASML machines to design software, is now synonymous with controlling the pace of innovation. This represents a fundamental shift in the economics of power projection. Instead of deploying a multi-billion dollar frigate, a flotilla of inexpensive, intelligent sensors can be deployed. A chip not only enhances existing capabilities; it completely transforms the cost-benefit calculus, opening the playing field for new actors.

📄 Full analysis available in PDF

Summary

"The Chip Wars: Technology, Economy, and Geopolitics" provides an in-depth analysis of the strategic importance of semiconductors in today's world. It presents the chip as a fundamental element connecting physics, economics, and geopolitics, serving as both a productivity module and a tool for power projection. The paper traces the evolution of the semiconductor industry, from its origins to the rise of giants like TSMC and ASML, which hold monopolies on key technologies like EUV lithography. Central to this analysis is an analysis of the US-China conflict over technological dominance, including US sanctions and Chinese responses. The paper also highlights the brutal economics of the industry, the enormous production costs and complex supply chains, as well as the existential importance of chips for the modern economy, military, and the development of artificial intelligence, from historical applications in the Apollo program to contemporary drones and AI accelerators.

Frequently Asked Questions

Why are chips so crucial to the modern economy and geopolitics?

Chips have become the nervous system of the modern economy, driving innovation and productivity. Their strategic importance stems from the fact that computing power is now a measure of military and technological superiority, making control over their production a key element of geopolitics.

What is ASML's role in the global chip supply chain?

The Dutch company ASML has monopolized the production of extreme ultraviolet (EUV) photolithography machines, which are essential for manufacturing the most advanced integrated circuits. Without its technology, printing the finest geometries on silicon is impossible, making it a bottleneck for the entire industry.

How does the chip war affect US-China relations?

The US-China chip conflict manifests itself through US regulations and export sanctions on advanced AI chips and the machinery used to produce them, which limits China's access to key technologies. Beijing responds by controlling the export of raw materials necessary for chip production, leading to "managed diffusion" of technologies.

What do the "foundry" and "fabless" models mean in the context of semiconductor manufacturing?

The "foundry" model involves a company (e.g., TSMC) specializing solely in the production of chips designed by other entities. The "fabless" model, on the other hand, involves companies (e.g., Nvidia, Apple) designing chips but not owning their own factories, outsourcing production to foundries.

What are the main economic challenges associated with producing the latest chips?

Building an advanced factory costs between ten and twenty billion dollars, and a single EUV scanner costs around 350 million euros. These enormous costs create a high barrier to entry, leading to oligopoly, and also increase supply chain complexity and economic risk.

Are technology sanctions against China effective?

Sanctions are effective when they cover the entire value chain—from hardware, to service, to software, to implementation expertise—and are globally synchronized. However, China has demonstrated an adaptability, leveraging older technologies and its domestic market, making their long-term effectiveness dependent on maintaining Western technological superiority.