Interdependence or breakup: The future of semiconductors in the duel between the superpowers - Insight
- Gabriele Iuvinale
- 3 giu
- Tempo di lettura: 18 min
The US-China technology competition is intensifying, taking on the shape of a new cold war, particularly in the crucial semiconductor sector. Washington is trying to slow Beijing's progress through restrictions on exports of AI chips and design engineering (EDA) software, which have hit Chinese companies like Huawei hard.
Despite these restrictions, China is demonstrating a remarkable capacity for self-sufficiency. Thanks to huge domestic investments, it is rapidly advancing in key areas such as artificial intelligence, electric vehicles and semiconductor manufacturing. Although it remains partially dependent on more advanced foreign technologies, China is steadily improving its domestic production.
US sanctions, such as those imposed on Huawei and Synopsys, are paradoxically pushing Beijing to invest even more in the development of its own technologies. This has triggered a heated debate in the US about the effectiveness of such measures, with some fearing that they could end up accelerating the very Chinese technological self-sufficiency they are intended to slow down. China already excels in areas such as electric vehicles, drones, and solar panels, and is rapidly closing the gap in advanced microchips and AI.
Geopolitically, relationships with major semiconductor players—Taiwan, Japan, South Korea, and Europe—are key. While these countries often align with U.S. policies, they maintain important economic ties with China, due to deep global interdependence. There is a risk of a divided global technology market, but full decoupling would be extremely difficult and costly, given the interconnected supply chains that have developed over four decades of globalization.
China’s goal is clear: to balance its self-reliance strategy with the benefits of open innovation and international cooperation, while navigating an increasingly complex geopolitical landscape.
The technological competition between Washington and Beijing is intensifying, outlining the contours of a true "new technological Cold War." The United States is trying to curb Chinese progress with restrictions on AI chip exports and design software (EDA), which have impacted companies like Synopsys and Huawei. Despite these measures, Beijing is demonstrating remarkable development capabilities and self-sufficiency in key sectors such as artificial intelligence, electric vehicles, and semiconductors. China's reaction, which includes formal criticism and an acceleration of domestic investment, highlights the growing debate on the effectiveness of American sanctions and the future prospects of this complex geopolitical and economic dynamic. Despite Washington's efforts to maintain a technological advantage, the results haven't been as hoped, leading to a heated debate on the most effective strategies to address Beijing's rising technological ascent.
The Digital Heart: The Strategic Importance of Semiconductors
Semiconductors are the beating heart of the global digital economy. This sector, estimated at $627 billion in 2024 and projected to grow to $1 trillion by the end of the decade, stimulates an additional $7 trillion in global economic activity annually. They power a wide range of applications, from artificial intelligence (AI) to big data, from computers to smartphones, from cars to home appliances. They are a fundamental "capital good" for the ability of businesses and nations to innovate and compete in the modern global digital economy. Furthermore, semiconductors support American leadership in numerous digital sectors, from AI to data centers, from quantum computing to internet research and e-commerce.
The Long March of China's Semiconductor Industry
China's history in the semiconductor sector begins with the Cold War. Its first steps in the 1950s and 1960s had Soviet support. Although by the end of the Mao era rudimentary transistors and integrated circuits (ICs) were produced, true progress only came with the economic reforms of the late 1970s, which opened the door to foreign technology transfer and global collaboration.
In the 1990s, systematic industrial policies like Project 908 channeled state funds to domestic factories and attracted talent from abroad, particularly from Taiwan Semiconductor Manufacturing Company (TSMC). This phase contributed to Shanghai's emergence as one of the sector's early hubs. Despite these efforts, by 2000 China was meeting only a minimal portion of its domestic semiconductor demand.
The period between 2000 and 2010 saw gradual progress, with the rise of companies like HiSilicon (Huawei's chip design division) and Semiconductor Manufacturing International Corporation (SMIC), founded in 2000. Government support grew through tax incentives, research and development (R&D) programs, and the establishment of the National IC Industry Investment Fund ("Big Fund") in 2014, with significant funding.
The Made in China 2025 initiative, launched in 2015, set ambitious goals of 70% self-sufficiency by 2025. However, recent assessments indicate that fully achieving this milestone is unlikely. By the mid-2010s, the gap between consumption and production had widened, highlighting persistent difficulties in achieving technological parity.
The late 2010s marked a decisive turning point with the escalation of the trade war between China and the United States, which transformed into a true "tech war" over semiconductors. US export controls, initially aimed at ZTE (in 2018) and Huawei (in 2019), not only disrupted corporate operations but also highlighted China's vulnerabilities and its reliance on foreign semiconductor technologies, particularly in the more advanced chip design and manufacturing phases.
For Beijing's policymakers, this situation was a wake-up call, both commercially and nationally, raising urgent concerns about economic security, innovation sovereignty, and long-term development resilience. The result was a "Sputnik moment" in China and a doubling down on efforts to achieve self-sufficiency. It was a profound recalibration of the country's development trajectory, in an era where technological autonomy is increasingly interconnected with geopolitical survival and aspirations for global leadership. Chinese President Xi Jinping emphasized the urgency of innovations in "fundamental technologies" at the 20th Party Congress in 2022, mentioning the term "technology" 55 times, compared to 34 in 2017.
More recently, the third National Integrated Circuit Industry Investment Fund has allocated over 344 billion renminbi ($47.1 billion), a figure higher than the first two rounds combined, amid intensifying US-China tech tariff confrontation.
Overall, these developments highlight China's goal of increasing self-sufficiency in semiconductor manufacturing, aiming to reach 50% by 2025. Several Chinese companies—such as Cambricon Technologies, ChangXin Memory Technologies (CXMT), China Electronics Corporation (CEC), HiSilicon, Hua Hong Semiconductor Limited (HuaHong), Shanghai Enflame Technology Co, Shanghai Micro Electronics Equipment (SMEE), SMIC, and Yangtze Memory Technology Corp (YMTC)—have made significant progress in technological research and development and market expansion.
Furthermore, they have achieved high self-sufficiency in crucial stages of the production process, such as photoresist removal, cleaning, etching, and chemical-mechanical planarization (CMP). However, challenges remain in other phases, including metrology, coating/developing, lithography, and ion implantation, where external technology, particularly from Japan, the Netherlands, and Taiwan, remains crucial.
Where Beijing excels: China's dominance in key sectors
Beijing excels in electric vehicle production, which are often cheaper and, in many respects, superior to American ones. The country dominates the domestic drone market and has deployed autonomous vehicles on the streets of Wuhan and in the capital itself at a pace that surpasses Waymo and Tesla. Beijing is also the world's leading producer of solar panels and batteries. While Washington and its allies still hold a slight advantage in advanced microchips and AI, the gap appears to be closing rapidly.
This situation has sparked a heated debate between the current US administration and its critics. The White House is almost unanimously in favor of limiting Chinese technological progress by banning the export of AI microchips and the tools to produce them. However, some external voices, including Nvidia CEO Jensen Huang, argue that such policies could prove counterproductive, accelerating the development of an autonomous Chinese technological ecosystem.
Dependence or national security? The export dilemma
The crux of the matter is this: Is it preferable for Beijing to remain dependent on US technology, or is the national security risk from China possessing such technology too high? Jensen Huang, CEO of chip giant Nvidia, is one of the most vocal critics of current export controls. Huang estimates that China could invest $50 billion in AI chips and servers by 2026, a market his company would lose due to new bans on exporting advanced AI chips to the Asian country.
During a recent earnings call, Huang reiterated his concerns, stating that "protecting Chinese chipmakers from US competition only strengthens them abroad and weakens America's position. Export restrictions have stimulated China's innovation and growth." Despite the restrictions, the impact on Nvidia's revenue has been limited so far. In fact, according to recent reports, Nvidia has estimated losses of $5.5 billion in the first quarter of the year alone due to these restrictions, with a write-down that could lead to a $15 billion loss in annual revenue. An Nvidia spokesperson also stated that the company is continuing to evaluate its options, adding that "with the H20 ban, our competitors in China are now largely protected from US competition and free to leverage the entire $50 billion market to build a robust artificial intelligence ecosystem."
The rise of Chinese chips and AI progress
In response to US restrictions, Beijing is moving towards chips designed and produced entirely by local companies. Huawei is collaborating with Semiconductor Manufacturing International Corp (SMIC) on an advanced 3nm chip, and the US-sanctioned tech giant is reportedly preparing to send the design to China's largest chipmaker in 2026.
In particular, Huawei is moving to a gate-all-around (GAA) architecture, used by Samsung Foundry, and abandoning traditional silicon designs. The company is developing a so-called 3nm design based on carbon, featuring carbon nanotubes and two-dimensional materials, US chip and AI analyst Ray Wang stated on X, citing internal Huawei sources. Wong added that the company has completed laboratory validation of the 3nm chip, which is currently undergoing production line adaptation at SMIC. Huawei's current range of Kirin processors and Ascend AI chips are made using 7nm node technology. SMIC is prohibited from importing advanced extreme ultraviolet (EUV) lithography equipment from ASML.
The joint R&D initiative clearly demonstrates that US trade sanctions have failed to stop China's efforts to create an efficient domestic chip sector capable of producing advanced products. However, Radio Free Mobile industry blog founder Richard Windsor pointed out earlier this month that Huawei's 7nm process, which uses a multi-patterning technique and equipment designed for processes around 14nm, involves many more steps and is more complex, with substantially lower yields than those produced by Taiwan Semiconductor Manufacturing Co (TSMC) and others.
Doug O'Laughlin, an analyst at SemiAnalysis, highlighted that, despite Huawei's CloudMatrix 384 requiring four times more electricity, Beijing has a huge advantage in energy production. "Beijing has increased energy production in the last 10 years and has the entire supply chain under control to continue doing so," O'Laughlin added. SMIC, the third largest chip manufacturer in the world and a Huawei supplier, has demonstrated innovation capabilities in producing high-quality chips despite using older technologies than those subject to export bans. Yangtze Memory Technology Corporation (YMTC), another Chinese company, has also managed to produce high-density memory chips comparable to those of its Korean rivals, despite the restrictions.
Moreover, Beijing is innovating in how to more effectively deploy less efficient chips. A Chinese research team recently won an award at a prestigious international conference precisely for demonstrating how using less powerful chips can outperform high-end hardware. These successes, combined with massive government investment, chip smuggling, exploitation of loopholes in US export control coverage, completion of in-country equipment transfers, recruitment of experienced talent from leading international companies, reverse-engineering of foreign technologies, and state-backed economic espionage, represent a formidable combination to pursue the goal of AI "self-sufficiency and self-strengthening," also recently reiterated by President Xi Jinping.
China's AI advantage and DeepSeek's response
In the last year, Beijing has narrowed the AI development gap with Washington. In particular, Chinese artificial intelligence startup DeepSeek has captured global attention. In January, it launched an AI-powered reasoning model that it claims was trained with less advanced chips and is cheaper to develop than its Western rivals.
Beijing has also made progress in infrastructure software engineering. DeepSeek's announcement, however, primarily challenged the assumption that US sanctions were hindering China's AI sector amid intense geopolitical tech rivalry, and that China was lagging Washington after OpenAI's groundbreaking ChatGPT launch in late 2022.
A new technological cold war: restrictions and updates 2024-2025
Bryan Burack, a China analyst at the Heritage Foundation, argues that export controls on technologies like AI are crucial in what he calls a "new Cold War." Burack, a former National Security Council member, questions whether it is appropriate to "help Beijing create dual-use artificial intelligence that can be used to acquire targets for guided weapons, even if it is a profitable business?"
Concerns about the Dragon's technological advancements are not new in Washington, but the push to impede its development gained traction during the first Trump administration. In 2018, then-Secretary of Commerce Wilbur Ross blocked ZTE, a Chinese telecommunications company, from accessing US technology, including microchips, citing national security reasons. This move effectively thwarted the global ambitions of the company, which is linked to the Chinese government.
Dan Wang, a research fellow at Stanford University's Hoover Institution, observed that "in one stroke, the US government showed the Chinese government and Chinese tech companies that it has the ability to silence Chinese tech leaders." New US government guidelines, including those from May 2025, impose restrictions on the use of Chinese semiconductors, aiming to prevent American semiconductors from being used for military purposes or to power Chinese AI models capable of competing with US ones. Huawei's Ascend chips, in particular, have come under fire, deemed to have been developed and produced in violation of American export controls.
The semiconductor design software company Synopsys is one of the latest companies affected by trade tensions between Washington and Beijing. It was forced to stop accepting new orders due to newly imposed restrictions by the Trump administration. According to an internal letter reviewed by Reuters, company executives asked their employees in China to suspend services and sales in the country and to stop accepting new orders to comply with the new export restrictions. According to some sources, Washington has ordered a wide range of companies to halt shipments of goods to China without a license and has revoked licenses already granted to some suppliers. Affected products, they said, include design software and semiconductor chemicals.
On Thursday, May 29, Synopsys suspended its annual and quarterly forecasts after receiving a letter from the US Department of Commerce's Bureau of Industry and Security, informing it of new export restrictions related to China. The internal letter sent Friday to staff in China stated: "Based on our initial interpretation, these new restrictions generally prohibit the sale of our products and services in China and are in effect as of May 29, 2025." To ensure compliance, Synopsys said it would block sales and order fulfillment in China and suspend new orders until further clarification was received. The measures affect all customers in China, including employees of global customers working at locations in China and Chinese military users, wherever they are located, the letter said. The actions taken by Synopsys in light of the new restrictions had not been previously disclosed. Synopsys declined to comment.
However, the internal debate in Washington remains heated. For example, recent reports suggest that the Trump administration, if it returns to power, might abandon or simplify chip control rules, considering them a "bureaucratic nightmare" and ineffective in stopping China's advance. This indicates a potential discontinuity in American policy, although the objective of containing China's technological rise remains a priority for both sides.
In parallel, Washington imposed new sanctions against entities and individuals based primarily in China and Hong Kong for their support of Iran's ballistic missile program in May 2025. These geopolitical tensions are also reflected in financial markets, with the S&P 500 falling following new US-China tech sanctions.
China's reaction to american restrictions
On Monday, June 2, China criticized the United States for actions it said harmed Chinese interests, including issuing guidelines for artificial intelligence chip export controls, halting the sale of chip design software to China, and planning to revoke visas for Chinese students. "These practices seriously violate consensus," the Ministry of Commerce said in a statement, referring to a joint China-US statement in which the two countries had agreed to drastically reduce their recent tariffs, restarting stalled trade between the world's two largest economies. But President Donald Trump's trade war de-escalation last month failed to resolve underlying differences between Beijing and Washington, and Monday's statement showed how easily such agreements can lead to further turbulence.
The consequences of restrictions and the SemiAnalysis perspective
Restrictions on microchips and software have particularly affected Huawei. Initially, Chinese tech companies were reluctant to buy domestically produced chips due to their inferiority compared to those designed in America and produced in the US, South Korea, and Taiwan. However, the absence of alternatives forced them to turn to domestic suppliers, triggering massive investments by Chinese tech companies and the government.
As Chinese chips improved, Washington intensified efforts to slow their progress, going so far as to ban the export of chip manufacturing machinery and materials to China. This doesn't mean that China's chip manufacturing ecosystem is already on par with that managed by Washington and its allies. However, the idea that China will always lag behind is disproven by history, according to Patrick Moorhead, a semiconductor industry analyst and former AMD executive. "I've been in the tech industry for 30 years and have often heard 'Oh, China won't make it'," Moorhead commented. "Now I think the only question is when they will." In the long term, Beijing may be able to source everything it needs locally to match or exceed the capabilities of companies like Taiwan's TSMC and America's Intel.
According to SemiAnalysis, the domestic Chinese foundry can still accelerate. Although foreign production is still necessary, the capacity of the Chinese semiconductor supply chain has improved rapidly and is still underestimated. SemiAnalysis has consistently raised alarms about SMIC and CXMT's manufacturing capabilities. Even if yield and productivity are still problematic, the crucial question is what will happen in the long term with increasing GPU production in China.
Both SMIC and CXMT have received tens of billions of dollars worth of tools, and despite sanctions, they continue to receive large volumes of foreign-sourced chemicals and materials. SMIC is expanding its capacity in Shanghai, Shenzhen, and Beijing for advanced nodes. This year, it will have a capacity of nearly 50,000 wafers per month and will continue to expand thanks to continued access to foreign tools and the lack of effective sanctions and controls. By increasing its productivity, it could achieve significant numbers on Huawei Ascend 910C packages.
However, it is crucial to note that, while the Ascend chip can be manufactured at SMIC, it is a global chip that uses Korean HBM technology, primary wafer production from TSMC, and is produced by tens of billions of dollars in wafer fabrication equipment from the United States, the Netherlands, and Japan. This highlights the complex interdependence of the global semiconductor supply chain, even for the most advanced Chinese chips.
Although TSMC has supplied 2.9 million dies, sufficient for 800,000 Ascend 910B and 1.05 million Ascend 910C in the 2024-2025 period, SMIC's production capacity could significantly increase if HBM production, wafer fabrication tools, tool maintenance, and chemicals like photoresist are not effectively controlled. China has no energy constraints, only silicon constraints.
Electronic design automation (EDA) software and impact on the Chinese sector
Along with Cadence and Siemens EDA, Synopsys is among the top three companies dominating electronic design automation (EDA) software that chipmakers can use to design semiconductors used in everything from smartphones to computers and cars. Limiting Chinese companies' access to EDA tools would be a severe blow to the sector, as Chinese chip design customers make extensive use of high-quality US software. According to an April report by China's state news agency Xinhua, Synopsys, Cadence, and Siemens' Mentor Graphics control over 70% of the Chinese EDA market. Chinese companies that have stated they use Synopsys and Cadence software include design company Brite Semiconductor, Zhuhai Jieli, and semiconductor IP portfolio provider VeriSilicon.
The letter sent on May 30 to staff in China also stated that Chinese customers' access to the SolvNetPlus customer support portal had been disabled.
China's unique advantage and future prospects
Experts emphasize that China possesses a unique combination of resources, unprecedented in the history of American trade wars:
Skilled population: A large, exceptionally well-prepared population, from skilled workers to engineers trained in the country's universities. Nvidia's Jensen Huang has repeatedly stated that half of the world's artificial intelligence engineers are in China. Nvidia has recently been criticized by US senators for establishing a new engineering office in Shanghai.
Vast domestic market: A huge domestic market that allows companies to consolidate within their borders before expanding globally.
Drive for self-sufficiency: Despite a reliance on Washington and the rest of the world for many raw materials and specialized goods, the well-organized and funded push by the Chinese Communist Party toward self-sufficiency is reducing these dependencies. Year after year, the country produces a greater percentage of everything it needs, from the smallest chip components to the largest cargo ships.
Wang believes that, ideally, the United States should have allowed its chip and software giants to continue dominating the Chinese domestic market. But since export controls have made that impossible, the only logical path might be to maintain, and probably tighten, those controls. "What we have now is not the second best solution, but the seventh," Wang says, adding that "there is certainly no way to restore confidence in Chinese companies."
Strategic dependence and China's two logics
Despite being the "factory of the world" in other sectors, China remains heavily dependent on foreign chips and related technologies, particularly from Japan, the Netherlands, South Korea, Taiwan, and the United States. This dependence has been framed as a strategic vulnerability, with the Chinese central state warning that relying on foreign core technologies could leave China "stuck in the neck" or strangled.
The tech war between China and the United States in recent years has only intensified this debate. This is because China views reliance on key foreign technologies—especially those from American tech ecosystems—as a critical strategic weakness that exposes it to externally imposed bottlenecks in sectors like advanced semiconductors and AI-integrated hardware.
This confrontation has reinforced Beijing's determination to localize innovation capacity. Foreign actors' ability to cut off vital tech nodes has also shifted China's industrial policy from a catch-up approach to security-driven self-sufficiency in many critical technologies, particularly semiconductors.
Indeed, China's chip policy is driven by two sometimes complementary, sometimes conflicting logics: one pursues self-sufficiency, and the other embraces open innovation emphasizing the benefits of global integration and knowledge exchange. Understanding this balance is crucial for analyzing China's strategic choices.
The push for self-sufficiency is driven by strategic imperatives of technological autonomy and national security. It is rooted in legitimate goals: protecting supply chains, safeguarding national security, and asserting technological sovereignty. Furthermore, China's extensive state support and drive for domestic innovation have begun to yield results, from 7nm chip prototypes produced under sanctions to growing capabilities in memory and AI chip design.
There is new confidence, evidenced by headlines about Chinese chip progress, that China can gradually reduce its reliance on Western technology. But this path carries the risk of isolating itself and reinventing the wheel, potentially slowing innovation and isolating the Chinese industry from global advancements. It also contributes to the fragmentation of what was once a unified global market.
Conversely, global integration emphasizes international collaboration, rooted in open innovation, as a driver of progress. Historically, China's technological rise has benefited from foreign partnerships and technology transfers. Indeed, in many ways, the semiconductor sector—perhaps more than any other—epitomizes the globalization of knowledge and production.
However, export controls imposed by the United States have limited access to advanced tools such as extreme ultraviolet (EUV) lithography machines from the Dutch company ASML.
Despite this, China collaborates with European countries, as well as Japan and South Korea, for technologies and materials less subject to restrictions. It also utilizes open-source initiatives (like RISC-V) to reduce dependence on proprietary Western technologies.
Remaining connected to international flows of technology, talent, and trade could significantly enhance China's ability to innovate and compete at the frontier. A cooperative approach could also mitigate global concerns and reduce the drive for decoupling.
However, geopolitical reality—particularly the escalation of the US-China trade war—makes open innovation increasingly difficult to practice. Trust between China and other leading tech nations has eroded, and restrictions aimed at China have, to some extent, forced it to retreat into self-sufficiency.
The interaction between self-sufficiency and global integration in China's chip industry could be described as a dynamic competition: a push and pull where each logic asserts itself in turn, but ultimately both coexist in a delicate balance. The tension between these approaches reflects a broader debate in China about prioritizing security versus efficiency.
But rather than completely replacing the other, China's approach to semiconductors has involved a pragmatic blend: sometimes nationalist and inward-looking, sometimes internationalist and outward-looking, and often trying to do both simultaneously, in different forms.
In practice, a hybrid strategy, like the one China has attempted to pursue, involves embracing open innovation when possible, then shifting to self-sufficiency whenever external access is cut off or deemed too risky.
This is a legacy rooted in the era of reform and opening-up, and Chinese policymakers often speak of "walking on two legs": one is domestic development, the other is international cooperation. This dual approach has been evident in the evolution of Chinese tech policy, beyond the chip industry.
Geopolitical considerations and global interdependence
China's relations with major semiconductor powers shape the integration of the global industry. The rivalry between China and the United States has led to a partial decoupling, with export controls limiting China's access to advanced chips, while American companies like Qualcomm and Applied Materials generate significant revenues in China.
Taiwan, through TSMC, remains a crucial node, producing 90% of the world's most advanced chips. But geopolitical risks could disrupt supply chains, potentially destabilizing the global economy.
Although Japan and South Korea tend to align with US policies, both maintain important trade ties with China due to strong economic interdependence, with South Korean companies like Samsung and SK Hynix operating plants in China.
Europe adopts a middle ground (or remains trapped there), limiting high-end tools but maintaining trade in mature technologies. In fact, ASML's CEO has warned that decoupling could backfire.
The global implications of the semiconductor industry are deep and growing. Established and emerging powers in the sector are adjusting their strategies in response to the uncertain environment: the United States is investing domestically and through allies; South Korea and Taiwan are diversifying production sites; and Europe and Japan are protecting themselves with their own initiatives.
Many countries in the Global South are closely watching the situation, as the outcome will determine their access to advanced technologies and their role in reorganizing supply chains.
As history shows, technological decoupling is not a unilateral proposition. While China races to reduce its reliance on the United States, the US and other countries are also seeking to reduce their dependence on China (for production scale, rare raw materials, and so on).
China strengthens ties with emerging markets through initiatives like the Belt and Road Initiative, positioning itself as a partner for semiconductor development in regions like Africa and Southeast Asia. Countries like India and Vietnam, courted by the United States as alternatives, could compete with or complement China's efforts, depending on geopolitical shifts.
The potential for a bifurcated global market looms. But for China and the rest of the world, the interdependence built since the late 1970s, over 40 years of globalization, cannot be rapidly undone without severe consequences.
Will China manage to balance its drive for technological self-sufficiency with the benefits of global integration, or will geopolitical pressures push the country towards greater isolation in the semiconductor sector?
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