The East Asian Computer Chip War

Ming-chin Monique Chu

• Publisher: Routledge
• Year: 2013
• Print ISBN: 9781138200128
• eBook ISBN: 9781317961550
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: International Relations
• Index: Politics & International Relations

The semiconductor industry is a vital industry for military establishments worldwide, and the control of, or loss of control of, this key industry has enormous strategic implications. This book focuses on the globalization of the strategic semiconductor industry and the security ramifications of this process. It examines in particular the migration of the Taiwanese chip industry to China as part of the globalization of production processes, and the extent to which such a globalization process poses security challenges to the United States, China and Taiwan. Transcending disciplinary boundaries between international political economy, security studies, and the history of science and technology, this multidisciplinary work provides an in-depth understanding of the globalization-security nexus, and disentangles the key policy issues connected to a potential explosive flashpoint in world politics today.

1 Introduction

Modern nation-states are concerned about the consequences of international economic activities for the distribution of economic gains, and thus over time, as Robert Gilpin (2001: 80) predicts, “the unequal distribution of these gains will inevitably change the international balance of economic and military powers, and will affect national security.” These concerns often focus on “the distribution of industrial power, especially in those high-tech industries vitally important to the relative power position of individual states.” Hence, the “territorial distribution of industry and of technological capabilities is a matter of great concern for every state and a major issue in international political economy” (ibid.).

This book examines the changing territorial distribution of one such high-tech sector, namely the strategically important semiconductor industry which is crucial to the relative power position of states, and its impact on international security. The term semiconductor refers to a class of materials with electrical properties between those of conductors and those of insulators. Silicon is the most commonly used semiconductor material. The seminal invention of the world’s first transistor as a semiconductor amplifier in 1947 marked the advent of the industry and the beginning of modern information technology (IT). Over the past six decades, semiconductors have emerged as key components, enabling electronic systems ranging from high-speed personal computers (PCs) to mobile phones to missiles. In 2009, worldwide semiconductor sales reached US$226.3 billion (Semiconductor Industry Association 2010), and the major products included integrated circuits (ICs), optoelectronics, sensors, and discrete components. The sector has been the “crude oil” of the information age because of its economic and defense significance, a subject explored in Chapter 2.

Transcending disciplinary boundaries between international political economy, security studies and the history of science and technology, this study investigates the globalization of semiconductor production activities and its security repercussions with specific reference to a neglected case; it explores the migration of the Taiwanese semiconductor industry, which is one of the most competitive global players, to the People’s Republic of China (PRC), and the geopolitical implications of this migration for the triangular relationship among Taiwan, China, and the United States of America (USA). Specifically, the study intends to answer the following questions: (1) to what extent is the semiconductor industry relevant to national power and security which encompasses economic, technological, and defense security?; (2) why and how has the migration of the Taiwanese semiconductor industry to China occurred, as measured by cross-border technology transfers, talent, and capital flows?; (3) what are the implications of this production globalization for the triangular security relationship among Taiwan, China, and the USA?; and (4) to what extent does this case study elucidate the impact of globalization on security?

The central arguments in this book are two-fold. First, the globalization of the industry in the context studied has deepened in recent years, contributing to China’s indigenous semiconductor capability, which is central to Chinese power and security. This poses long-term economic, technological, and defense security challenges to the trilateral ties in a complex and contingent way. Second, globalization, as will be seen in the case study, affects security by changing its agency and scope, affecting the autonomy and capacity of the state, shifting the balance of power, and altering the nature of conflict. The case study thus serves as a basis for a reappraisal of the impact of globalization on security.

The remainder of this chapter defines the key concepts of globalization and security as used in the book, briefly reviews the existing literature, details the methodology involved, explains the significance of the study, and identifies the analytical framework and the structure of the book.

Definition of key concepts

This study embraces a broadly defined notion of globalization¹ and that of security² pertinent to the semiconductor industry as follows. The term globalization, as defined and used in the book, refers to the economic and military aspects of globalization involved in the industry. The former refers to production globalization, instead of trade or finance, through the cross-border activities of multinational corporations (MNCs) and concurrent or ensuing flows of technology, talent, foreign direct investment (FDI)³ and other forms of capital. Production globalization refers to “the stretching of corporate activity and business networks across the world’s major economic regions. In its most visible and institutionalized form, production globalization involves the operations of huge MNCs, organizing and managing cross-border business activities “through the ownership of plants, outlets or subsidiaries in different countries” (Held et al. 1999: 236–7). Moreover, MNCs outsource production to small and medium enterprises (SMEs) abroad, resulting in the creation of global production networks in which MNCs regularize contractual relationships. In Paul Krugman’s phrase, MNCs exploit locational advantages across national borders as they “slice up the supply chain”; they break the production process into many geographically separated steps, adding bits of value in each stage. MNCs engage in cross-border activities including subcontracting, outsourcing, and inter-firm alliances in technological development (Krugman 1995: 332–3). Globalization of production spearheaded by MNCs can also drive the cross-border migration of people, especially highly skilled expatriate managers. Hence, the transnational activities of MNCs have underpinned almost all aspects of the globalization processes, far beyond the mere production story (Salt 1997; Ietto-Gillies 2003: 140–4).

The military globalization of the industry is defined as follows. Because the industry in many countries supplies semiconductor components and technologies to national military end-users, it is part of these countries’ defense industrial base. Its production globalization thus becomes a part of military globalization as defined by Held et al. (1999). They define military globalization as “the process (and patterns) of military connectedness that transcend the world’s major regions as reflected in the spatio-temporal and organizational features of military relations, networks and interactions.” Among the three indicators of military globalization they have proposed, the global arms dynamic, particularly the trans-nationalization of the defense industrial base, through which armaments production technologies and military capabilities are diffused globally, is linked to the chip industry. As semiconductor MNCs, which involve national defense production activities in many countries, globalize their production activities, semiconductor technologies and military capabilities are diffused across the borders, potentially affecting the defense security, autonomy, and national defense capabilities of states involved (Vernon 1998: 50–1; Held et al. 1999: 89).

This book subscribes to Barry Buzan’s (1991: 20) belief that a precise definition of security should be directed towards specific case studies considering the fluid nature of the notion of security and the competing accounts of security in the study of international relations. Namely, “attempts at precise definition are much more suitably directed towards empirical cases where the particular factors in play can be identified.” After having identified unique factors at play in the semiconductor industry, I define security directed towards the chip sector to include economic security, technological security and defense security. I have embraced a broadly based notion of security,⁴ which some scholars have advocated in view of the increasingly extensive scope and agency of security threats beyond the military and the state because of deepening globalization.

In this study, the notion of economic security⁵ is defined through the Realist perspective. The term refers to economic competitiveness and economic independence, and is seen as a direct contribution to the exercise of national power. A state’s economic competitiveness refers to the degree to which it produces goods and services that meet the demand of international markets while expanding the incomes of its citizens. Moreover, the state’s economic independence equips it with the flexibility to make decisions free from foreign dictates or economic coercion (Romm 1993: 78–80). The recognition of both military and economic means as the legitimate sources of power in international relations is well reflected in E.H. Carr’s (2001: 109) words: “Power is indivisible; and the military and economic weapons are merely different instruments of power.” The Realist approach to economic security thus emphasizes relative gains, power politics and interstate rivalry (Luttwak 1990; Friedberg 1991; Romm 1993). The concept of economic security as a direct asset to the exercise of national power is based on Borrus and Zysman’s (1992: 9) definition of economic security. It refers to a nation’s “ability to generate and apply economic resources to the direct exercise of power or to shape indirectly the international system and its norms.” According to Nesadurai (2006: 8–12) and Lee (2006), it is appropriate to adopt a geo-strategic Realist approach to economic security to analyze the economic security of Taiwan because the Taiwanese economy is a vital means of empowering the vulnerable state and because any external manipulation by other states often makes Taiwan economically vulnerable. Thus, it is suitable to adopt a Realist approach to the analysis of Taiwan’s economic security in the wake of the migration of its semiconductor industry, which is vital to its economy, to China.

The notion of technological security or techno-security refers to “a concept dealing with the perception and enhancement of the technological assets of a nation or a firm,” which presumes that technology is an important element in national security (Simon 1997). According to Raymond Vernon (1998: 47–8), technology has been increasingly viewed as a security issue since the shining performance of the US military during the first Gulf War highlighted the significance of the technological edge in warfare. A nation’s semiconductor industry indicates the nation’s high-technology virtuosity. Its relative decline vis-à-vis that of its adversaries or competitors, which is often expressed in the notion of a shrinking “chip gap,” has often triggered security concerns (Hanson 1982: 186–7; Central Intelligence Agency 1983; Friedman and Martin 1988: 106).

The notion of defense security refers to the traditionalist military-centric and state-centric definition of national security, whereby the state’s territorial integrity is chiefly maintained through its military capability and alliances, which is seen as “the highest end” in anarchy – the prerequisite for the pursuit of other goals such as profit, power, and tranquility (Waltz 1979: 126). The semiconductor industry links to national defense security because it underpins the military power of a nation by supplying chip components and technologies for information-dependent military systems central to modern battlefield operations. According to Lawrence Freedman (1999), though greater firepower matters, advanced IT and “smarter” weapons – which benefit from semiconductor advances – have become more important than strictly physical military assets in shaping the conduct of modern warfare. Chapter 2 will further analyze the link between the industry and these three dimensions of security.

Literature review

The following strands of existing literature have deepened our understanding of issues pertaining to this study, although little has been studied concerning the case under investigation. They include: (1) studies on the impact of globalization on international security; (2) studies on the impact of globalization on security with reference to the semiconductor industry; (3) studies on the sectoral migration across the Taiwan Strait; and (4) studies on the globalization of production in the semiconductor industry.

First, the literature on globalization–security interconnections, which began to mushroom dramatically at the turn of the century (Defense Science Board 1999; Held et al. 1999: 102–4, 138; Allison 2000; Cha 2000; Hughes 2000; Hoffman 2002; Mansfield and Pollins 2003; Rudolph 2003; Brooks 2005; Adamson 2006; Kirshner 2006a; Smith 2006), has partially informed the study. Most recently,⁶ Kirshner (2006) and Brooks (2005) respectively have conducted qualitative studies of the impact of globalization on security. Both pieces of work helped me formulate my analytical framework for the case study under investigation. By exploring different issue areas, Kirshner argues that globalization influences security in three major ways: (1) by changing the relative capacity and autonomy of the state vis-à-vis non-state actors; (2) by affecting the balance of power between states; and (3) by altering the nature of conflict. Brooks’ study concentrates on the security repercussions of production globalization, which he views as the most critical feature of global commerce that has been left out of the debate on the influence of international commerce on war and peace. He examines how the globalization of production could influence security affairs with what he describes as “an open mind about how powerful an effect it might have.” He reaches 25 findings on the globalization–security interconnections, sparking continuous debates on the subject matter (Brooks 2007; Caverley 2007; Gholz 2007; Kirshner 2007).

Brooks’ finding on the growing globalization of US defense production and the defense industrial base – including the semiconductor industry – in the last two decades of the Cold War is most relevant to my inquiry of semiconductor production globalization. He argues that the US forwent its going-it-alone policy in defense production in order to enhance quality and reduce costs; such an approach contrasted with the autarkic defense production of the Union of Soviet Socialist Republics (USSR), thereby contributing to the technological gap between the two superpowers. He concludes that the US and Soviet cases reveal that great powers can no longer afford to pursue autarkic defense production. In delineating the globalization of the US defense industrial base, Brooks identifies key defense-related technologies in which globalization production would offer significant advantages to the US military. One concerns semiconductor materials and microelectronic circuits. The Pentagon identified Japan and North Atlantic Treaty Organization (NATO) countries, as US allies, where the offshore production of these military supplies to the US armed forces would benefit Washington. Because Brooks’ primary focus is studying the impact of production globalization on security, the semiconductor industry is not a focal point in his book. This feature also characterizes the works of Buzan and Herring (1988: 42–6), Held et al. (1999: 89, 138), Kirshner (2006: 21), and Vernon (1998: 47–51) concerning the globalization of the defense industrial base.

Although the existing literature on globalization–security interconnections has partially informed my study, it has not yet facilitated a comprehensive understanding of the impact of globalization on security. For instance, in their survey of why and how cemented economic exchanges influence the outbreak of interstate military conflicts through various case studies, Mansfield and Pollins (2003) conclude that such a relationship is complex and contingent. While some contributors to the edited volume find a strong and significant relationship between open trade and peace, others find that the trade–peace tie is a contingent one. For example, Gelpi and Grieco (2003) pro...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• List of figures
• List of tables
• Foreword
• Acknowledgments
• List of abbreviations
• 1 Introduction
• 2 The semiconductor industry and national power and security
• 3 The globalization of the semiconductor industry
• 4 The PRC semiconductor industry, national security, and globalization
• 5 The migration of the Taiwanese semiconductor industry to China
• 6 The security implications of the sectoral migration
• 7 Conclusion
• Bibliography
• Index