The Geopolitics of Technology
♪ >> PLEASE WELCOME OUR PANELISTS, SENIOR MANAGING DIRECTOR AT TRIVIUM, ULRIKE HOFFMANN-BURCHARDI , PARTNER AND CHIEF STRATEGIST AT CLOCKTOWER MARKO PAPIC, FOUNDING MANAGING PARTNER AT QIMING GARY RIESCHEL, GLOBAL DIRECTOR OF TECH POLICY AND RESEARCH AT TRIVIUM KENDRA SCHAEFER, AND OUR MODERATOR ERIK SCHATZKER. ERIK: FOR THE EVENING. THIS IS DAY THREE OF THE NEW ECONOMY FORUM. THIS IS CALLED THE GEOPOLITICS OF TECHNOLOGY. I NEED TO SET THE STAGE. WE ALL KNOW THAT TROUBLE HAS BEEN BREWING BETWEEN THE UNITED STATES AND CHINA OVER ACCESS TO TECHNOLOGY AND INTELLECTUAL PROPERTY.
THEN, OCTOBER 7, THE BIDEN ADMINISTRATION RAISE THE ANTE BY BORROWING FROM COMPANIES ANY SOFTWARE USED IN COMPUTING CHIPS AND SUPERCOMPUTERS. IT ALSO BARRED U.S. PERSONS FROM WORKING FOR CHINESE CHIP COMPANIES WITHOUT A LICENSE FROM THE U.S. GOVERNMENT. THE COMMERCE DEPARTMENT FRAMED EXPORT CONTROLS IN NATIONAL SECURITY AS " THESE ITEMS USED IN THE REPUBLICS OF CHINA FOR ADVANCED MILITARY SYSTEMS, IMPROVING SPEED AND ACCURACY OF MILITARY, PLANNING, AND LOGISTICS OF ITS MILITARY SYSTEMS AND THEY COMMIT HUMAN RIGHTS ABUSES." I WANT TO KNOW WHAT YOU THINK. IT IS TIME FOR ANOTHER POLL. RESPOND TO THE FOLLOWING QUESTION. THE RECENT U.S. BAN ON U.S.
-- ON CHINESE EXPORTS WAS -- CAN YOU SEE IT ON YOUR PHONES? A. NECESSARY TO MAINTAIN BORDERS -- B. -- C. UNFAIR D. -- I WILL POSE THE SAME
QUESTION TO OUR PANELISTS. THE BAN ON EXPORTS TO CHINA WAS -- KENDRA: E. ALL OF THE ABOVE. ERIK: YOU HAVE TO CHOOSE ONE. [LAUGHTER] KENDRA: I DO NOT THINK MY OPINION MATTERS. WHAT IS INTERESTING IS THE WAY CHINA PERCEIVES THE SEMI CONDUCTOR BAN VERSUS HOW THE BIDEN ADMINISTRATION IS FRAMING THAT BAND. WHEN YOU LOOK AT THE BIDEN
ADMINISTRATION'S NATIONAL STRATEGY, HE FRAMED THE ADMINISTRATION'S APPROACH AS AN APPROACH OF RESPONSIBLE COMPETITION. BY RESPONSIBLE HE MET NOT TAKING OFF A HOT OR COLD WAR AS HE ENGAGED IN COMPETITION WITH THE COUNTRY. HOWEVER, THAT IS NOT HOW THE STATE PERCEIVES IT. BEIJING'S POLICIES, THEIR DOMESTIC POLICY IN TERMS OF FOOD SECURITY, CLIMATE CHANGE AND TECHNOLOGY, THE DIGITAL ECONOMY ARE ALL PREDICATED ON THE ACCESS TO AI. FROM BEIJING'S PERSPECTIVE, THOSE BANDS REPRESENT NOT RESPONSIBLE COMPETITION BUT AN EXISTENTIAL THREAT. ERIK:
A STRANGLEHOLD. KENDRA: EXACTLY. ONE OF THE RISKS HERE IS THAT CHINA CALIBRATES ITS RESPONSE BASED ON THE PERCEIVED THREAT, WHICH IS EXISTENTIAL. I THINK THAT IS ONE OF THE FACTORS RAISING THE UNCERTAINTY IN THE RISK FOR THE INTERNATIONAL COMMUNITY. ERIK: GARY. E. IS NOT AN OPTION. GARY: I WILL GO TO F. [LAUGHTER] , I WILL SAY IT IS NECESSARY
AND EFFICIENT. I THINK THAT THE SUFFICIENT PART IS IMPORTANT BECAUSE THIS WAS NOT A BAN. I THINK THAT IS IMPORTANT TO UNDERSTAND. THIS IS A BAN AND RESTRICTION ON A VERY SMALL PERCENTAGE OF THE HIGHEST SEMI CONDUCTOR CHIPS AND TECHNOLOGIES AND DOES NOT PROHIBIT THE DEVELOPMENT OF SOFTWARE FOR MORE ADVANCED GEOMETRIES.
FOR THE U.S., THIS IS A NUANCED POLICY THAT I THINK TAKE SOME TIME TO UNDERSTAND WITH THE EXACT REPERCUSSIONS ARE. MARKO: IF I PICK ONE OF THESE FOUR, I THINK IT IS A. THIS CLEARLY SATISFIES A CONDITION IN THE U.S. THAT THERE ARE ONLY TWO TRUTHS IN AMERICAN POLITICS. THE 80'S ARE CUTE AND CHINA IS EVIL.
IT IT SATISFIES THAT PART AS WELL. I THINK AMERICAN POLICIES HAVE DECIDED THAT THEY ARE CRITICAL FOR THE FUTURE. UKRAINIAN WAR IS NOT BEING FOUGHT WITH ANYTHING BELOW 890 MILLIMETER CHIP. I AM NOT SURE THAT A. IT IS NECESSARY BUT I THINK IT IS A. PLUS POLITICS.
>> WHAT I CAN DO IS INFER FROM THE IMPACT OF THE BAN, THAT THIS BAN MAY BE CONTRARY TO WHAT YOU'RE SAYING HERE FOR CHINA. THIS GOES RIGHT AT THE HEART OF WHAT CHINA WAS SET OUT TO DO. THOSE ARE NOT MY WORDS. THOSE OF THE WORDS OF XI
JINPING IN 2018. AT THE TIME, HE COMPARED THE IMPORTANCE OF THE INDUSTRY TO THE HUMAN HEART. HE SAID, IT DOESN'T MATTER HOW BIG YOU ARE, IF YOUR HEART IS NOT STRONG ENOUGH, YOU ARE NOT REALLY STRONG.
WHAT THIS BAN NOW DOES IS IMPACT THE DOMESTIC INDUSTRY SIGNIFICANTLY. YOU CAN EASILY GET $20 BILLION BETWEEN MEMORY AND HIGH-PERFORMANCE COMPUTING. I THINK THERE IS A SIGNIFICANT IMPACT THAT CHINA WILL EXPERIENCE FROM THE SPAN. >> CHINA BLEW UP $50 BILLION IN TWO SEMI CONDUCTOR GROUPS. THOSE WERE SELF-INFLICTED WOUNDS. I DON'T THINK THEY WERE THE GREATEST IDEA.
THEY WERE NOT READY FOR THIS. THE U.S. COULD HAVE TAKEN THE ANNIHILATION APPROACH AND REALLY HAMMERED IT. THEY CHOSE NOT TO DO THAT. I THINK CHINA, WITH THE CORRUPTION AND THINKS THEY ARE GOING THROUGH, I THINK THEY SET THEMSELVES BACK. ERIK:
SHALL WE SEE WITH THE AUDIENCE THINKS? REVEAL THE RESULTS OF OUR POLL? THERE WE GO. KENDRA: I THINK IT IS QUITE INTERESTING. WE CONFLATE THE IDEA THAT KNEE CAPPING CHINA'S SEMI CONDUCTOR INDUSTRY IS ACTUALLY THE SAME AS KNEE CAPPING CHINA'S AI DEVELOPMENT. I DO NOT ACTUALLY KNOW IF THOSE THINGS ARE THE SAME.
I WOULD SAY, WILL IT KNEECAP CHINA'S ABILITY TO MANUFACTURE AND PRODUCE? I THINK YOU ARE RIGHT, I THINK THEY ARE VERY NARROW. BUT WILL IT KNEE CAP MANUFACTURING? NO QUESTION. WE HAVE HEARD FROM COUNTRIES THAT SAY THIS WILL BE DISASTROUS. PARTICULARLY IN THE CASE THAT
THE U.S. IS ABLE TO CONVINCE ALLIED NATIONS LIKE JAPAN AND THE NETHERLANDS. LIKE TAIWAN, SOUTH KOREA -- TO GET ON BOARD. THAT IS THAT MEAN THAT CHINA CANNOT THEN DEVELOP BETTER ALGORITHMS THAT USE LEGACY CHIPS. -- LEGACY CHIPS? THE SET MEAN THEY ARE NOT THE LARGEST DATA BY VOLUME.
CHINA IS ARGUABLY WAY AHEAD THAN THE UNITED STATES. IT IS NOT JUST ABOUT THE HARDWARE. >> WE TRY TO PIN DOWN THE JAPANESE ECONOMY MINISTER HERE ON TUESDAY ON THAT VERY SUBJECT AND HE REFUSED TO BE PINNED DOWN. THE SECOND THING I THINK IS THIS NANOMETER ISSUE.
I THINK IT WAS YOU, MARCO TO PLAY ON WORDS, NANOMETERS ARE AS GOOD AS CHINESE. WHAT ARE WE TALKING ABOUT HERE? EXPORT CONTROLS ARE VERY SPECIFIC TO WHAT CAN BE SOLD TO CHINA. DRAM CHIPS, NANO CHIPS. I KNOW A LOT ABOUT SEMI CONDUCTORS BUT MOST OF THIS DOES NOT MAKE SENSE. HELP US MAKE SENSE. MARKO: ME? ERIK: YOU.
MARKO: I AM THE WRONG PERSON TO TALK TO ABOUT CHIPS. CHINA HAS PIVOTED AWAY FROM THE SECTOR ON ITS OWN. THEY HAVE KNEE CAPPED A BUNCH OF DIFFERENT FIRMS. THEY HAVE ALREADY MADE THE DECISION SINCE 2020 TWO SHIFT OVER.
THEY WANT TO FOCUS ON A GERMAN ECONOMIC GROWTH MODEL. THERE IS THIS EMPHASIS ON THE LITTLE GIANTS AND ON HARDWARE. CORRECTLY, WHAT IS THE NANOMETER SIZE OF A CHIP? THEY DO NOT PRODUCE AND EIGHT SEMI CONDUCTORS OR SMARTPHONES. IF THEY WANTED TO, THEY WOULD BE ABLE TO PRODUCE A MILITARY THAT WOULD CRUSH EVERYTHING BEFORE THEM. WHAT AM I GETTING AT? UNITED STATES HAS DECIDED TO MAKE THIS THE TOPIC OF COMPETITION THE WEIGHT THAT WE HAVE DECIDED WHO WOULD HAVE THE MOST RIDICULOUS SOCKS WHEN WE CAME HERE.
IT IS A LITTLE BIT RANDOM. AI WILL BE IMPORTANT BUT IT IS NOT IMPORTANT TODAY. THE WAR IN UKRAINE IS BEING FOUGHT WITH WEAPONS FROM THE 90'S. THEY WERE DEVELOPED DECADES AGO. CHINA WILL BE FINE. NOT ONLY ARE THE FOCUSING ON NON-AI, THEY ARE PIVOTING AWAY FROM THE POLICY. THEY ARE BEYOND THAT. I'M NOT SURE IT WILL BE CRITICAL IN THE ENTOMBMENT -- TRUE MEASURE OF POWER.
YOU CAN BE EXTREMELY SOPHISTICATED WITHOUT PRODUCING FIVE NANOMETER CHIPS OR AI. ERIK: I KNOW I WAS BEING A LITTLE BIT UNFAIR TO YOU BECAUSE YOU ARE NOT A SEMI CONDUCTOR EXPERT. THE CLOSEST PERSON ON THIS PANEL MIGHT BE ULRIKE, YOU KNOW THE RELATIVE STRENGTH OF THESE COMPANIES. YOU KNOW WHAT TECHNOLOGICAL ADVANTAGE IT IS THAT THEY HAVE. GOING BACK TO THE NANOMETER QUESTION, WHAT IS OR IS NOT INCLUDED IN THIS EXPORT CONTROL? OR A SOME PEOPLE PREFER TO CALL IT, SANCTION? KENDRA: ONE ARE THE -- ULRIKE:ONE ARE THE A.I. CHIPS. AROUND $2 BILLION IN REVENUE.
THE SECOND PART THAT IS MUCH MORE ECONOMICALLY MEANINGFUL IS THE BAN ON U.S. EQUIPMENT INTO THE DOMESTIC CHINESE COMPANIES. IF YOU LOOK AT A COMPANY YOU LIKE THAT HAS COME CLOSER TO SOME OTHER PRODUCTS FROM OTHER COMPANIES IN U.S.
AND TAIWAN, FROM THOSE BUSINESSES, IT WILL BE CLOSE TO EXISTENTIAL. I THINK A YEAR FROM NOW, THERE IS ANOTHER ADVANCE COMPANY THAT CAME OUT WITH A SEVEN NANOMETER CHIP WITH MAYBE TWO MILESTONES THAT THE U.S. LOOK LIKE AND SAID, MAY BE THIS IS MORE THAN WE EXPECTED. IT GOT A MUCH BIGGER CHECK. ALSO, IN THE U.S., CLOSE TO 7 BILLION OF U.S. REVENUE NOT BEING ABLE TO EXPORT. ERIK: WHEN YOU SAY THIS IS TECHNICALLY AN EXISTENTIAL PROGRESS -- PROBLEM FOR THESE CHIPMAKERS, DOES THAT MEAN THEY BECOME UNPROFITABLE OR THE REVENUE GOES TO $0, OR THEY ARE SIMPLY PUT OUT OF BUSINESS BECAUSE THEY DO NOT HAVE WHAT IS REQUIRED? ULRIKE: I THINK REVENUE WILL BE IMPACTED. IT IS DIFFICULT TO GUESS WHAT
THEY CAN GET ACCESS TO DOMESTICALLY BUT IT WILL BE VERY SMALL. GARY: SEVEN NANOMETER ACCOUNTS FOR 5% OF THE CHIPS WORLDWIDE. WHILE WE ARE NOT TALKING ABOUT THE MASS REVENUE, U.S. EQUIPMENT SUPPLIERS BUT IN TERMS OF REVENUE, VERY FEW OF THEM HAVE ANY MATERIAL EXPOSURE TO ANYTHING UNDER THE 16 NANOMETER RANGE. KENDRA: RAISING TALENT IS ALSO THE ISSUE.
A COUPLE STATISTICS ON THAT POINT. CHINESE OFFICIALS HAVE ESSENTIALLY SAID THAT THERE IS CURRENTLY 300,000 PERSON SHORTFALL IN THE SEMICONDUCTOR INDUSTRY. THEY ARE GRANTING -- A YEAR. YOU'RE STILL LOOKING AT A 10 YEAR GAP. IT WILL NOT REMAIN AS IS. TALON WILL HIT -- TALENT WILL HIT AROUND 600,000 PEOPLE.
THE RESTRICTION ON IMPORT IN HUMAN CAPITAL IS ALSO THE SCARIEST PROBLEM. ERIK: I DO WANT TO REMIND EVERYONE THAT THERE IS AN IPAD WHERE YOU CAN SUBMIT QUESTIONS TO. THERE IS ONE HERE I WOULD LIKE TO ADDRESS. WHEREFORE THE WORD EXISTENTIAL THREE TIMES. -- WE HAVE HEARD THE WORD EXISTENTIAL THREE TIMES.
IT IS A BIG WORD. IF THE CHINESE PERCEIVE THIS IN EXISTENTIAL TERMS, HOW WILL THEY RESPOND? KENDRA: THAT IS THE MILLION-DOLLAR QUESTION. THE PROBLEM, IN SHORT, RIGHT NOW IS THAT THE ONLY RESPONSES THAT CHINA HAS BEEN KICKING AROUND OUR FOOT BULLETS FOR CHINA. AS MUCH PAIN AS IT MAY CAUSE TO CHINA, TO THE U.S., THEY MAY
INCLUDE THE FOLLOWING THINGS. I ALSO THINK, THE PARTY HAS NOT DECIDED. I DO NOT THINK A DECISION HAS BEEN MADE.
WE ARE SEEING POLICY DIVIDERS AND POLICYMAKERS KICK AROUND POTENTIAL OPTIONS. ONE OF THE POTENTIAL OPTIONS IS THAT THEY DO AROUND 90% OF THE RARE EARTH PROCESSING. ERIK: THIS IS THE STUFF CRITICAL TO GREEN PRODUCTION? ELECTRIC VEHICLES, BATTERY VEHICLES? KENDRA: YES. THEY MIGHT EXPORT TO THE UNITED STATES.
THEY HAVE KIND OF DONE IT BEFORE IN 2010 IN A DISPUTE WITH JAPAN. THE OTHER, POTENTIAL IS TO USE THE EXPORT CONTROL LAW, SOME SORT OF BLOCKING ON COUNTRIES. SOMETHING THAT DOES NOT GET RAISED BUT MAY BE A POTENTIAL RESPONSE IS DATA.
IF YOU WANT TO TALK ABOUT THE TWO BATTLEGROUNDS, NUMBER ONE IS CHIP. NUMBER TWO IS DATA. CHINA JUST RECENTLY RELEASED AN EXPORT CONTROL REGIME FOR DATA. THEY HAVE TO KEEP RESTRICTED DATA AND CHINA.
THERE IS A PATHWAY THEY CAN REPLY TO REG LEADERS TO GET THE DATA OUT. EVEN IN THE PROVISIONS, WHAT HAPPENS IS IF YOU'RE EXPORTING DATA AND YOU GET A LICENSE TO DO THAT, THE LICENSE IS VALID FOR TWO YEARS. IT IS REVIEWED IN A CHANGE IN GEOPOLITICAL ENVIRONMENT AND THE TWO COUNTRIES. THERE IS THE POTENTIAL THAT COMPANIES IN CHINA ARE TRYING TO GET THEIR MACHINE LEARNING DATA AND THEY COULD BE DENIED ACCESS FROM DOING THAT. ALL OF THOSE THINGS BECAUSE DATA TO CHINA. THEY WANT FOREIGN COMPANIES OVER THERE.
ZERO COVID IS BAD ENOUGH. THEY ARE MAKING IT MORE UNCERTAIN AND DANGEROUS TO DO BUSINESS THERE. THEY MIGHT BE WORKING ON A BIGGER POLICY TOOLKIT TO WORKING ON THESE KINDS OF SANCTIONS AND EXPORT CONTROLS. THAT IS WHAT EXPECT TO SEE. ULRIKE: THIS WAS DIRECTED AT THE CHINESE TO MASTIC MEMORY.
ERIK: -- CHINESE DOMESTIC MEMORY. ERIK: I THINK EVERYONE GOT IT. ULRIKE: AT THIS POINT, WHITE NOT JUST CHANGE THE GAME? CHINA HAS INVESTED HEAVILY.
THAT COULD BE ONE POTENTIAL PLAN . IF YOU LOOK AT THE ECONOMIC LEVERAGE THAT CHINA HAS IN THE U.S. , AND CLOSE TO 40% OF THE SUPPLIERS ARE LOCATED IN CHINA. IT IS A SYSTEM OF CHECKS AND BALANCES THAT I HOPE WILL MOVE TOWARDS MORE CONSTRUCTIVE DIALOGUE.
GARY: THE U.S. EXPORT TO JAPAN, THEY BOMBED PEARL HARBOR. IT SEEMS TO ME FALSE, WILDLY SHORT OF EXISTENTIAL. WHEN IT WENT AFTER WHERE EARTH, THEY ACTUALLY LOST A PERCENTAGE. IT WENT DOWN. I THINK CHINA HAS LEARNED FROM THIS.
THERE WILL ANGER EUROPEANS WHO ARE WEDGED OVER CHINA IN THE NEXT DECADE. I THINK CHINA WILL BE VERY CAREFUL ON THAT FRONT. I THINK ON THE OTHER SITE, BECAUSE THAT IS FUN, THERE WILL BE NO RETALIATION WHATSOEVER. I THINK THEY HAVE PIVOTED FOR MANY OF THEIR HOPES AND DREAMS. THE OTHER THING, IT WAS VERY TARGETED TO SPECIFIC LEVELS OF CHIPS. THE TWO ARE CONNECTED.
I THINK THERE IS UNSEEN CONSTRAINT. THE U.S. DOES NOT GET TO DO WHAT IT WANTS. THERE ARE ALLIES THAT ARE GOING TO BE VERY DIFFICULT TO WRANGLE ON THIS.
AT THE NANOMETER LEVEL AND CHIP LEVEL, MAYBE THEY WILL PLAY ALONG. IF THE U.S. KEEPS PUSHING THE BATTERIES, THEY WILL GET PUSHBACK FROM THE NETHERLANDS, JAPAN, SOUTH KOREA. AT THIS LEVEL, THERE MAY BE UNANIMITY BUT IT MAY START TO FRAY. THERE WAS AN ARTICLE A FEW DAYS AGO BASICALLY SAYING THIS. IT DETAILS ALL THE DIFFERENT UNNAMED OFFICIALS FROM THE NETHERLANDS, JAPAN, SOUTH KOREA, COMPLAINING THAT THIS WAS A UNILATERAL DECISION BY THE U.S. GARY:
I WOULD ADD THAT I TOTALLY AGREE OF THE GEOPOLITICAL NATURE THAT THIS IS NOT EXISTENTIAL. IT IS JUST SMALL. PEOPLE ARE USING AN ARM CORE. THAT MEANS THAT YOUR DEFINITION IS 5, 7, 8 YEARS BEHIND. IF CHINA PUSHES BACK, YOU DO NOT GET ANY ACCESS TO THIS. YOU GET SOME MORE EXISTENTIAL LEVEL CONVERSATIONS.
THIS IS AN AREA WHERE THE WEST IS REALLY GOING TO GET IT'S ASKING. -- IT'S -- KICKED. 60% OF ITS EXPORTS ARE CHINESE NATIVE BRANDS. YOU REALLY HAVE TO THINK HARD OF WHAT THAT MEANS. AUTOMOBILE INDUSTRY DRIVE MIDDLE-CLASS ECONOMICS. ULRIKE: LET ME RESPOND A LITTLE BIT. I ACTUALLY DO NOT DISAGREE WITH YOU ON IF THIS IS AN EXISTENTIAL THREAT BUT I THINK IT WILL BE PERCEIVED AS AN EXISTENTIAL THREAT TO THE INDUSTRY.
WHAT IS NOT BEING DISCUSSED IN D.C. BY U.S. POLICYMAKERS IN RELATION TO THIS PERIOD CHINA IS FACING AN AGING POLICY CRISIS RIGHT NOW. BY THE YEAR 2040, SOMETHING AROUND 30% OF THE POPULATION WILL BE OVER 65. THE AVERAGE AGE OF THE CHINESE
FARMER WILL BE AROUND -- 60% ARE OVER THE AGE OF 45. VERY FEW COMING INTO THE PROFESSION. -- WHAT A LOT OF AGRICULTURAL POLICIES SAY, WE NEED AI TO MAKE OUR AGRICULTURE MORE EFFICIENT. WE NEED TO BE ABLE TO GENERATE SMART SEEDS AND DROUGHT RESISTANT SEEDS AND THIS KIND OF STUFF.
WHEN YOU TAKE -- REDUCE THE ABILITY TO DO THAT, THE ISSUE IS MUCH BROADER THAN MILITARY USE. SEMICONDUCTORS ARE NOT JUST MILITARY TECHNOLOGY, MANY APPLICATIONS OR CONSUMER FACING AND HAVE TO DO WITH SECURITY AND THE CLIMATE CRISIS. WHEN YOU HAVE THE BIDEN ADMINISTRATION SAY WE WANT TO WORK WITH YOU ON CLIMATE, ON FOOD SECURITY, WHAT WE WANT TO COMPETE ROBUSTLY ON AI, THAT COMES AS DISINGENUOUS. ERIK:
I WANT TO TAP INTO YOUR KNOWLEDGE FOR A SECOND. WHAT KENDRA IS TALKING ABOUT AND WHAT XI JINPING REFERENCED IN HIS ADDRESS, IT NECESSITATES THAT IF CHINA WANTS TO CATCH UP TO THE WEST U.S.-BASED SEMICONDUCTOR TECHNOLOGY, IT WILL HAVE TO MAKE HUGE ADVANCES. WHY IS CHIPMAKING SO DEVILISHLY HARD TO ANSWER, AND CAN CHINA CATCH UP? ULRIKE: MAYBE ONE QUICK POINT, IT IS A REALLY IMPORTANT QUESTION. I FEEL LIKE YOU NEED SOMETHING LIKE THE EQUIVALENT OF A NUCLEAR NONPROLIFERATION AGREEMENT BEFORE AI.
IT IS AN AI CONFINEMENT TREATY. WE WANT TO WORK TOGETHER FOR CIVILIAN PURPOSES AND TO SOLVE THESE IMPORTANT GLOBAL ISSUES THAT HAVE BEEN DISCUSSED AT BLOOMBERG NEW ECONOMY FORUM. WHY IS IT SO HARD -- IF YOU WANT TO COMPETE IN THE LEADING EDGE, YOU NEED EUV LITHOGRAPHY. IT IS -- WHAT IT DOES IS USING TINY WAVELENGTHS OF LIGHT TO IMPRINT PATTERNS ON SHIPS OR VERY COMPLEX SYSTEM OF MIRRORS. THERE IS ONLY ONE COMPANY IN THE WORLD THAT HAS SUCCEEDED DOING THAT, ASML AND THE NETHERLANDS.
IT HAS TAKEN THEM 35 YEARS OF RESEARCH, OVER 30,000 PARTS SOURCED FROM 4700 SUPPLIERS, WITH MANY FROM ASML HAS TIGHT RELATIONSHIPS VERY OFTEN. THE PRECISION IS SUCH THAT IF YOU WERE THINKING THERE WAS AN ASTRONAUT ON THE MOON, IT WOULD HIT MY FINGERTIP. IN ORDER TO GET TO THAT LEVEL OF ENGINEERING AND INGENUITY, YOU NEED TO GET THE BEST OF TALENT AND MATERIALS GLOBALLY. THAT IS VERY HARD TO DO WITHIN THE CONFINES.
>> I HAVE HEARD VARIOUS VIEWS ON THIS. IT IS FALLING TO THREE CAMPS, 10 YEARS, 20 YEARS, POSSIBLY NEVER FOR CHINA TO CATCH UP. DO WE HAVE A VIEW? >> I WOULD SAY BEFORE THE SANCTIONS, THEY WERE IN THE SEVEN TO 10 RANGE. NOT ACROSS THE BOARD. 11 STEPS IN SEMICONDUCTOR MANUFACTURING. THE CHINESE ARE WORLD-CLASS. THAT ACTUALLY IS WHY INTEL GOT OUT OF THE SEMICONDUCTOR BUSINESS. THE JAPANESE JUST DESTROYED
THEM ON THE COST BASIS. INTEL GAVE UP MEMORY AND FOCUS ON MICROPROCESSORS. THAT IS WITH THE U.S. INDUSTRY HAS WOUND UP DOING. I WOULD LOOK AT THIS AS THE ACTIONS TAKEN ARE A TWO GENERATION TYPE OF ACTION.
IF YOU THINK THESE THINGS ARE FIVE-YEAR YEAR CYCLES FOR SEMICONDUCTOR TECHNOLOGY MOVING FROM ONE SET OF NANOMETER TECHNOLOGIES TO ANOTHER, IT IS ABOUT A 10 YEAR PERIOD OF TIME. ERIK: DIFFERENCE OF OPINION? >> IT IS HARD TO SEE A PATH FORWARD BECAUSE THE HARDWARE IS -- THE HARDWARE PASS HAS BEEN CLOSED. MY UNDERSTANDING IS IT TOOK ASML 25 YEARS TO DEVELOP THOSE MACHINES. CHINA IS NOT THERE YET. IF THEY CAN'T GET THE COMPONENTS TO WIN, THAT IS A QUESTION. IT LEADS TO WHETHER OR NOT CHINA CAN DEVELOP SOFTWARE THAT ALLOWS AI TO RUN ON LESSER CHIPS. ERIK:
YOU MENTIONED TAKING A TOUGH STANCE ON CHINA IS POLITICALLY POPULAR IN THE U.S. IT IS ONE OF THE PRECIOUS FEW ISSUES REPUBLICANS AND DEMOCRATS GENERALLY AGREE. IN THE WORLD OF BUSINESS AND FINANCE, THERE IS NO SUCH UNANIMITY. YOU RECALL FOLKS, KEN GRIFFIN WAS ON STAGE, THE FOUNDER AND CEO OF CITADEL, AND HE SAID A POLICY OF CUTTING CHINA OFF FROM ADVANCED TECHNOLOGY WILL BE DISASTROUS ECONOMICALLY AND GEOPOLITICALLY FOR THE U.S. HE SAID IT WOULD INSPIRE PRESIDENT XI TO UNDERTAKE THE CHIP EQUIVALENT OF THE MANHATTAN PROJECT, TO POUR ALL OF THE SCIENTIFIC AND COMPUTER -- ADVANCED COMPUTING RESOURCES CHINA HAS, THE MILLIONS OF STEM GRADUATES INTO SOLVING THIS PROBLEM. HE THOUGHT IT MIGHT TAKE THREE
TO SEVEN YEARS. IF CHINA WERE SUCCESSFUL, IT WOULD BIFURCATE THE GLOBAL TECH STACK AND THE U.S. AND ALLIES WOULD SUPPLY EQUIPMENT TO THEMSELVES AND CHINA WOULD SUPPLY LATIN AMERICA AND AFRICA AND POSSIBLY INDIA, THE FASTEST-GROWING AND FASTEST DEVELOPING AND MOST ECONOMICALLY ATTRACTIVE PARTS OF THE WORLD.
>> THE LINEAR EXTRAPOLATION NEVER WORKS. I DID NOT THINK OF THIS. THEY HAVE SLOWER CHIPS, SOFTWARE WILL HAVE TO GET BETTER. THEY WILL DO MORE WITH LESS. INDUSTRIAL REVOLUTIONS STARTED BECAUSE THEY RAN OUT OF WOOD. THE REST OF THE WORLD WAS LOOKING IN ENGLAND SAYING LOOK AT YOU, YOU HAVE TO GET DIRTY WITH COAL. THAT IS TERRIBLE BECAUSE YOU
HAVE TO FIND IT. WE GO OUTSIDE OF OUR HOUSE AND WE'VE GOT ENERGY. THAT INSUFFICIENCY, THE LACK OF SOMETHING LED TO ENGLAND -- ENGLAND FOUND DEVELOPING CANALS, INDUSTRIAL REVOLUTION. LINEAR EXTRAPOLATION IS DIFFERENT. I DON'T KNOW WHAT THE YEARS ARE. MAYBE IT IS NEVER.
CHINA WILL NEVER DEVELOP ADVANCED SEMICONDUCTORS. THEY CAN DEVELOP FUSION. IF THEY INVENT FUSION, WE ARE ALL SPEAKING MANDARIN IN 20 YEARS. I THINK WE ARE OVERLY FOCUSED ON SEMICONDUCTORS AS IF HAVING ADVANCED SEMICONDUCTORS MAKES YOU A WORLD POWER. I HAVE TO BRING UP GERMANY FOR THE 50TH TIME.
THEY CANNOT PRODUCE A SINGLE ADVANCED SEMICONDUCTOR AND STILL ENGAGE YOU AND WIN. I THINK IT IS A MISPLACED FOCUS IN SOME WAYS. WE ARE OVERLY OBSESSED WITH ADVANCED SEMICONDUCTORS. ERIK: FOR BETTER OR WORSE, I WILL REMAIN OBSESSED. I WANT TO FINISH OFF BY BUSTING A COUPLE OF MYTHS. WE WILL BEGIN WITH THIS ONE.
THAT ALL CHINA NEEDS TO DO TO CATCH THE WEST IN CHIP TECHNOLOGY IS INVADE TAIWAN. WHO WANTS TO TAKE THAT ONE ON? >> THAT IS RIDICULOUS. >> THE TAIWANESE GOVERNMENT HAS ANNOUNCED TSMC HAS SAID THE CHINA INVADING TAIWAN, 60% OF SENIOR EXECUTIVES ARE AMERICANS, SO THEY ARE GONE. THOSE MAINTAINING MASSIVE EQUIPMENT IN TAIWAN ARE FOREIGNERS, THEY ARE GONE. YOU WIND UP WITH EXPENSIVE EQUIPMENT NO ONE KNOWS HOW TO RUN.
>> TSMC IS THE PREMIER SEMICONDUCTOR MANUFACTURER IN THE WORLD. HAS MASTERED THE SOPHISTICATED PROCESSES YOU WERE DESCRIBING BETTER THAN ANY OTHER COMPANY ON THE PLANET. ON WHICH SO MANY PRODUCERS, INCLUDING APPLE, RELY ON. >> THAT LOGIC REMINDS ME OF MID-EVIL EUROPE. TAKE MY CASTLE, I TAKE YOURS. IT IS MORE COMPLICATED.
SEMICONDUCTORS DON'T GROW ON TREES IN A PARTICULAR TAIWANESE CLIMATE. >> IN PARTICULARLY TO THAT POINT, FOR ANYBODY IN THE ROOM WHO HAS NOT HEARD THIS, TSMC HAS BEEN CALLED TAIWAN'S SILICON SHIELD. THE IDEA BEING IF CHINA, THE POTENTIAL IS TSMC GETS BLOWN UP AND CHINA WON'T BE ABLE TO MAKE CHIPS ANYMORE. I HAVE NOT HEARD ANY U.S. POLICYMAKERS ADDRESS THE FACT
THAT IF THEY SUCCEED IN LOCKING CHINA OUT OF THE CHIP INDUSTRY AND THERE IS NO REASON TO MANUFACTURE CHIPS IN TAIWAN, DOESN'T NOT REMOVE THE SILICON SHIELD? I THINK THAT IS SOMETHING WE NEED MORE DISCUSSION ABOUT. ERIK: THIS IS THE SECOND MYTH I WANT TO BUST THAT IS JUST AS EASY FOR AMERICA TO WEAN ITSELF OFF OF DEPENDENCE ON TAIWAN AND SOUTH KOREA NOW THAT THE BIDEN ADMINISTRATION HAS PASSED THE CHIPS ACT AND EARMARKED $53 BILLION IN SUBSIDIES FOR CHIPMAKING. THEY WILL SPRING ALL OVER AMERICA AND BE JUST AS GOOD AS TSMC AND SAMSUNG.
>> I CAN'T GET A CUP OF COFFEE IN AMERICA BECAUSE THERE'S NOT ENOUGH PEOPLE WORKING IN COFFEE SHOPS. AND WE ARE SUPPOSED TO BUILD ALL OF THESE FABS AND THESE SOPHISTICATED ENGINEERS WILL SHOW UP OUT OF WHERE? THERE IS A LABOR SHORTAGE. IF YOU LOOK AT PEOPLE WORKING IN SEMICONDUCTORS, IT HAS COLLAPSED. GOOD LUCK WITH THE CHIPS ACT. >> IT WILL TAKE TIME. THE PLANS ARE FOR TSMC TO INCREASE THE FOUNDER BUSINESS AS A U.S.. BUT AT THE END OF THIS YEAR,
EARLY NEXT YEAR, IT IS NOT EVEN A 5% OF THE OVERALL CAPACITY IN TAIWAN. WE ARE TALKING A LONG PERIOD OF TIME FOR SELF-SUFFICIENCY. >> I WAS WORKING WITH THE GROUP THAT LED TO PARTS OF THE CHIPS ACT. THE THING HE SAID THAT STRUCK WITH ME, THE U.S. IDEA IS YOU BUILD THE FACILITY. THOSE PEOPLE GO AWAY, AND YOU HAVE PEOPLE COME IN TO RUN THE FAB. THAT IS NOT WHAT TSMC DOES. THE PEOPLE PUTTING THE PLUMBING IN PLACE, POURING THE CONCRETE, THEY STAY WITH IT FOR A DECADE.
THEY SAY WHEN YOU ARE LOOKING AT THREE NANOMETER ON THIS CUTTING EDGE TECHNOLOGY, THE ENTIRE TEAM NEEDS TO BE PLACE FOR A DECADE. AMERICANS HAVE THOUGHT ABOUT BUILDING FABS. TO BE IN THAT BUSINESS, WE HAVE TO FUNDAMENTALLY CHANGE. THE SHORTAGE WILL BE THE PLUMBERS IN OHIO TO MAKE THE PIPES. >> MAY BE THE PLAN IS TO INVADE TAIWAN AND THE CHINESE MOVED TO AMERICA? >> I MAY BE OVERLY OBSESSED WITH SEMICONDUCTORS, BUT FOR BETTER OR WORSE, THESE ARE THE GEOPOLITICS OF TECHNOLOGY.
JOIN ME IN THANKING MY PANELISTS. [APPLAUSE]
2022-11-19 08:24
