Slick strategy in the post-oil global economy

Former Australian Ambassador to China, Dennis Argall argues American objectives in disrupting East Asia are for economic “catch-up” with China

7 May 2021 | Dennis Argall

American wars in the Middle East have been largely driven by oil hunger. The next generation of major conflict is about control of advanced semiconductor manufacture and disruption of supply chains between Japan, South Korea, Taiwan and Mainland China. This is the reason for US provocation of hostility towards China and getting an even tighter grip on Taiwan, South Korea and Japan.

American wars in the Middle East have been largely driven by oil hunger. Now that the US is a net exporter of petroleum and gas the focus is on suppressing competition, notably in Venezuela a country with the world’s largest oil reserves, and in anti-Russian agitation against the Nord Stream 2 gas pipe to Europe from Russia.

The next generation of major conflict is about control of advanced semiconductors and general disruption of supply chains between Japan, South Korea, Mainland China and Taiwan. This is the reason for US provocation of hostility towards China and getting an iron grip on Taiwan, South Korea and Japan.

This essay does not address the propaganda campaigns against China. That is another subject.

One company in Taiwan, TSMC, produces 50% of the world’s advanced semiconductors, found at the core of computers, cars, aircraft, etc; increasingly ubiquitous. 20% are produced by Samsung and another 10% by SK Hynix, both in South Korea. Only one company in the world, ASML in Holland, manufactures the lithographic printing machines to imprint these advanced semiconductors. ASML is restrained by American sanctions; ASML say these won’t work.

Only TSMC and Samsung are producing Nm5 microprocessorsIntel well behind at 14Nm. Therein lies the reason why Apple have abandoned Intel chips for their own design, manufactured by TSMC. TSMC is increasing investment by USD$100bn, Samsung replies with $116bn, Intel $20bn. President Biden’s stimulus package has promised USD$50bn for microprocessor manufacture. The newer designs have more crammed on them, are faster, and run cooler with less energy.

China has been heavily reliant on TSMC and Samsung. Not all for Chinese products. Apple for example has been reliant on Taiwan for design and microprocessor manufacture, then assembly of Apple products on the mainland, most re-exported. The sanctioning of imports by China has a big impact on the economies of Taiwan, South Korea and Japan. China, with increasing cut-off from
external supplies by US sanctions, is making increasing investment in microprocessor production and all other levels of computing. SMIC, China’s largest producer, is boosting performance of Nm12 chips. This South China Morning Post article has background on what China is doing with new investments, new startups. Cutting the IT world in half will have increasing and negative consequences.

Supply of microprocessors is currently stressed by accelerating demand and because climate-change-related drought in Taiwan is slowing production: a lot of water is needed. TSMC is to build a new microprocessor foundry in Arizona. The founder of TSMC doubts that project will be successful. Intel is to establish a new foundry in Arizona. Arizona is already stressed for water.

There are two key mining resources: lithium for batteries, and rare earths for all electronic devices, including in front of you in your phone and computer and in your car. Over 400kg of rare earths in each F35.

This US PBS Wyoming interview outlines how the US lost the ball on rare earths to China. Australian mining company Lynas has the only rare earth processing plant outside China, in Malaysia. Malaysia has given Lynas several years to clean up waste (including small amounts of thorium and uranium) and requires Lynas to shift ore concentration back to Australia. Lynas has received USD$25 million from the US government as subsidy for establishing a rare earths plant in Texas. Why isn’t Lynas (or others) being encouraged to process downstream in Australia?

Lithium: essential for batteries for electric vehicles and grids. Here is a glimpse of electric public vehicles in a modern country. Australia is the largest exporter of lithium. This is the Australian government page on critical minerals. There needs to be serious public debate about government encouragement of downstream processing.

We do not have a permanent secure niche in the lithium business. There are much larger lithium reserves in South America, but decades of US intervention in those countries have not provided a secure investment environment, nor has there been support for governments wishing to control their own resources.

Most of the world, including hopefully the Biden administration, knows a war with China would destroy most of the world economy and health. But there is a high risk of accidental conflict from the military adventurism of US forces close to the China coast, joined by Australia and now former colonial powers Britain and France.

President Biden in his address to the US Congress on 28 April 2021 said:

“We’re in competition with China and other countries to win the 21st Century.”

US President, Joe Biden

The pitching of this in contest terms is not constructive. Saying that the US will win the 21st century is illusory. With China’s GDP passing that of the United States now and with the US population only a quarter of China’s population mathematically the US cannot remain ahead of China… unless the US succeeds in disruption campaigns against China.

Australia has no strategic interest in destabilisation of China. Nor is it in our strategic interest to see disruption of economic relations between countries in East Asia to their mutual detriment. Our wellbeing depends on theirs.

This article was first published at Pearls and Irritations. Dennis Argall’s degrees were in anthropology and defence studies. his governmental work in foreign, defence and domestic departments and for the Australian parliament. His overseas postings included Beijing as ambassador from 1984 to 1985, and Washington. He regrets the extent of his personal experience with disability but it has perhaps sharpened his desire that the future be a better country.