Only weeks after US president Joe Biden and the Chinese president Xi Jinping met in person to improve ties between the world’s two biggest economies, China filed a dispute with the World Trade Organization, further escalating the conflict between the two countries that intensified when the US introduced sanctions on chips exports earlier this year. According to Bloomberg, Japan and the Netherlands will be joining the US in efforts to tighten chip exports to China, with even semiconductor giants ASML and Tokyo Electron being impacted.

Back in 2021, the semiconductor market exceeded $500 billion, but it is estimated to grow to a trillion-dollar industry by the end of the decade. Taiwan is still the global center as it holds more than 90 per cent of global market share in terms of the leading-edge versions of the technology. But growing fears about some form of Chinese military intervention in Taiwan has prompted the US, Japan and Europe governments to push for a localized chip production to ensure the needed supply. Besides being an integral part of pretty much all modern devices, semiconductors are also a matter of national security and economy, with COVID-19 already showing how bad things can get when there is a supply shortage.

Oberkochen, a tiny town in Germany, is headquarters to Carl Zeiss SMT, the only manufacturer of ultra-precise mirrors and lenses used in the world’s most advanced chipmaking equipment. Their equipment has unparalleled accuracy with a precision 200 times greater than the James Webb Space Telescope. One of its most important customers is ASML, the Netherlands-based company that holds a global monopoly on manufacture of the extreme ultraviolet lithography (EUV) machines required to make cutting edge chips. More importantly, without these optics, ASML could not make its EUV machines that even China needs to make more advanced chips which are the building blocks for artificial intelligence, autonomous driving, quantum computing and the technology of tomorrow. It can be said that ASML machines and Zeiss optics hold key of the new era. Therefore, despite being behind, Europe can turn things around with its hidden strength in advanced chipmaking equipment and know how.

Despite many manufacturing locations, only one facility in Ireland has the ability to produce chips below 10-nanometre technology but it is not yet fully operational. There is also the challenge posed by the massive amount of required capital and skilled workers to make those plants do what they are intended to.  As for the US, President Biden signed a landmark bill to provide $52.7 billion in grants for U.S. semiconductor production and research as well as tax credit for chip plants estimated to be worth $24 billion back in August. But chip design capability and supply remain limited in both presence and scale so many new developments in this race are to be expected with the world winner of the seminconductor war being impossible to predict in this ever changing global climate.