The New Star War? Key to Winning the AI and Semiconductor Race

In March 1983, US President Ronald Reagan delivered his iconic Strategic Defense Initiative (SDI) speech, known as “Star Wars,” which ignited an arms race between the United States and the Soviet Union centered on missile defense systems. Today, a similar race is unfolding between China and the United States, this time focused on Artificial Intelligence (AI) and its backbone, semiconductors. These technologies are viewed as strategic assets vital to national security, and whoever secures the upper hand will likely dominate global leadership.

The U.S. currently holds a technological edge over China in both AI and semiconductors, bolstered by export controls designed to slow China’s progress. Yet, the geopolitical rivalry is unlikely to subside, regardless of who occupies the White House. The emergence of a “trust alliance” among democratic nations and the push for self-sufficiency within pro-China regimes are expected to accelerate the decoupling of the tech landscape into distinct spheres of influence.

The Role of the “CRINK” Group

The Halifax Forum’s term “CRINK”—representing China, Russia, Iran, and North Korea—has drawn comparisons to the Axis powers of World War II. However, such an ideological lens oversimplifies the complexities of today’s geopolitical landscape. Unlike the WWII era, today’s world is deeply interconnected through globalization, with China playing a pivotal role in global manufacturing and supply chains as well as the largest market for those products.

China’s economic footprint is significant: it produces one-third of the world’s manufacturing output, including 72% of flat-panel displays, 36% of electronic products like smartphones and PCs, and two-thirds of electric vehicles (EVs). It is also the largest consumer market for EVs, industrial robots, and semiconductor equipment. Any comparison to Cold War dynamics must take into account this interdependence. The CRINK nations, especially China, Russia, and Iran, also control substantial shares of global resources, such as minerals, crude oil, natural gas, and rare earth elements that are critical to global production.

Addressing Asymmetric Dependence

The West faces a dilemma: how to reduce dependence on China without destabilizing global supply chains. The U.S. and its allies have focused on increasing resilience by diversifying sources of supply, but this strategy only tackles one side of the problem. Without reducing reliance on China as a consumer market, these efforts may fall short.

This is not a call for erecting a new “iron curtain” to divide the world but rather a recognition that the democratic world has underinvested in innovation and market development. More must be done to stimulate demand for AI, semiconductors, and related components within trusted allied countries. If new chips made in America and Europe lack viable markets for assembly and sale outside of China, these efforts risk becoming redundant.

The Challenge of Enforcement

Recent events illustrate the complexity of enforcing tech restrictions. GlobalFoundries was fined by the U.S. Department of Commerce for supplying chips to an affiliate of SMIC, a Chinese semiconductor company on the U.S. Entity List. Similarly, a TSMC chip was discovered in a Huawei processor, highlighting gaps in oversight and the difficulty of monitoring supply chain loopholes.

The U.S. approach of adding more companies to the Entity List is akin to a game of whack-a-mole—reactive and unsustainable. Huawei’s founder Ren Zhengfei has underscored this challenge, noting that with 99% of Chinese companies unaffected by U.S. sanctions, workarounds are almost inevitable. Huawei can obtain chips indirectly, buying from third or fourth-tier customers of TSMC, which only comes to light through painstaking reverse engineering. Similarly, SMIC and other sanctioned firms can establish new affiliates to circumvent restrictions, exposing the limits of self-regulation and due diligence.

The Motivation Behind SMIC’s Moves

While media coverage has focused on the immediate facts, less attention has been given to the motivations behind SMIC’s clandestine purchases from GlobalFoundries. Despite significant investments in expanding mature node capacity with dozens of new fabs, why does SMIC continue to source chips from other manufacturers? This suggests that advanced technology or strategic stockpiling may still be critical for sanctioned entities, or even attempts at technology theft by reverse engineering, revealing deeper vulnerabilities in the current enforcement strategy.

The Path Forward for the Democratic Alliance

Forming a “trust alliance” that shares technology securely is crucial, but it must go beyond reactive measures. Are there robust mechanisms to prevent sanctioned chips from being falsified and re-entering the global market? Simply adding trade tariffs as a deterrent to China’s exports may not work. The need to address the asymmetry of both supply and demand dependencies in China cannot be underestimated.

The democratic world must shift from a reactive posture to a proactive strategy. This involves investing in innovation, building demand for AI and semiconductors within allied markets, and fortifying tools to track down product sales endpoints and counter falsifications for regulatory frameworks to close loopholes. Without such foresight, the democratic camp risks repeating the fate of the Soviet Union and its allies during the original “Star Wars” era—falling behind due to a lack of comprehensive strategy.

By fostering resilience and innovation, the trust alliance can ensure it remains competitive and secure in the evolving geopolitical landscape.

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