919: Chris Miller | Chip War: The Battle for Semiconductor Supremacy

22:45But it was always older generation ships that were never cutting edge. And they couldn't find the most effective way to use them. And so the Soviet military simply had no access to cutting edge ships. I mean, it's sort of ironic how that's playing out now. Aren't they finding drones that are blown up over Ukraine and they're loaded with Korean chips and Taiwanese chips and American chips? I mean, I don't know if this is an exaggeration, but you hear like, oh, they've ripped this out of a dishwasher and put it into this missile. I don't know if that's really happening or if it's just an exaggeration, sort of a meme on Reddit, but it doesn't bode well for them manufacturing their own stuff.

23:18Yeah, I mean, it's certainly true that they're packed with Western microelectronics, with American, Japanese, Korean. and the fact that they've bet their military equipment, their most sensitive equipment on our chips shows just how far behind they are. I can also not imagine that if you're smuggling equipment in from abroad back in the 80s or the 90s, how do you make spare parts for that equipment, right? Because that's also manufactured in the United States or Korea or wherever, and you've got all your troubleshooting stuff, all your tools, everything is all in either inches or just not made in your country.

23:51And I know United States, one of the things that people gripe about when you see arms deals with like Saudi Arabia is people say like, oh, what if they run loose with this? And it's like they can't. They need all these tools, all these software updates, all these training technicians and parts. I mean, we basically make any company that buys anything high tech from us totally reliant on our supply chain and maintenance. And you would just end up doing that to yourself as a country if you try to copy our tech. So it seems like it made the Soviets reliant on Western technology that they couldn't really get.

24:22Yeah, no, it's a bad strategy. It binds you into having to keep smuggling in our tech to keep updating your systems. But, you know, the other problem that they had is they never knew what type of chips they were smuggling in were real and which ones were counterfeit. And they were convinced, and we don't really know, they were convinced that the CIA was giving them counterfeit or chips that were manipulated by the CIA to function in different ways. there's actually today in the Russian Security Services, the FSB, a division whose job it is to look at equipment they're smuggling in and try to ascertain whether it's been compromised in some fashion.

24:56Really? I guess that makes perfect sense, right? Because if we know you're smuggling this in and that it's probably going to go into a MIG or a piece of artillery, wouldn't it be great if it could be shut down remotely or at a very inopportune time? And so someone's job is to make sure that that chip doesn't have whatever firmware on it that we might have put in there, like a backdoor or something along those lines. Yeah. And of course, the Chinese are doing this to us right now. We've only got a vague understanding of who's meddling with the components in our systems. Yeah, I was gonna ask about that because you hear about Huawei and 5G and the phones being banned.

25:28And at first I was like, okay, is this to keep them from competing with our phone companies or are they actually really worried about software backdoors? And it seems like you really could be, especially at the infrastructure level, like maybe they don't put it in your freaking phone, who cares? but what if they put it in the 5G cell tower technology that they're selling to Africa and that just funnels data back to China? That's industrial scale espionage, I guess, for lack of a better word. Yeah, and I think if you look at the history of telecoms companies in any country in the world, there's not a single one of them that has not been used as a tool of espionage by the government that they're located in.

26:05Certainly the U.S. has a long track record of doing exactly that. Yeah, wow. So you think it's quite credible that Huawei was, or some other Chinese companies were doing this? I would be shocked if the Chinese government weren't trying very hard to use every mechanism they've got. Yeah, I suppose you're right. I just, I wonder if, is there like evidence of this that is public, or is it just like, they're probably doing this? There's certainly evidence that U.S. servers have been discovered with additional components on them that weren't supposed to be there. What they were used for, hard to say, but in a circuit board and a server, there's hundreds of components, even more.

26:40And so you often don't know which components used for which part. So it's a little bit circumstantial evidence, but I think coupled with the obvious rationale, China wants the data, China wants the intel. I think we'd be naive to think it wasn't happening. You're listening to The Jordan Harbinger Show with our guest, Chris Miller. We'll be right back. This episode is sponsored in part by 1-800-CONTACTS. You know She's had these mornings where she's out of contacts and stuck wearing these old glasses. She's got to keep wiping clean with her sleeve. But now she makes sure to load up ahead of time because her next set is always on the way from 1-800-CONTACTS.

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28:18Plus, earn Dell rewards and enjoy many other benefits like free shipping, price match guarantee, and expert support. They also have huge deals on accessories that pair perfectly with your Dell PC and make perfect gifts for everyone on your list. Shop now at dell.com slash deals. Right back. If you're wondering how I managed to book all these folks, I mean, you probably don't care. You don't have a podcast, but you realize that building relationships and having a circle of people around you is important. I hope you realize that. It doesn't matter what industry you're in. There's really no industry I can think of that is exempt from this.

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29:18And many of the guests on the show subscribe and contribute to the course. So come join us. You'll be in smart company where you belong. I'm done selling it to you. It's free anyway, over at jordanharbinger.com slash course. Now back to Chris Miller. I'm never going to be skeptical if you tell me China or another country, including the United States, is spying on somebody else. It's one of those things where you hear about it so much, but it's like, is there just evidence or is there actually just only speculation? It's hard to tell now because people don't really care. They'll write an article about something like it's complete fact when it's just speculation from the opinion section, white-labeled into something else.

29:54China imported more semiconductors than it did oil last year. Is that accurate? That's right. And for the last decade, China has spent as much money each year importing chips as oil. Can you scale this for us? Because that's, I mean, I know countries need a lot of oil to keep their economy running, but it's hard to wrap your mind around just how much that is. It's tens and tens of billions of dollars a year of chips. And the reason China imports so much is first because it doesn't produce any cutting edge chips at home. But second, because most of our phones, our computers, consumer electronics, they're all assembled in China.

30:28So China's got to buy all the chips needed for all these devices. They're assembled in China and sent all around the world. So the largest share of the world's chips that are produced end up transiting through China at some point. 260 billion was the figure that I saw, which is actually more than all of the oil exports of Saudi Arabia. That's how many chips China is buying. That's right. But it makes sense when you think that, you know, Saudi Arabia, we associate Saudi with oil, but Saudi produces 10 to 15 percent of the world's oil. TSMC produces 90 % of the world's most advanced processors. So China's just got to spend huge sums of money buying chips largely from Taiwan.

31:04Gosh, TSMC for those, in case you forgot, that's the Taiwan manufacturer of, well, 90 % of the chips that we use. When you say high-end, what are we talking about? Where's the dividing line between a chip that goes into a smartphone, which I assume is what you mean by high-end, or into a computer? What's a low-end chip, like one that turns on a flashlight with a button? Yes, even within your smartphone, there's dozens of semiconductors. The application processor, the one that's running iOS, you've got an iPhone, that's a very advanced chip, 7 nanometer, 5 nanometer, depending on how new your phone is.

31:37But then there's also lots of simpler chips. The power supply is managed by a simple chip, the Bluetooth, the Wi-Fi, the camera. Basically, the more powerful the processing, the smaller the transistors, the more advanced the chip. The reason this is kind of important for me is because I don't really know if people understand that a quote unquote high end chip still does relatively simple things in our mind because we're so used to seeing what those are. I have a timer here. It's a little like black and white. This is probably a low end chip, would you say? That's right. This is essentially a clock with a button on it.

32:10I mean, there's not a whole lot else going on, but I've got something else here that's like an application launcher. It's called a stream deck. Like that thing, I'm guessing, has dozens or hundreds of not low-end chips inside it because it's got a color screen and the buttons do things on my computer. So I guess what I'm trying to say is the bar for what a high-end chip is is actually relatively low. That's right. And every smartphone has multiple high-end chips in it. So why is it that China can't just build fabrication plants, right? You mentioned there's inner jostling to try and look like you're doing something.

32:42I assume that plays a role because if you're busy trying to fake it, then you're not necessarily busy trying to do the real deal. But what else? Because China is a world power. They have nukes. They have an aircraft carrier debatable about whether it works, right? They got submarines and stuff like that. Satellites. They've gone to space. Why the hell can't they build a smartphone? I just it seems very difficult to wrap my mind around why they can't do something that seems simple enough for other developed nations to do, but apparently is incredibly, incredibly complicated. Two reasons. First is that the know-how involved in cutting-edge shipmaking is just so specialized and so unique, you can only learn it while working at another ship company.

33:25And so there's just a small number of people in the world that have any idea how to do this, and most of them are employed by competitors that don't want to let their employees go work for Chinese firms. Second, if you want to make a cutting-edge ship factory, you need to acquire tools from just a tiny number of companies in the U.S., Japan, and Netherlands, and those companies are not allowed to sell their tools to China. So you can't get the manufacturing equipment you need in China. Okay, not being allowed to sell your equipment to China, fine, but can't they sell it to Vietnam and somebody in Vietnam smuggles it?

33:59I mean, come on, it's a world power. They can get a machine, right? The machinery in question is the most complex machinery humans have ever made. So an EUV photolithography machine. This is just one of the types of tools needed to make a chip. It's produced by one company in the world in the Netherlands. It's so big, it requires three airplanes to move. It costs$150 million a piece. And some of the components inside this machine include the flattest mirrors humans have ever made, one of the most powerful lasers ever deployed in a commercial device, and an explosion happening constantly inside the machine at a temperature of 40 times the surface of the sun.

34:36Okay, wow, that's eye-wateringly complex. And it seems like not only is it complex, it sounds fragile. Because if you need the world's flattest mirror, you can't even have people in there walking around because it'll vibrate or something in a weird way, right? So it's just, you can't just throw that thing on the floor of a factory with other machinery that's vibrating. It's gotta be perfectly still and it's gotta be perfectly stable and it's gotta have the right environment around it. I mean, you think those clean rooms where you can't have dust in there, I mean, that's the easy part. Yeah, that's right.

35:06Wow. And so these tools you have to have just to make them operate, you have to have personnel from the company that makes them on site for the lifetime of the tool. So you can't just sell it to Vietnam and then smuggle it across the border in a couple of trucks. This is a operation just to move it and install it. You need the approval and the personnel from ASML, which makes the machine. And they know where their bread is buttered and they're not going to send a technician to another country because if they get blacklisted somehow, it's over. Or if they get sanctioned, I guess, I mean, what would happen, right?

35:37They would get sanctioned or fined? Fined and sanctioned. That's right. And ASML, it's a Dutch company, but because their machines are so complex, they've got to source components from all around the world. So they've got the MIR is actually from Germany, the laser is from a different German company, but some of the key components in these machines are actually made in the U.S., in California, and in Connecticut. kit. And so they're just as reliant on the U.S. as they are on the Netherlands for the construction of these machines. I think you'd mention in the book, there's one of these, was this the etching laser?

36:07Is that the machine you just described? It was like a, it's got 450 ,000 different parts just in the laser itself. And of course, the defect in any one of those parts is going to make it not work or cause delays. So even if you steal the entire design process, you probably don't even know what you're looking at at that point, right? That's right. And this company has thousands of employees, but no one outside of this company has any idea how to make one of these tools. And even if you copied and pasted the blueprints and downloaded them to your computer, you can't just go to the company that makes the mirrors and order an extra mirror.

36:39The supply chain is intimately bound up with this one company. So where would you even start if you're trying to replicate the machine? It's basically a hopeless task. Gosh, you'd need your own domestic industry for each of these parts. And we don't even see that in the U.S. or the Netherlands. And then whatever your whole team needs a Ph.D. in laser optic semiconductor design or whatever field this is to even look at the thing you stole from the company that you stole it from. That's right. And by the time you've made any progress, they're going to have delivered their next generation system, which is substantially more effective.

37:11I know China meddles a lot in their domestic industry. And yes, some of its subsidies, which I'm sure is great for business. But I think a lot of it, isn't it also kind of like, well, this crony's got to get this. And so we're going to put this factory over here, even though it's not necessarily the best place for it. Is that hindering their ability to copy this? Or are they not even that far yet? But there's a ton of that dynamic. And if you look at the way China puts money into its chip industry, the dollar values are huge, tens of billions of dollars a year. But it's divided among each of the provinces and each of the cities that everyone wants a chip making facility in their district or their cities and they can have a good photo op in front of it.

37:49And so it's divided in super inefficient ways. And as a result, they get much less bang for their buck in terms of investment than they could if they were doing it smarter. I do want to talk about Chinese investment, but it's occurred to me that even if you somehow could copy this. You need, how old is that Dutch company? It's got to be several decades old now, the one that makes the laser and the other UV machine. That's right. So you can't copy that without that experience. You'd have to bring the talent over and the supply chain, which is, I assume, illegal in every sense. Yeah, certainly illegal.

38:19And, you know, good luck hiring them. How are you going to hire a thousand experts in this field? They're all currently employed at this one company. There's no other workforce you can draw from. Yeah, you'd have to throw money at the problem, but if it's illegal, it's illegal. Those people might want to raise, but I don't know if they're going to give up their citizenship and their country to get it. That's a tall order. I know we've done something to stop China from buying chips overseas, buying equipment and things like that. Has that not spurred a bunch of investment? Are they trying to do this?

38:48Or like I said before, I know they're trying to fake it, but are they making headway in trying to do this? Because it's not like China to just say, well, we're never We're going to figure this out. Let's give up. Well, they've been trying for the last decade, since 2014, tens of billions a year into the chip industry. They've made some progress in certain spheres. There are certain types of memory chips, for example, they've gotten pretty close to the cutting edge. But across the supply chain, across the industry, they're still far, far behind. And the controls that the U.S. put in place last year, banning the transfer of chip-making tools and certain AI chips called GPUs to China.

39:22You know, on the one hand, they provide a bit more incentive for China to try harder, but China's already been trying really hard and spending lots of money doing so. So I don't really think the new U.S. controls are going to dramatically change things for China. Should we be concerned about China invading Taiwan from a semiconductor perspective? I don't think China's going to invade Taiwan because of semiconductors. But I think if China does blockade or attack, one of the many bad consequences would be a catastrophic disruption to chip production. I think the Chinese know that if they were to blockade or attack, the chip industry in Taiwan would shut down immediately.

39:59It wouldn't have the power it needs. It wouldn't have the chemicals that are imported. It wouldn't have any of the components that are required. So it would just go dark. Okay, so you don't think there's a scenario in which they're like, look, we're taking over, keep the presses running, we still need these semiconductors, because that's not going to work given the supply chain requires things from outside Taiwan, and those things would be blockaded or cut off. That's right. You need the components from outside of Taiwan, and you need the engineers in Taiwan to stay at their jobs under an occupation regime.

40:26Good luck. Yeah, good luck. I mean, I kind of figure I've got this, I won't say conspiracy theory, because I'm, you know, I'm anti-conspiracy theory, but it's, I do have it in the back of my mind that that factory may or may not have explosives wired underneath it, or at least be on a map for where the cruise missile goes in the event of taking over. But now the more you explain this, the more it seems like you really don't even need to level the factory if it gets taken over by China, because if the employees don't want to work there, or even if they are forced to work there and the factory's operational, they're going to make a couple more runs of chips and they're going to go, hey, we need this, this, this, this, this, and this, and it all comes from America, and we're not getting any more of that ever.

41:06That's absolutely right. And so China would be foolish to think that it could actually take these facilities in an operational way. Maybe they're not even enough to think that, but it's just a hopeless goal. How do we ensure that countries like South Korea then don't help China manufacture their own chips? Are they also disincentivized from doing that? First is that the South Koreans are just as threatened by China as we are. They're looking at China, pouring all this money into the chip industry and saying these are potential future competitors for us, they've got no incentive to see them advance.

41:37Second is that inside of every chip making facility in the world, including in South Korea, including in Taiwan, there's U.S. tools, U.S. software use equipment. And so if anyone violates the rules, we can pull our equipment and their facilities just don't operate. How far away is China then from being able to build its own chips that fit into, I don't anti-ship missiles or AI weapons or building their own sort of GPUs, are they able to build low-grade versions or can they not do this at all yet? So China builds a lot of low-end ships, mature technologies like you would find, for example, in a calculator or in your timer.

42:15But when it comes to anything high-end, GPUs, smartphone ships, PC processors, these are things that China's years away from reaching the cutting edge at. When you say years, are you talking about like single-digit years or are you talking about they need 20 years to be able to build a remote control for an Xbox. If you asked, when will China catch up to the level of chip in my iPhone today? I'd say just a couple of years. But in a couple of years, Apple's going to be producing chips that are substantially better than that. And so the gap is going to remain. When will China catch up to that? Maybe in a decade, maybe never.

42:48Everybody needs the maximum cutting edge chips in certain things. But if you can start to build, let's say you can build an iPhone 15, but you can only do it in 2026. Okay, so your phones and your consumer tech is a little bit behind, but a lot of your military guided missiles and things like that, I mean, that's fine. It's still just, it's good enough for that. It's just not good enough for you to have your AI beat RAI or whatever it is at that point. But that's still quite worrisome, right? How does China get its military grade ships now? Does it literally buy them off the shelf? It does. And so military grade ships, there's, I think, two different categories to think about.

43:22One is the chips that are actually in the missile guiding it towards its target. And guidance is pretty easy right now. Your iPhone has great guidance. It can identify your location within a meter or two. And so guidance used to be hard. Now it's easy. The frontier is applying AI to military systems. So looking at satellite data and identifying what's a tank and what's a truck, that's an AI problem that's already being addressed by militaries. Or if you're trying to communicate in a contested electromagnetic environment, so your enemy is jamming the spectrum. You need to figure out how do you get communication to a different unit?

43:56Well, there's already AI systems that are trying to find where you can send your radio waves through. These are the actual frontiers, and this is where you do need cutting-edge chips because you're applying most advanced AI systems to these problems. It sounds like basically what we're hoping is having high-tech war will prevent low-tech war because nothing is going to prevent lower-tech war. We don't need chips or as many chips to do that. It still exists. So you could still have like a pitched naval battle. The key is going to be your AI has already shut down their monitoring systems or something at that point, and they can't fight back because they don't have the chips to do it.

44:30Yeah, that's right. You know, I think the way to think about this is, you know, the Iranians have effective guided missiles. Iran has no tech sector, no chip industry, no nothing, but they can make guided missiles because guided missiles today are easy. Used to be hard. Now they're easy. And so if you want to be at the cutting edge, you better do something better than that. It seems like U.S. dominance or Western dominance is dependent on high-tech warfare because the size of forces is always going to be in China's favor, just like it was in the Soviet Union, right? They can get millions of soldiers to our several hundred thousand.

44:59So we have to beat them on the technological frontier. We don't have a choice. We lose our advantage if we don't do that. If China is only a few years behind us or maybe a decade or so behind us in making these high-tech chips. What are our options to slowing down their progress or stop halting their progress that doesn't involve us literally launching missiles at factories? Well, I don't think we're going to halt their progress given all the money they've got and all the scientific expertise they got, but we're going to slow down by doing two things. One is by stopping them from getting the tools, which we've been doing over the past couple of years saying, we've got equipment you need for chip making and we're not going to give it to you.

45:35And two is by trying to drain their private sector of its expertise by discouraging people from working with the Chinese private sector, which ultimately is where much of the expertise comes from. Because the key with chips is that 99 % of chips that are produced go to civilian applications, and only 1 % go to military applications. And so if your country has a tiny private sector chip industry or a backwards private sector chip industry, you're going to have a backwards military chip industry too, because they're so closely related. So we have to essentially have better working conditions. OK, check.

46:07Pay more. Well, debatable, but better quality of life. I know that a lot of folks are going back to China to work, at least Chinese people who come to the United States to study. Some of them have said they've done so under duress. Some of them have said that they're getting paid more. But I think as my as my dad so eloquently puts it, I don't see a whole lot of people swimming the other way. I mean, he's not talking about China when he mentions that. He's usually talking about Cuba. But it does seem like this is a weird problem, right? Because we have to literally make the United States a better place to live.

46:37And so far it is because China almost has to force people or bribe people to go and live there as opposed to just having a nice free environment where your kids can grow up and do whatever they want. You don't have to bribe your teacher, for example. So that's good. We've got that going for us so far, which is nice. But what else can we do? Because authoritarian regimes, I mean, they can do a lot of sending people abroad and then forcing them to come home under by threatening their family or whatever. The other factor is that we're right now in the process of ripping apart the U.S. and the Chinese tech ecosystem.

47:07For a long time, U.S. firms thought it was in their interest and it was in their financial interest to help Chinese partners develop technologically. And that's why you've got so much U.S. tech that's assembled, so much software that's written, so many business partnerships between U.S. and Chinese firms. And the last five years have seen a lot of those partnerships being torn apart, partly because government is saying you can't do that anymore. We're going to put up new restrictions to limit tech transfer into China. This is the Jordan Harbinger Show with our guest, Chris Miller. We'll be right back.

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48:05That's how crucial this stuff is. So thank you for doing that. Thank you for supporting those who support the show. Now for the rest of my conversation with Chris Miller. It is a worry that China is a more important customer for chip manufacturing than say the US government, just because isn't the market share in China, isn't that so much larger than the chips that say the United States government purchases? So how do we figure that one out, right? Because it's tough to tell a company, hey, man, you can't sell smartphone chips to China at all. I mean, I guess you can do it, but you're really saying you're going to make way less money next year because we don't need as many as China does.

48:42And you can't sell to them at all. That's right. And I think the way I think of it is Joe Biden's got a lot of power over the chip industry, but Apple CEO Tim Cook has 25 times as much power since he spends 25 times as much money on chips each year as the U.S. government. That's why we've got to have a situation in which U.S. firms have an incentive to keep selling to China, but only less advanced technologies. That's what the government's trying to set up right now. They're saying, you're most advanced technologies you can't sell, but you're less advanced ones that aren't sensitive. Keep selling those all you want.

49:13Less advanced smartphone chips, PC chips, data center chips, so long as they're not used for AI. Keep selling those to China. Not a problem. It's just the cutting edge that we're worried about. How does the United States calculate the risk then of supporting Taiwan, right? We can't just sail aircraft carriers into the Taiwan Strait anymore, I think, because of the types of missiles that China has. Is that correct? It would certainly be a risk. Yeah. So China could then blockade Taiwan and then what, the U.S. and Japan have to go rescue them? Well, maybe Japan have to go in and rescue them, which could escalate things.

49:44I mean, do you have any insight into this based on your research? Well, this is the scariest scenario because if China were to invade outright, I think there's no doubt the U.S. would come to Taiwan's aid. But if China does a blockade, then the onus is on the U.S. president to decide what do you do next. You threaten to use the U.S. Navy to break the blockade. Are you willing to shoot first in a blockade scenario? You've only got a limited period of time before Taiwan starts facing huge shortages of energy, maybe even of food. It's very difficult to know what a president would do in that scenario.

50:15That is quite scary. And I think about this because I'm taking my family, my wife and kids to Taiwan to visit their family. And I don't really want to be there when that happens. And I'm hoping it never happens. Certainly that it doesn't happen this October would be ideal for me personally. But it does scare me a little bit. I am taking some solace in the idea that it's going to be just as bad for China if they do this in terms of semiconductors and not being able to produce anything or run their economy. me. But I don't know, are we making a mistake underestimating how irrational a dictator can be?

50:49That's the risk. If Xi Jinping is just trying to maximize Chinese GDP or to make China as wealthy as possible, then he certainly won't touch Taiwan. But that isn't really what's driven him thus far. He had zero COVID for two years, which is economically disastrous. Now he's got the highest youth unemployment China has ever seen since they've been collecting this type of data. and he's pursuing his policies regardless. So I think we shouldn't assume that he's focused purely on economic maximization. If he does this, if China does this, the losses I'm guessing are gonna be measured in the trillions, not the billions or the hundreds of billions, right?

51:24This is, how long would it take to recoup the ability to manufacture chips elsewhere or recover from this kind of economic damage globally? It would be many, many years. It's the cutting edge chips that are made in Taiwan, but it's also tons and tons of mature technology ships as well that are made in Taiwan. So the amount of capacity that you need to rebuild is just extraordinary. The number of machine tools inside of those factories you need to rebuild is on its own a huge challenge. So it would be half a decade, if not longer. Gosh, okay. What do you think of the war in Ukraine in terms of deterring China from invading Taiwan?

52:01I mean, do you think authoritarians are learning a lesson from Putin's disaster here? Or do you think that they're potentially emboldened somehow because maybe they can do it better? I don't know. Again, dictators, typically narcissistic, typically don't think things apply to them, et cetera, et cetera. So I don't know. Where do you stand on this? It's hard to read, but look, Putin's still got 20 % of Ukraine. So that's not a complete failure. It's not a complete success, but it's not a complete failure. Second, Putin has successfully used nuclear threats to stop the U.S. from doing more to help Ukraine.

52:30I think there's a direct connection between that and the fact that China is building up its nuclear arsenal very rapidly right now. Sure. Knowing that you can completely drop 90 % of the supply chain of chips around the world by blockading Taiwan or, I don't know, even just blowing up one of the small areas. I mean, you don't even need a conventional invasion to do that. They can lob something over there and put a massive dent in the global economy. Yes, they would be poking their own eye, but so what? Dictators don't give a crap if people can't buy things for a while. They care about their economy, but if they cloud the whole thing in patriotism, they might get away with it for at least a little while.

53:10It's really hard to say. Yeah, I mean, Mao Zedong wasn't known for his skillful economic management, but he held power for a long time. Yeah, exactly. He had famines that he'd engineered. They killed dozens of millions of people during that time. I mean, it's not inconceivable that they would do something like that by accident or even deliberately. That is something that keeps me up at night, really. What about quantum computing? Again, if this is outside your expertise, let me know. But is there a role that that plays in terms of semiconductors? Because I'm guessing you said Moore's law ends at some point, right, where things double.

53:41Do we suddenly go into the quantum realm and it's just a different set of rules and laws? Probably, but it's too soon to tell. Right now, there's a lot of investment in quantum computing, but there's not yet a single practical use case of quantum computing. So we're just too early in the process to know. I think one thing that is interesting is that a lot of the paradigms of quantum computing envision quantum right next to very high-powered silicon processing, deep interrelationship between the two. And so I don't think we should assume that quantum is just going to replace the existing paradigm.

54:11You write in the book that the world may split between general purpose processing where progress may slow, right? So we can't make the thing smaller and then special purpose processing, which continues to innovate and progress. Tell me about that, because it seems like when we make things smaller and we're no longer doubling, fine, then we just get better at making things specifically for one reason. Yeah, so for the past 50 years, basically, all progress in computing has been driven by Moore's Law shrinking, which has given us general purpose computing power. So the chip in your computer, it can do your browser, it can do Excel, it can do Microsoft Word, all pretty equivalently, and that's great.

54:49And so if you were designing a computer over the last 50 years, you just wait for the next processor to come out, it'd be twice as good and you get twice as much power. But as Morse law gets harder to sustain, there's more incentive to make specialized processors around specialized purposes. So best example is the GPU designed specifically for AI purposes today. It's not good at everything else, but it's really good at AI. And because we've got huge demand for AI right now, there's huge demand for GPUs. GPU, is that not graphics? Or am I thinking of something completely different? Well, so GPUs started as graphics.

55:22Initially for computer graphics, that's how they got off the ground. But around 10, 15 years ago, people began to realize that the same math undergirding graphics is also useful for training AI systems. And so today, if you look at NVIDIA, most of the growth that was coming from selling GPUs to companies that are training AI systems. They're right next to my house here. And I got to tell you, I was like, oh, this poor company, they built this new building and then there's the pandemic. And then I looked at the stock and I was like, I will cry. I will shed no tears for this company. The only tears I'm shedding are me not having bought stock in NVIDIA five years ago when I first thought about it because they were making new video games that need it.

55:59And I thought, oh, this is going to taper off. And now we've got AI and it's just hockey stick growth. So congrats. If you work at NVIDIA and you have stock options, my hat is off to you. You have won the lottery in terms of jobs and the economy. Tell me about the CHIPS Act, because I've only read a little bit about this, but it seems like the idea here is, okay, all of our eggs are in the Taiwan semiconductor manufacturing company basket. That's not good to be only all in on Taiwan, or at least to only have one place that makes these. Let's throw tens of billions of dollars at the United States, generally a good bet to bet on manufacturing in the US.

56:35But is it working, or is it too early to tell? It's definitely working in the sense that there's been a huge increase in investment in chip making in the U.S. Lots of different companies investing a lot more than the historical trend. You talked about hockey sticks and NVIDIA. There's been a hockey stick upward in chip making investment in the U.S. The question is gonna be, after the Chips Act money is spent, will those companies keep investing in the U.S. or will it be a one-off? And there, it's too soon to tell. I'd love to think that we didn't just waste all of that. I mean, what would stop us from being successful there?

57:06The key challenge is that it's just more expensive to make chips in the U.S. than in Taiwan or in Korea. It's tax policy, it's land costs, it's energy costs. And so companies, you know, they've got business models that they need to optimize. And so if it's 20 % more expensive than the US, it's a hard sell. So the Chips Act is saying it is more expensive. We're going to have the government cover the cost differential more or less. But there's only$50 billion in the Chips Act. And so that will be spent over the next five or so years. After that point, the cost differential will reemerge and we'll have to figure out what we do that.

57:36What would it take in, aside from a subsidy of, let's say, 20 percent to move chip manufacturing stateside? Because if this is only a money problem, I just feel like that's so solvable. Any problem that's just a money problem isn't really a problem. Right. So there's got to be more to the story. Money is the biggest thing. There's certainly workforce issues. You can't replicate the Taiwanese workforce overnight. There are power issues, a huge power demand that chip facilities require. But the biggest thing is the cost differential. I really had no idea that it was just that because I figured that the supply chain, I mean, does the infrastructure for making semiconductors exist here in the United States outside of manufacturing the semiconductor itself?

58:15Can we get the raw materials? Can we get the chemicals? Because I've spoken to some semiconductor investors and one of the things they're concerned about is you can't just take, let's say, the factory outside of Taipei and all of the personnel that's in it and move it to the United States because even though we do supply some of those chemicals and we do supply some of those whatever or machinery and other things like that, or get it from Europe, they're still missing components. I just don't know what those are. Yeah. I mean, it's definitely true that in Taiwan, you've got the densest network of chemical suppliers, of spare parts suppliers, of component suppliers, but you do have chip industries in the U.S.

58:50that have been operating for half a century. And so they've got those chemicals too. They've got those components. Yeah. Texas Instruments, right? I mean, come on. It's more dispersed in the U.S. And because it's more dispersed, it's less efficient. Whereas in Taiwan, everything is basically happening in a couple of cities and a very small island. And so it's more efficient that way. But the building blocks are in the U.S. It's just a matter of organizing them and scaling them up. So you think this is a solvable issue where we could theoretically get Taiwan level semiconductor manufacturing happening in the United States over the course of a few years or several years?

59:22Over the course of a decade. It's going to take a long time. You know, a single chip making facility takes two, three, four years from start to when it actually is producing chips. And Taiwan's been spending the last three decades building chip factory after chip factory every single year. So they've got a ton of capacity. You can't replicate that overnight. So basically, we need to slow China down and speed up the United States and not trip over our own shoelaces for the next decade. Otherwise, it sounds like we could be headed for trouble because I can imagine a scenario in which China's like, aha, it's no longer just BS.

59:53We can actually manufacture these high-end chips. and if we can't do that, we are in deep, deep trouble because then they won't care if Taiwan supply chain is down because they can make enough for themselves. It would be like the United States being sufficient with oil supply, for example. We care about our allies and their oil prices, so we're relying in many ways on Saudi Arabia and other oil producers, but if we were in a global conflict, the United States is largely self-sufficient with energy and that's a big deal. We don't want that to happen with semiconductors and China, correct? That's absolutely right.

1:00:27And, you know, I think self-sufficiency is going to be hard. But if we're more self-sufficient with the Japanese and the Europeans and partners that we can trust, they'll feel a lot better than the current situation where we're critically dependent on Taiwan, which is threatened by China and increasingly for low end ships on China itself, which is a really dangerous place to be. I know we're losing a lot of things from China to other places like India and Vietnam. But is that or I shouldn't say we're losing. I know we're moving a lot of things, actually. China's losing those things. But is that mostly the assembly of electronic devices rather than the manufacture of their components?

1:01:04Mostly, yes. And this is a process that's driven partly given that Chinese wages are rising relative to India, Vietnam, but primarily because companies want to diversify. If you look at Apple, for example, they manufacture over 90 % of iPhones in China right now. And they're looking at that saying, that's probably a bit too concentrated. and so trying to build up assembly in Vietnam, in India. The chips are still coming from Taiwan, largely, from Korea, but they're being assembled in new locations. Well, look, you sound pretty optimistic about that. Is that an accurate observation or an accurate perception here?

1:01:37Yeah, it's happening rapidly. With PCs, for example, with servers, it's happening faster than with smartphones, but there's a ton of change in the electronics industry shifting out of China towards Southeast Asia and India in particular. Well, I hope you're right about most of this. Is there anything you hope you're wrong about in terms of your research with semiconductors, especially as it relates to the U.S. and China? I think the big risk right now is that all the money China pours into its ship industry, it might fail at the leading edge, but they're going to succeed in building a ton of capacity in mature technologies.

1:02:08And if they flood the market, just like they flooded solar panels or steel, it's going to have huge implications for the rest of the world and threaten the profitability of US, Japanese, and European tech firms. And we don't have a strategy for dealing with that. Ah, I see. So even if we develop high-end chips over the next 10 years, once China catches up, they might be like, hey, we have ours. They're largely the same except for they're a tenth of the cost because we're paying people peanuts and everything is dirt cheap and we don't care about pollution or whatever it is. They can undercut us by a lot.

1:02:37That's gonna lower the market price for those, which means we might not be able to compete. Thus, either we have to subsidize that entire industry in the United States or those go out of business. Yeah, that's right. And companies right now are thinking 10 years in the future, saying we're looking at all this new capacity coming online in China, mostly lower tech, but still it's real. It's going to hit the market in five or 10 years' time. It's going to impact our prices. Are we willing to invest right now given what we expect this surge of China's capacity to be? So we're actually getting less investment than we would in the US, in Europe, in Japan, because companies are already worried about this issue.

1:03:12Jeez. Nice. And then, I mean, the solution looks like, what, protectionism, where it's like, hey, you can't sell those chips to the United States. And if you want to do business with the United States, you can't buy chips from China. You got to buy them from us at 500 % of the cost. Yeah, that's right. Unless you can convince the Chinese to adopt a level playing field, then I think good luck. Never going to happen. Yeah, the only alternative is to lock out their chips. Even best case scenario where we bring this up domestically, we're still in trouble. It's still a pretty messy situation. Yikes.

1:03:40Well, all right. We'll have to have you back in a few years. and figure out what's going on at that point. I mean, what do you think is going to happen, right? It seems inevitable that China is going to come up with the ability to create high-end ships and that this exact scenario is going to happen where we can finally build them here and they're 500 % of the cost. No, I think when it comes to the cutting edge, the most advanced ships, I think China is going to remain behind what the Taiwanese can do for a very long time. Okay, the plus side is they're just never going to catch up or at least not in the next couple of decades and that's our edge.

1:04:11Yeah, I think that's right. I don't love it. I don't love it. There's tons of uncertainty around it. Tons of uncertainty around the companies involved or on the technology trajectories. But the chip industry has shown that it's very, very, very difficult to reach the cutting edge. China's poured in a lot of money, but its money hasn't made that much of a difference thus far. Now it doesn't have access to the tools. So they've got huge problems in the Chinese chip industry. Well, it seems kind of like an arms race. I know it's not really the same thing, but whoever controls this kind of manufacturing, I mean, it's not just iPhones, right?

1:04:43We're talking about artificial intelligence, which has obvious military applications. There's a lot of similarities to the race to build the bomb that I'm seeing here. Or am I just imagining this? No, I think that's right. And Chinese leaders certainly see it in the exact same way. That's why they're putting all of the energy into the race that they can. Chris Miller, thank you very much, man. I really appreciate it. Thank you for having me. We've got a preview trailer of our interview with Vince Beiser. It's all about sand. You heard me, sand. It's actually quite fascinating. There are even sand mafias killing people over sand.

1:05:15If anybody had told me three, four years ago that I was going to be spending my every waking hour thinking and talking about sand, I would have just laughed. It's actually the most important solid substance on Earth. We use about 50 billion tons of sand every year. That's enough to cover the entire state of California every single year. Every year, we use enough concrete to build a wall 90 feet high and 90 feet across, right the way around the planet at the equator. A bunch of sand might get broken off of a mountaintop, washed down into a plane somewhere, and then that sand gets buried under subsequent geological layers and pushed down under the earth and compressed and turned into sandstone.

1:06:02And then that sandstone may get pushed up again by geologic forces over hundreds of thousands of years and worn away again and again broken down back into grains. So an individual grain of sand can be millions of years old. We're fully eclipsing the rate of creation here. You're probably sitting in a building made of just a huge pile of sand. All the roads connecting all those buildings, also made out of sand. The glass, the windows in all those buildings also made of sand. The microchips that power our computers, our cell phones, all of our other digital goodies, also made from sand. So without sand, there's no modern civilization.

1:06:44And the craziest thing about it is we are starting to run out. For more on why sand is the next petroleum-like resource and some crazy stories about sand pirates and the black market for sand, check out episode 97 with Vince Beiser right here on the Jordan Harbinger Show. All things Chris Miller will be in the show notes at jordanharbinger.com. You can ask the AI chatbot on the website if you want. Transcripts are over there in the show notes. Advertisers, deals, discount codes, ways to support the show, all at jordanharbinger.com slash deals. Please consider supporting those who support the show.

1:07:18In our newsletter, many of you have given me such cool feedback on this. I'm really enjoying writing this. Every week, the team and I dig into an older episode of the show and dissect the lessons from it. So if you're a fan of the show and you want a recap of important highlights and takeaways, you want to dig into something from the back catalog, listen to next, whatever, the newsletters are a great place to do that. JordanHarbinger.com slash news is where you can find it. We're going to be doing giveaways there. I know I've been saying that for a while, but it's more complicated than anything like that ever should be.

1:07:43Six Minute Networking also at JordanHarbinger.com slash course. I'm at JordanHarbinger on Twitter and Instagram. You can send me nice things there only, please. I've got enough bad stuff being sent unsolicited. Anyway, this show is created in association with Podcast One. My team is Jen Harbinger, Jace Sanderson, Robert Fogarty, Milio Campo, Ian Baird, and Gabriel Mizrahi. Remember, we rise by lifting others. The fee for this show is you share it with friends when you find something useful or interesting. The greatest compliment you can give us is to share the show with those you care about. Now, if you know somebody who's interested in semiconductors or the whole China thing or the trade thing or computers, whatever, share this episode with them.

1:08:18They'll probably dig it. In the meantime, I hope you apply what you hear on the show so you can live what you learn. And we'll see you next time.

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