How Chips Rule the Modern World — with Chris Miller

23:16But TSMC doesn't design any chips, It only manufactures them. And so it's been able to attract lots of customers, scale to a really unforeseeable degree. And in that process of scaling, reap great efficiencies and also learn to hone its manufacturing processes over the larger number of chips it produces. So the business model was really unique when it was founded and it's proven a real competitive advantage. So one of the things I keep hearing about in terms of the Ukrainians' surprising and inspiring ability to repel this much larger invading force is that they just have a greater mastery of technology.

23:55Is this the war that's sort of where chips take over? You know, I think there's some truth to that. Certainly, the Ukrainians have been much more agile in their ability to take technology and deploy it in new ways, where the Russians have been very slow to adapt. But I think what's striking is that the Ukrainians are doing so often using off-the-shelf technology. So if you look at the drones that they're deploying, for example, they're not ultra advanced drones, they're simple drones that they're able to use in large numbers because they're simple and low cost. And so in some ways, it's a high tech conflict, but in other ways, it's a conflict using accessible consumer technologies that are being deployed in new ways.

24:35But to your point, it's about the humans, right? These are, I mean, I had invested in several companies that had large programming centers in Ukraine. And I imagine, I heard this one story. So I'm an investor in a company and they had a small group of about 13 programmers over there. And Ukraine has a lot of tech talent. And then on the Monday after the invasion, 11 of the 13 were gone because they joined the Ukrainian army. And I imagine, okay, you have all these, this strong tech hub, this strong technologically sophisticated, adept, agile workforce flow into the armed forces. Isn't that just, it strikes me that this is a, this might be the swing, the swing skill, if you will, in the war.

25:25Is that, back to your notion around the reason that Taiwan makes these chips is not only they have the factories, but they have the human capital. Is this, again, a war won by technical domain expertise? I think you could make that argument. I think if you compare it to the Russian army, where the bulk of the soldiers now have been conscripted in via forced mobilization, it's just a totally different army that Ukraine's fighting with, with lots of people who voluntarily signed up, people who are much more enthusiastic about being there and as a result are willing to take the initiative to a much greater degree.

26:00That, I think, is the key difference. It's the ability of low and mid-level soldiers and officers in the Ukrainian military to innovate, to try new things, and to see what works. And you see almost none of that on the Russian side. Speaking of wars or conflicts, you wrote regarding the Persian Gulf War that it was a pivotal moment for the role of microchips in warfare. Say more. Well, the Gulf War in 1991 was the first war we saw in a really large-scale way the use of chips to guide munitions to hit a target with precision. Before that point, bombing from the air or long-range rockets was an exercise in massive quantity because you had no idea what was going to hit its target.

26:41And since the Gulf War, we've become used to the fact that bombs can hit their targets in most cases pretty accurately using, at first, laser guidance, now GPS guidance. And so the entire character of war has changed because you no longer need a thousand bombs to hit a single target. You can often do it with just one. And that's possible because of semiconductors, because of computing power, both in the weapons themselves, but also distributed across a battlefield. So the satellites gathering signals intelligence, for example, the data centers processing what that means, the communications sending that to an individual weapon system.

27:17There's semiconductors in almost every defense system today sensing, communicating, and computing in a way that was impossible just a couple decades ago. So talk to us, break down, give the kind of the cliff notes on the CHIPS Act and what you think is what you like or don't like about the legislation. Well, because of the concentration in where chips are manufactured, the U.S. decided via an act of Congress to try to bolster manufacturing in the U.S. And the key recognition was that chip making in the U.S. is more expensive, more expensive because of tax policy, because of labor costs, because of environmental regulations.

27:55So the goal has been to equalize the cost gap between producing in Asia and producing in the U.S. and therefore trying to attract more investment in the U.S. And I think it's an admirable goal, given the just extraordinary risks that we face, given the concentration of chip making in the Taiwan Straits, if China were to attack or try to blockade the island. But it's going to be hard to pull off in a major way because the enormous capacity that's been built up in East Asia is going to be hard to move, hard to change. And so we're already seeing some increases in investment in chip making in the US.

28:32But the reality is that it's going to be a slow process, even though I think the CHIPS Act is working. It's working on the margin because the chip industry will take a decade to begin to see real shifts. And I'll just give you one example as to why that's true. The CHIPS Act spends$39 billion for incentives for chip making. And that sounds like a lot of money, but a single new chip making facility costs$20 billion. And what is so hard about producing chips? Is it the intellectual property, the number of PhDs you need, the quality control of these factories? Where does that$20 billion go? So most of the$20 billion for a new chip making facility goes to buying the tools that are capable of manufacturing chips.

29:19So if you go to the Apple store, buy a new iPhone, the primary chip on the iPhone will have 15 billion tiny transistors carved into it, each one of which is smaller than the size of a virus. And so managing the manufacturing of these by the billions for each and every iPhone with close to perfect accuracy, it's the hardest manufacturing humans have ever done. And there's just a couple of companies in California, the Netherlands, and Japan that can produce the tools capable of manufacturing transistors at this scale. And the machines involved themselves cost often$100 million a piece. The most expensive of the tools that make chips cost$150 million, has hundreds of thousands of components, including the flattest mirrors ever invented, an explosion happening inside of it constantly at 40 times hotter than the surface of the sun.

30:11I mean, this is really wild engineering in terms of what it takes to put these machines together. And that's why it's brutally expensive. So when I got out of business school, one of the premier jobs you could get was at this amazing firm that was building the future that was the brain inside everything. And I was Intel, right? Did Intel just kind of miss the boat here? Why is Intel not shared in this exciting? If I look at Intel's five-year stock performance, it's almost been cut in half. And it feels as if they should be ground zero for this kind of innovation. They're in what most people think is the most innovative geography in the world.

30:52They have the capital. They have the brand. What happened? For a long time, Intel was too successful for its own good. It produced most of the chips that went in PCs from the invention of the PC all the way up to the present. For a long time, it had dominant market share in data centers, too. And so for much of the past decade, the firm rested on its laurels, took advantage of the extraordinary profitability of its two existing business lines. and failed to invest effectively in anything new. And so it famously missed the smartphone wave. Steve Jobs actually went to Intel before the first Apple was produced and asked if they wanted to produce chips for the first iPhones.

31:31And Intel said, no, it sounded like a low volume product with low margins. And that was, of course, a horrible error in hindsight. And then Intel was also slow to pick up on the shifts towards artificial intelligence and data centers and was slow to roll out chips that are necessary for running AI workloads. And so it's fallen behind in a number of key areas. Now, over the past two years, it's got a new CEO who's been trying to turn things around, catch up. Where do you think when you look at specific companies or specific regions, geographies, sectors, industries, who do you think the winners and losers are based on how you see the sector shaping up?

32:12Well, one of the key changes underway right now is that selling chips to data centers is getting more and more important. And there's just a couple of firms that play a critical role in supplying chips to data centers. And so if you look at the data centers that are training large AI systems, they're critically reliant on chips from just one company, NVIDIA, which is a US firm that designs chips, manufactures all their chips actually with TSMC in Taiwan. And it's really hard to have AI systems that aren't trained on on their chips. And so, you know, when you think of the AI revolution that's underway right now, we see the impact via chat GPT, but underneath all of the training is our chips produced by just a couple of companies.

32:55Yeah. So it feels like Nvidia sort of basically took, it's like what Lady Gaga did to Madonna, Nvidia did Intel. What if, and I'm going to go back to China, apologize for hopping around, but would it be worth it for China just to invade Taiwan, even if TSMC went out of business or they couldn't recreate it, but just to stop the flow of these advanced chips to the Western world? Well, the problem that China faces is that they're more dependent in Taiwan than anyone else. China spends as much money each year importing chips as it spends importing oil, and most of those chips are imported from Taiwan.

33:33I just want to pause there. That's an amazing stat. China spends as much importing chips as importing oil? That's right. And it has for most of the last decade. It really is the new oil. I mean, it is. That's amazing. And so they're equally chip dependent, is energy independent. What is their domestic supply of chips? Is it anything? They've got a pretty big domestic industry for very low-end chips. But when it comes to anything remotely close to the cutting edge, they're dependent on importing from Taiwan, from Korea, from Japan, from the United States. We'll be right back.

34:12Support for the show is brought to you by CVS Caremark. On this show, we talk a lot about money. We talk about money on a large economic scale, but we also talk about the cold, hard cash, the dollars and cents of the center of just about everything. And that's the sort of money talk that's on most people's minds. How are they going to access and pay for the things they need? Like prescription drugs, CVS Caremark plays a vital role in the healthcare ecosystem by helping to ensure coverage of medications to their clients' plan members at an affordable price. interested in more affordable care for your members go to cmk.co slash stories to learn how they can help you provide the affordability support and access your members need

35:08Plus 15 minutes. Plus, you'll get America's best network. No. See? No. Maybe I should switch to T-Mobile right now. This holiday, switch to T-Mobile in just 15 minutes from your phone. Check out in 15 minutes or less per line, T-Mobile has the best mobile network in the U.S. Based on analysis by UCO Speed Test Intelligence, data 1H 2025. I want to switch gears because when I was reading your bio, you're an expert on chips, but you're also an expert on Russia, or at least modern Russia. You've written two books about it. Putinomics, power and money in resurgent Russia, the struggle to save the Soviet Union, Mikhail Gorbachev, and the collapse of the USSR.

35:42I would love to just get the cliff notes or broad brush what you think the situation is in Russia. If you're forced to try and speculate around, given, obviously, there's a lot going on with Russia right now. What do you think Russia looks like in three or five years? How do you think, what is your prediction around Putin and Russia and its role in the world over the next few years? Well, Putin's only 71 years old. So I think the base case is that he's still in power in three years' time or in five years' time. He doesn't have anywhere to retire to. He can't do that safely. He's in good health by all accounts, doesn't smoke, barely drinks.

36:24And a typical Russian who makes it to the age of 65 is likely to make it into their 80s, judging by the life expectancy tables. So he's not likely to die over the next three to five years, though it's possible. And it's hard to remove him. Not impossible. There's a long history of palace coups in Russia, but it's difficult to see who could drive him out over the next couple of years. And so I think we have to operate under the assumption that he's still around for the foreseeable future. This is just an area, I look at the war and I think this is going so poorly. And now a lot of the most powerful and wealthiest people in Russia can't park their yachts in St.

37:03Bart's or wherever. I mean, is this, is the West, is Western media have a bias where they think things are worse over there for Putin and for Russia than they actually are? Have these economic sanctions begun to take a toll on ordinary life? If all these boxes with young men in them being shipped back to Mother Russia, is that beginning to take an emotional toll? Like, what is the state of play in Russia right now as it relates to their view of this war and how it's going? Well, the key to answering that question is to differentiate who matters and who doesn't in Russian politics. You know, the oligarchs, they're fun to write about in newspapers because they've got big yachts and lots of girlfriends.

37:43But in reality, they don't play a big role in politics. They've been very aggressively pushed out of politics by Putin. And now if you're an oligarch, you've learned over time that if you have political views and you say them out loud, you could end up in jail or you could fall out a window. And so it's very dangerous to do so. So they're interesting figures, but they're not political actors in a major way. And similarly, the Russian populace doesn't have very many mechanisms to express its views. And so if you're a typical Russian, protesting is highly dangerous. it's not likely to work anyway.

38:16And so most people have more or less withdrawn from politics, accepted that they can't change the situation and are just going to cope with whatever comes. And so as a result, there's just a small number of people in the political elite that have a real vote or a voice in the process. And right now they've all concluded that their best strategy for survival is to persist with the war, keep their heads down and see what comes next. And I think that's been their strategy since the war started. And it's been a successful survival strategy for all of the Russian elite. It hasn't been good for the country, but it's been effective for them.

38:54It struck me that in the last couple of weeks, as America worries about transgender swimmers or their daughter marrying a Republican, that the thing we should be worried about was that meeting between Xi and Putin. Is there an Axis alliance forming? There's certainly a much closer partnership than anyone could have imagined 10 years ago. The fact that Putin and Xi have met each other as much as they've met any other world leader, not just since the war started, but over the past decade, is really important. They've described each other as their best friends. They celebrated their birthdays together in recent years.

39:31But I think since the war, the relationship has shifted somewhat because Putin has no choice but to be friends with Xi. He's got no other friends. He's more reliant than ever on China, whereas China's in a good bargaining position. It knows that Russia's reliant. It's able to get cut price access to all of Russia's raw materials. And so for China, this isn't a bad position to be in because Russia has very little room to bargain. When you talk about chips and you talk about oil and the kind of U.S.-Sina relations, You know, this really is probably the most important relationship, geopolitical relationship in the world.

40:09And people including Fareed Zakaria and some others will say that we have become so used to being the kind of unilateral superpower that there's some veracity to the notion that we've been too aggressive and that we have encouraged a lot of nations to try and find an alternative default currency, try and produce their own chips. that the rise of a hostile China, that we bear some blame for that. What are your thoughts? You know, I think we certainly bear some blame, but I guess if you look at the key turning points, I think most of the blame falls on the Chinese side. And if you ask, why is it that China annexed the South China Sea?

40:53Or why is it that China regularly starts fights with India over their disputed border in the Himalayas? Or why is it that Xi has horrible relations with all of his neighbors except for Russia? You know, it's not just the U.S. that's in a position of having its worst relations with China in several decades. It's also Korea and Japan and India and Australia. And so if you look at China's foreign relations, we're actually not unique in having a pretty bad relationship. China is actually unique in having awful relations with almost all of its key trading partners. And I think that speaks to the fact that actually a lot of the key policy decisions that have led us to where we are were taken in Beijing rather than in Washington.

41:35And so from Russia to chips, what's next? Well, I'm still spending a lot of time looking at the impact of the chip war. I think that the question that people haven't really gotten their heads around yet is how this is going to restructure the entire electronics industry. Right now, take Apple. They produce almost all their phones, PCs, tablets in China. That is going to change, I think, pretty dramatically over the coming years and decades as every assembler of smartphones, of PCs, of servers is looking to shift where they assemble their goods. And a lot of the globalization that we take for granted is actually electronic supply chains that crisscross the Asia-Pacific region, and that is beginning to be decoupled with really dramatic impacts.

42:22for the world economy. Let's talk about consumer tech. Amazon, Apple, Facebook, Google, and anyone else that you want to talk about. Who's best positioned or worst positioned given the changing dynamic of the chip world? Well, I think if you had to pick out someone who is worst positioned, it would certainly be Apple. There's no company that's more exposed to intensifying US-China tensions. Apple both has China as its second largest market, has almost all of its assembly in China, and all of Apple's critical chips are made in Taiwan. So at every level, Apple is exposed to increasing tensions between the U.S.

42:59and China. And finally, when I think about the ultimate front end for all this incredibly sophisticated computing power, it's AI. The thing that people are most excited about is AI. What's your view on AI's impact on the economy and the larger society? You know, it's interesting going back to the early days of the modern computing industry in the 40s, 50s, 60s, and looking at the predictions that were made then. And Gordon Moore, who just passed away recently, predicted in 1965 that in the coming decades we would have personal computers and portable communications devices. And he was absolutely right, but it took decades to play out.

43:42And so when I look at how to think about the trajectory of AI, I think some of the more optimistic projections are likely to come true. But even revolutionary technologies take years or even decades to actually proliferate across the economy and across our lives. And so I think we shouldn't expect transformative changes next year or the year after, even if it's really impactful, it'll be measured over a long time horizon. Chris Miller is an associate professor of international history at the Fletcher School of Law and Diplomacy at Tufts University and Gene Kirkpatrick visiting fellow at the American Enterprise Institute.

44:18He's also the author of four books, including his latest, Chip War, the fight for the world's most critical technology. He joins us from just outside of Boston. Chris, we appreciate your time. Thanks for having me.

44:40Algebra of happiness, just book it. So three years ago, it feels like two years ago, but it was probably three years ago, my oldest son, Alec, who is now 15, I'm not exaggerating, was this beautiful little innocent boy who used to, he just couldn't get enough of me. I mean, just couldn't get enough of me. And he would let me tickle him. And I mean, just a boy, literally just a boy, just this adorable boy. The last three years, and it may even be the two years, have flown by for me, starting a business, moving to London. It's just, it's been a blink. But in that blink, this little boy, this little beautiful boy is now six feet tall, and every response is monosyllabic.

45:35How was school today? Fine. What do you want to do today? Don't know. And he's turning into a lovely young man, but it's just a different person. That kid is gone. And I have a lot of regrets. Do I have a lot of regrets? Some regrets about fathering. But something I did right was whenever there was an opportunity to go somewhere with my kids, an opportunity to take a vacation. And I realize this is a point of privilege, but a lot of it is your decision. A lot of it is in your control. when I was younger and when they were really little, I always kind of found reasons to not do stuff with them or not go on vacations because I just wanted to put it off or think it through or make sure, do we really want to go to Lifesize Monopoly?

46:19Do we really, give me a day to decide or a little while, let's bring it up. Let's talk about it next week, whether we want to go to visit their grandparents this weekend for lunch or do we want to make the effort to go to Universal Studios? because I'm a fundamentally lazy person and don't like to commit to, God forbid, doing something I don't enjoy. And what I recognize as I get older is that these kids are ripping by. You do not get these years back. And so what I have done, what I have done, six months ago, let's go to Japan. I've never been to Japan. Okay, let's go. Let's book it. We want to go to ABBA, the 3D.

46:58There's some ABBA thing here in London. Okay, let's book it. You know, just book it. And I realize that some people don't have that economic flexibility, but it doesn't have to involve money, right? I'm thinking about joining a soccer league. Do you want to be an assistant coach? Yes. You got to be promiscuous. Be promiscuous with your heart and your time when it comes to your kid because you'll wake up. I'm telling you, just wake up and he's six feet tall. And quite frankly, he's just not that into you. He loves you. And it's good that he's just not that into you because he's into his own thing, as he should be.

47:33But I'm telling you, while you're in that magic zone, and I think babies are awful, quite frankly. I think kind of three is okay, passable. Four starts to get fun. Four to 14 are the magic years. So during that decade, my brothers, any opportunity. It might not have seemed like fun. It may be expensive. It may be tough on you professionally or from a lifestyle standpoint. But trust me on this, just book it. This episode was produced by Caroline Shagrin. Jennifer Sanchez is our associate producer. And Drew Burrows is our technical director. If you like what you heard, please follow, download, and subscribe.

48:10Thank you for listening to the Prof G Pod from the Vox Media Podcast Network. We will catch you on Saturday for No Mercy, No Malice, as read by George Hahn. And on Monday with our weekly market show. Support for this show comes from Odoo. Running a business is hard enough. So why make it harder with a dozen different apps that don't talk to each other? Introducing Odoo. It's the only business software you'll ever need. It's an all-in-one, fully integrated platform that makes your work easier. CRM, accounting, inventory, e-commerce, and more. And the best part? Odoo replaces multiple expensive platforms for a fraction of the cost.

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