The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.
 W.B. Yeats

Eying defeat in a proxy war
Given the apparent success of the West’s proxy war in Ukraine and Russia’s evident difficulties the important question is:
What might/will Russia do now that its mighty military has been humiliated and its goals looks increasingly difficult or even impossible to achieve?
Surely Russia must now realise that it is fighting all the might of West in a proxy war, carried out on Ukrainian soil. Russia finds itself in an impossible quandary similar to the Norse God, Thor, when he was trying to lift the Midgard Serpent or Jörmungandr in the shape of a cat. An impossible task even for Thor as the Midgard Serpent stretched around the whole World.
Putin may have thought it was easy to “lift” a puny Ukraine, but must now realise that he is fighting the Midgard Serpent of the whole of Western might.
 
 
What will Putin do?
The Kremlin, September 21, 2022, 09:00. In an address that Wednesday morning President Putin had three important announcements:
 
Referendums in Donbass, Kherson and Zaporozhye
“The parliaments of the Donbass people’s republics and the military-civilian administrations of the Kherson and Zaporozhye regions have adopted decisions to hold referendums on the future of their territories and have appealed to Russia to support this.”
 
Partial mobilisation
“I find it necessary to support the proposal of the Defence Ministry and the General Staff on partial mobilisation in the Russian Federation to defend our Motherland and its sovereignty and territorial integrity, and to ensure the safety of our people and people in the liberated territories.”
 
Nuclear threat
“Washington, London and Brussels are openly encouraging Kiev to move the hostilities to our territory. They openly say that Russia must be defeated on the battlefield by any means, and subsequently deprived of political, economic, cultural and any other sovereignty and ransacked…
I would like to remind those who make such statements regarding Russia that our country has different types of weapons as well, and some of them are more modern than the weapons NATO countries have. In the event of a threat to the territorial integrity of our country and to defend Russia and our people, we will certainly make use of all weapon systems available to us. This is not a bluff.
The citizens of Russia can rest assured that the territorial integrity of our Motherland, our independence and freedom will be defended – I repeat – by all the systems available to us. Those who are using nuclear blackmail against us should know that the wind rose can turn around.”
 
 Biden’s hasty riposte
United Nations Headquarters, New York, September 21, 2022 at10:35 a.m. EDT. In his speech at the 77th session of the United Nations President Biden had these replies to President Putin’s announcements:
 
On nuclear threats
“Again, just today, President Putin has made overt nuclear threats against Europe and a reckless disregard for the responsibilities of the non- proliferation regime.
Let me also urge every nation to recommit to strengthening the nuclear non- proliferation regime through diplomacy. No matter what else is happening in the world, the United States is ready to pursue critical arms control measures. A nuclear war cannot be won and must never be fought …
Let me also urge every nation to recommit to strengthening the nuclear non-proliferation regime through diplomacy. No matter what else is happening in the world, the United States is ready to pursue critical arms control measures. A nuclear war cannot be won and must never be fought …
And again, today, as I said, they’re making irresponsible nuclear threats to use nuclear weapons. China is conducting an unprecedented, concerning nuclear buildup without any transparency.”
 
On Putin’s mobilization
“Now Russia is calling — calling up more soldiers to join the fight. And the Kremlin is organizing a sham referenda to try to annex parts of Ukraine, an extremely significant violation of the U.N. Charter.
This world should see these outrageous acts for what they are. Putin claims he had to act because Russia was threatened. But no one threatened Russia, and no one other than Russia sought conflict. In fact, we warned it was coming. And with many of you, we worked to try to avert it.”
 
A passionate and dangerous game of chicken*
What the U.S. intelligence believes Putin might do: President Putin may turn to more drastic means …including imposing martial law, reorienting industrial production, or potentially escalatory military actions to free up the resources needed to achieve his objectives as the conflict drags on, or if he perceives Russia is losing in Ukraine.
“The most likely flashpoints for escalation in the coming weeks are around increasing Russian attempts to interdict Western security assistance, retaliation for Western economic sanctions, or threats to the regime at home.
We believe that Moscow continues to use nuclear rhetoric to deter the United States and the West from increasing lethal aid to Ukraine and to respond to public comments from the U.S. and NATO Allies that suggest expanded western goals in the conflict. If Putin perceives that the United States is ignoring his threats, he may try to signal to Washington the heightened danger of its support to Ukraine by authorizing another large nuclear exercise involving a major dispersal of mobile intercontinental missiles, heavy bombers, strategic submarines.
We otherwise continue to believe that President Putin would probably only authorize the use of nuclear weapons if he perceived an existential threat to the Russian state or regime, but we will remain vigilant in monitoring every aspect of Russia’s strategic nuclear forces. With tensions this high, there is always an enhanced potential for miscalculation, unintended escalation, which we hope our intelligence can help to mitigate.” (Emphasis added). (Avril Haines Director of National Intelligence at Congressional Testimony, May10).
In the speech announcing the invasion of Ukraine Putin warned the West: “No matter who tries to stand in our way or all the more so create threats for our country and our people, they must know that Russia will respond immediately, and the consequences will be such as you have never seen in your entire history.... All the necessary decisions in this regard have been taken. I hope that my words will be heard.”
Three day later he ordered military command to put Russia's nuclear deterrent forces on high alert.
The White House press secretary Jen Psaki, who often seems to act independently in lieu of Biden, dismissed Putin’s threat on Twitter the same day: “that Russian President Vladimir Putin's decision to put his nation's nuclear deterrent forces on a state of heightened alert was part of a "pattern" of manufacturing threats that don't exist.” (Jen Psaki, February 27).
 In April, when it had become evident that Russian troops were in dire straits in Ukraine
“Sergei Lavrov warned the West on Monday not to underestimate the elevated risks of nuclear conflict over Ukraine and said he viewed NATO as being "in essence" engaged in a proxy war with Russia by supplying Kyiv with weaponry.” (Reuters April 26).
The threats were later dismissed by President Biden, when answering a question from journalist. Sounding somewhat hesitantly he said:
“So, it’s — number one, it’s an excuse for their failure. But number two, it’s also, if they really mean it, it’s — it’s — no — no one should be making idle comments about the use of nuclear weapons or the possibility that they’d use that. It’s irresponsible.”
Prime Minister Johnson was even more casually dismissing the threat. When asked he if shared the concern over threat of a nuclear war he simply said: “No. I don’t.”
Analysts asked to judge the likelihood that Putin might use nuclear weapons when facing defeat in Ukraine have argued that there is a non-zero risk. A former undersecretary for defence put the risk a around 1 or 2 percent, while a former US ambassador to Russia judged the risk to be less than 5 percent.
How they arrived at the percentage is not known, but that they judged the risk to be higher than zero is significant, and ought to give cause for concern among those Western leaders who rather arrogantly dismissed the Russian threat as merely empty words.
Perhaps it would be wise to have a look at the Russian nuclear doctrine.
 
Escalate to de-escalate when things fall apart
On April 21, 2022 the U.S. congressional Service Published a report on Russians Nuclear doctrine.
In 2020 Russia published the latest version of the doctrine entitled ““On Basic Principles of State Policy of the Russian Federation on Nuclear Deterrence.” The document outlines the circumstances that might lead Russia to use nuclear weapons.
“This document specifically notes that Russia “considers nuclear weapons exclusively as a means of deterrence.” It states that Russia’s nuclear deterrence policy “is defensive by nature, it is aimed at maintaining the nuclear forces potential at the level sufficient for nuclear deterrence, and guarantees protection of national sovereignty and territorial integrity of the State, and deterrence of a potential adversary from aggression against the Russian Federation and/or its allies.” It also emphasizes that Russia maintains forces that could “inflict guaranteed unacceptable damage on a potential adversary ... in any circumstances.”
Defensive it says, but it also states that Russia could respond with nuclear weapons following an “attack by adversary against critical governmental or military sites of the Russian Federation, disruption of which would undermine nuclear forces response actions,” but also in an “aggression against the Russian Federation with the use of conventional weapons when the very existence of the state is in jeopardy.” (Emphasis added).
Thus, Russia might respond to a conventional attack with nuclear weapons if it judges the very existence of the state to be in jeopardy. While this might seem to exclude the use of tactical nuclear weapons in the Ukrainian war, the document also opens the possibility of nuclear first use as it states:
“… in the event of a military conflict, this Policy provides for the prevention of an escalation of military actions and their termination on conditions that are acceptable for the Russian Federation and/or its allies.”
 Analysts have assessed that this means Russia might threaten to escalate to use nuclear weapons as a way to deter a conflict that would threaten the existence of the state, with Russia pursuing an “escalate to de-escalate” nuclear doctrine under certain circumstances.
If a conventional conflict might threaten Russia, it might decide to use nuclear weapons to create such a catastrophic threat to a continuation of the conflict that its adversary would be forced to de-escalate. The Congressional report in fact mentions that this might happen if Russia looks to be defeated in a conventional conflict with NATO.
At least that is how some analysts interpret the Russian doctrine. But it is worth noting that Russia itself does not use the term “escalate to de-escalate.”
Now what does this mean in relation to Ukraine? We are seeing a more and more cocksure attitude in the West, manifesting itself in almost no holds barred support of Ukraine. The reality being that the West is using its potent military arsenal to fight the Russians using their Ukraine proxies.
Could an eminent defeat of all Russians troops in Ukraine, the re-conquering the Russian held areas, and the weakening of Russia military might to a stage, where it would unable to wage war be seen as a defeat of Russia itself?
Would an eminent risk of this happening provoke Russia to nuclear escalation in order to force the West to de-escalate?
 Russian certainly has the enough tactical nuclear weapons to make that a possibility.
 
Russia’s nuclear arsenal.
IT is estimated that Russia has 1,912 non-strategic nuclear weapons.
“These nuclear warheads include theater- and tactical-range systems that Russia relies on to deter and defeat NATO or China in a conflict. Russia’s stockpile of non-strategic nuclear weapons [is] already large and diverse and is being modernized with an eye towards greater accuracy, longer ranges, and lower yields to suit their potential warfighting role. We assess Russia to have dozens of these systems already deployed or in development. They include, but are not limited to: short- and close-range ballistic missiles, ground-launched cruise missiles, including the 9M729 missile [The 9M729 SSC-X-8 is a long-range ground-based cruise missile system], which the U.S. Government determined violates the Intermediate-Range Nuclear Forces or INF Treaty, as well as antiship and antisubmarine missiles, torpedoes, and depth charges.”
Among the advanced missiles that may be armed with a nuclear tactical warhead is the Kh-47M2 “Kinzhal.” A nuclear-capable, air-launched, hypersonic ballistic missile, one of six new “next generation” weapons unveiled by Vladimir Putin in March 2018. It can carry a payload up to 480 kilos, and be armed with a thermonuclear warhead in the 10 to 50Kt range, and it may be air-launched from a Mig-31.
 
Innocence is drowned …
How might Russia use a non-strategic nuclear weapon, if it is pushed into corner facing defeat in the proxy war with the West?
“Russian military-analytical writings envision a series of steps in which nuclear weapons are first deployed and utilized for signalling, and are then potentially employed in a progressive fashion at the regional level of conflict and finally are used in a large-scale war until the conflict reaches the “retaliation” of all-out nuclear war. At that level of war, in addition to the mass use of conventional precision strike, military writings suggest the employment of “single and/or grouped use of nonstrategic nuclear weapons on adversary forces” as well as the “demonstration use of nuclear weapons by strategic nuclear forces or nonstrategic nuclear weapons.”
There are strong indications that not all of Russia’s nuclear employment appears to be under the rubric of SONF [Strategic Operation of Nuclear Forces].” This means that a tactical nuclear strike with aim of forcing the West to de-escalate could be launched as single initial strike by limited means in a selected region (zone) “intended to destroy political, industrial, and military targets.” (cna.org).
A recent article in the Bulletin of Atomic Scientists argues that Russian use of “non-strategic nuclear weapons in Ukraine could take several forms. They could be used for demonstration purposes—not targeting anything and not creating casualties—to coerce Ukraine and/or the West to agree to a settlement acceptable to Putin. Tactical nukes could also be used to target military units to change the operational situation on the ground.” (thebulletin.org).
“Russian thinking here is keen to avert inadvertent escalation, or the strengthening of political resolve that comes from civilian casualties. The possibility of secondary or synergistic effects, which could result in unacceptable levels of damage, weighs heavily as a consideration. Here, target selection and warhead selection are relevant factors.
The operation is premised on inflicting deterrent damage through the application of limited force. The psychological impact is meant to exceed the level of material damage, affecting the political leadership’s will to fight.” (cna.org).
 
A warning shot
Euphemistically calling it a warning shot this could mean a nuclear explosion in a sparsely populated area Ukraine, using an unstoppable Kinzhal hypersonic missile with a 10 kiloton warhead, or a 9M729 missile similarly configured.
Desperate and vindictive and Russians could perhaps even choose the small community “Ukrainske” for its symbolic value. Using Nukemap one may calculate the probable destructive effects giving the explosion of a 10 Kt warhead, with wind coming from an easterly direction. According to a Nukemap calculation this would result in 140 fatalities and 90 heavily injured. Terrible consequences for a small community and its vicinity in Ukraine, but not catastrophic in the wider sense.
A map showing the areas to suffer the consequences of such nuclear demonstration, according to NUKemap calculations.

De-escalate or risk anarchy loosed upon the World
What would be the Western reaction if the Russians dared attempt to escalate to de-escalate with such a nuclear demonstration, calculated to impress and force the West to de-escalate?
“The emotional noise following the use of a nuclear weapon in Ukraine would be deafening, both in terms of calls for restraint and of demands for retaliation. In many ways, the policy community is divided between those wanting an aggressive approach to the war that seeks to force a strategic defeat on Russia and those who want a more constrained approach to avoid a possible escalation.” (thebulletin.org).
Here a list of possible reactions to a Russian nuclear demonstration in Ukraine:
 
De-escalate, scaling down the assistance to Ukraine
 
Respond using conventional weapons
 
 React in kind with some kind of nuclear demonstration
 
De-escalate, scaling down the assistance to Ukraine
It would mean giving in to a Russian “escalate to de-escalate” attempt. It would mean Western powers signalling that they would limit their assistance to Ukraine to level that would not threaten the Russia with defeat, and it would also mean forcing Ukraine to cut down its military and political ambitions. In effect force Ukraine, and the West, to accept some kind of settlement with Russia.
“Given the consequences of a nuclear war between the United States, NATO, and Russia and the risk of escalation beyond Ukraine should the conflict continue, this option argues for ending the conflict in some way that gives the Russian leadership an “out” from the conflict. While seemingly reasonable given the level of destruction and costs of escalation.”
Still, giving in to Russia would be humiliating to decision makers in the West hoping to bring Russia to its knees in their surprisingly successful proxy war against the Russia.
It would also mean that nuclear blackmail would be effective, setting dangerous precedence, given the outstanding conflicts with say North Korea and Iran. On the other hand, there might be much less reluctance to respond in kind in the case of North Korea and Iran, meaning that the precedence setting effect of giving in to the Russian escalate to de-escalate may be negligible.
An aspect that most US analysts seem to forget is that the Europeans would regard a giving in to Russia option as the only option. Fearing that alternatives like responding in kind would raise the spectre a nuclear war on the European continent.
 
Respond using conventional weapons
Fearing the consequences of responding in kind to a Russian nuclear demonstration, the U.S. and especially the Europeans might consider a response using conventional weapons.
This would mean direct Western involvement in a war with Russia. Something the West has tried to avoid, although the cocksure attitude resulting from the success of the proxy war has meant that the restraint is disappearing.
 On overwhelming conventional response could be caried out in different ways.
The limited version would consist of an all-out attack on Russian troops or installations in Ukraine.
 A more dangerous version would be an attack on Russian soil, say on the area, units or installations involved in the Russian nuclear demonstration.
 In this case the Russian escalate to de-escalate strategy would not have succeeded, and the result might be either that the Russia would realise that they were now involved in a direct war with West and that it would have to find some kind of settlement with the West… Or they might choose further escalation, including more forceful Russian nuclear demonstrations. Perhaps against to bases from where the conventional response was carried out.
This would force the West to either seek settlement or escalate further carrying the risk of all out nuclear war.
 
React in kind with some kind of tactical nuclear demonstration
“To truly be “in-kind” in this scenario, the US and NATO would need to strike Russian targets in Ukraine—or otherwise significantly change the nature of the conflict by striking a target in Russia. There may be Russian military targets in Ukraine for which a low-yield nuclear strike would produce limited casualties. But to have a significant military impact, NATO would likely have to use multiple strikes.” (thebulletin.org).
No one can say what the result of such scenario might be. But responsible European decision-makers would see this response in kind option as being far too dangerous. Fearing that it might lead to exchange of tactical nuclear weapon strikes on European soil. The problem is that Europeans may very little say in the decision to respond in kind. The U.S. being in charge and perhaps having less qualms.
“Using a nuclear weapon against Russia immediately turns the conflict into a Russia versus the United States and NATO war that has skipped all the conventional options for escalation management. Given the potential global consequences of a nuclear war between Russia and the United States and NATO, striking targets inside Russia with nuclear weapons is unlikely to be viewed by the US president as a viable option.” (thebulletin.org).
Thus, no one their right mind would therefore regard a response in kind as realistic option in the proxy war against Russia, meaning that we are back with the other two response scenarios.
The 2022 U.S. Nuclear Posture Review states “As long as nuclear weapons exist, the fundamental role of U.S. nuclear weapons is to deter nuclear attack on the United States, our allies, and partners. The United States would only consider the use of nuclear weapons in extreme circumstances to defend the vital interests of the United States or its allies and partners.”
It would certainly be difficult see a Russian tactical nuclear demonstration in Ukraine with limited local consequences as “extreme circumstances” threatening the “vital interests of the United States or its allies and partners”?
 
Cool the passionate intensity
While the West seems united in their “intense passion” to punish the Russians with help of Ukraine, there are voices calling for a cooling of the passion.
Daniel Immerwahr (with a name signallling “Allwaystrue”) warns that Western politicians have forgotten the trauma left by the nuclear devastation of Hiroshima and Nagasaki.
Quoting the Russian ambassador to the U.S. complaining that “the current generation of NATO politicians does not take the nuclear threat seriously.”
Immerwahr argues that “we can’t drive nuclear war to extinction by ignoring it. …
And we’re doing it just at the time when those who have most effectively testified to nuclear war’s horrors – the survivors – are entering their 90s. Our nuclear consciousness is badly atrophied. We’re left with a world full of nuclear weapons but emptying of people who understand their consequences.” (The Guardian).
In an essay published by “Responsible Statecraft” Anatol Lieven warns of the horrible dangers of pushing a US proxy war in Ukraine.
 Arguing that former U.S. presidents like Truman and Eisenhower adopted a strategy of containing, but never fighting the Soviet Union in Europe and not trying to “roll back Soviet power through armed support for anti-Soviet insurgencies in eastern Europe.”
He argues that leaders today should remember this and not try to push back Russia in military proxy war in Europe.
The consequences would be disastrous for themselves “and still more disastrous for the wretched people on the ground who became the pawns of these great power agendas. Have we really learned nothing from history?”
New York Times’ influential Thomas L. Friedman is warning that the war in Ukraine is getting more dangerous for America. He even postulates that Biden knows it, although that seems doubtful giving his rhetoric and the amount of resources, he is allocating to fight the proxy war in Ukraine.
Friedman argues “We need to stick as tightly as possible to our original limited and clearly defined aim of helping Ukraine expel Russian forces as much as possible or negotiate for their withdrawal whenever Ukraine’s leaders feel the time is right.”
The last condition seems very dangerous, giving the views expressed by president Zelensky. Who now sems convinced that the might of Western military assistance will allow Ukraine to aim for goals that would never have been in reach before the latest Russian invasion.
Zelensky insists that he must be given everything he needs to defeat the Russians and push them back from every corner of Ukraine, even the areas occupied in 2014.
“The ultimate goal of Ukraine is to restore territorial integrity, including Crimea, President Volodymyr Zelensky said Tuesday, as Russia pursued its offensive to seize territory in eastern Ukraine. (WSJ).
 In order to do this Zelensky wants to make sure that everything is done “to maintain the world's maximum attention to us, to Ukraine. Information about our needs should be in the news of all countries that are important to us constantly and every day.”
 This means of cause means further escalation, more heavy weapons and more direct involvement of the West in order to achieve Zelensky’s goal, and the passionate intensity in the West is encouraging Zelensky to demand more all the time, scolding those who show less passion.
President Macron has tried to cool the passionate conviction, arguing:
“Nous ne sommes pas en guerre contre la Russie. Nous œuvrons en Européens pour la préservation de la souveraineté et de l'intégrité territoriale de l'Ukraine. Pour le retour de la paix sur notre continent.
Nous serons là pour reconstruire l’Ukraine, en Européens, toujours. (Emmanuel Macron May 9, 2022).
Macron insists that Europe must learn from its past mistakes, and make sure no side is humiliated like the Germans were in the Versailles Treaty after the First World War.
Macron has apparently even to tried to convince Zelensky that Ukraine must pay for peace by accepting to give up some Ukrainian territory.
Not something an increasingly cocksure Zelensky would agree too, with the passionate West bolstering his confidence that everything is possible. He scolded Macron in an Italian interview
“To propose to us to give up something as far as our sovereignty is concerned to save (Russian) President (Vladimir) Putin’s face does not seem like a fair thing on the part of some leaders. (aa.com.tr)
Perhaps Europe should cool its passion for Zelensky and for the mainly U.S. driven proxy war, and instead heed Macron’s advice.
 
Europe must look to Europe’s interest
Restating the argument from an earlier blog post. We wonder why Europe is not making a much more independent diplomatic effort, instead of giving in to moral outrage and Zelensky’s and Biden’s totally overstated warnings about the threat to all of Europe.
Europe is supporting the Ukraine with financial assistance, weapons, welcoming Ukrainian refugees, and seems inclined to engage in self-harming sanctions to reduce Russia’s ability for fighting a war.
Why does it not demand something in return from Zelensky’s Ukraine, instead of just playing whipping boy to Zelensky’s critique?
 Why do decisionmakers not leave moralistic outbursts aside and take a more realistic position that actually turn out to be more in line with their own self-proclaimed European values. This would mean efforts to promote a peace that might spare lives and avoid further destruction in Ukraine and perhaps help solve or at least alleviate some of the problems used by Russia as reasons for the invasion.
Realistically this would mean that Europe would have to put pressure on Zelensky to accept the Russian annexation of Crimea, and insist that the future of the Luhansk and Donetsk would have to be settled by mechanism involving staged referendums from Russian border to the borders of Luhansk and Donetsk.
Either accept this or accept that help would be reduced to humanitarian help.
Likewise, Europe would have to initiate sincere and realistic diplomatic efforts in relation Russia, taking demands from the Russian speaking parts of Ukraine seriously, accepting the Russian possession of Crimea and proposing realistic solutions for Luhansk and Donetsk that would comply with what Europe ought to demand of Ukraine.
 
* From the the previous essay “A cocksure West risking catastrophe” on the blog openthoughts.eu, discussing what might happen in the dangerous game of chicken between Russia and the US, represented by two intensely passionate and elderly presidents.

Zero production of advanced chips in America
At a ground breaking ceremony for Intel’s new mega plant for leading edge chips fabrication in New Albany, Ohio, President Biden talked of the need to restart microchips production in the U.S.
“… over 30 years ago, America had more than 30 percent of the global chip production. Then something happened. America ba- — America production, the backbone — the backbone of our economy — got hollowed out. Companies moved jobs overseas, especially from the industrial Midwest. And as a result, today we’re down to producing barely 10 percent of the world’s chips, despite leading in chip research and design.”
The situation is even worse in relation to the production of the most advanced leading-edge microchips. President Biden: “Unfortunately, we produce zero — zero — of these advanced chips in America. Zero. And China is trying to move way ahead of us in producing them.”
 
 The U.S. versus the Rest
 A Kearney report from 2021 show the sorry state of microchips or semiconductor production in the U.S.

According to CSIS (Center for Strategic and International Studies) 75 percent of the world’s chips production is concentrated in North East Asia.
Taiwan is in fact the centre of fabs (factories or foundries for fabricating chips) for advanced chips production, with the leading company TSMC earning a 56 percent market share of chips production worldwide.
A table from Counterpoint show the market shares of the main foundries: 

UMC’s (United microelectronics Corporation) is also located in Taiwan, while GlobalFoundries could be said to represent the West with fabs in US, Singapore and Europe. Chinese SMIC is a state-owned Chinese company.
While advanced chips production in so-called called fabs or foundries is indeed in a sorry state in the U.S., at least for now, the situation is very different with regard to a different segment of the semiconductor value chain related to:
 
Knowledge intensive semiconductor R&D,
EDA (Electronic Design Automation,
DAO (Discrete, Analog, and Other),
Memory,
SME (Semiconductor Manufacturing Equipment).
 
In these areas the US is still leading with no close competitor. A CSIS table demonstrate geographical split in the main segments of the chips value chain (making up about 78 percent of whole value chain):

A bar chart from SIA (The Semiconductor Industry Association) show a more detailed picture for the three main segments: Knowledge intensive R&D, Capital intensive production, and Capital-intensive and Labour-intensive production.

While it is evident that the U.S. and to lesser degree Europe is leading in the knowledge intensive R&D segment, it is also clear that that fabs for fabricating semiconductor chips is concentrated in North East Asia, with Taiwan in the dominating position. The more labour-intensive assembly into finished products is shared between China and Taiwan.
Especially notable is Taiwan’s leading position in the fabrication of the most advanced leading edge semiconductor chips. In the fabrication the of sub 10 nm (nanometre) semiconductor chips Taiwan has a share of 92 percent while South Korea is sitting on the rest. Just an example, the new iPhone 14 pro is built with chips using a 4 nm process made in Taiwan.
Biden was certainly right when stating that there is no fabrication of leading-edge semiconductors in the U.S. at the moment. “There is currently no cutting-edge logic capacity below 10 nanometre being done in the United States.” (SIA).
 
Why did this happen?
How come that the U.S. and the rest of the World has become so dependent on advanced semiconductor chips fabricated in Taiwanese fabs and assembled into finished products in China?
In a way the explanation is quite simple, labour costs are lower compared to the U.S. and Asia has a skilled workforce. That is why labour-intensive semiconductor production over the years became located in Taiwan, South Korea and China. Like so much else in manufacturing.
It is not only labour cost that explains the movement to North East Asia. It is also government support and the characteristics of the labour force. “With decades of industrial policy support, robust infrastructures, and highly skilled workforces, Taiwan and South Korea are particularly strong in advanced manufacturing and possess a combined 100 percent of the global fabrication capacity in 7- and 5- nanometres processing nodes.”
 
Chips for America
That the present global regional division in the different segments is posing a growing problem for the U.S. and the West in general has become evident due to the simmering U.S. trade war with China. The situation is exacerbated by U.S.-China tensions related to Taiwan.
No wonder the U.S. is eager to bolster U.S. competitiveness in relation to China. With Taiwan in a precarious position in relation to China, and with the dependence on both Taiwan and China for capital- and labour-intensive production and assembly of advanced semiconductor chips the U.S. and the West in general has a growing problem.
Just think of the consequences of a possible Chinese blockade of Taiwan by air and sea. Or even worse China’s annexation of Taiwan. Cutting off the rest of a World and causing turmoil in the West with its insatiable appetite for chips from Taiwanese fabrication and Chinese assembly.  “If China were to invade Taiwan, the most-advanced chip factory in the world would be rendered “not operable,” TSMC’s executive chairman Mark Liu has warned.
No wonder then that the U.S. is very eager to re-nationalise the most import parts of those segments of the semiconductor chips production that is concentrated in Taiwan and China, or at the very least moving production to other countries, like Vietnam and India.
We see the consequences of the outsourcing of production and supply of something that is absolutely vital for Western economies and their security. It has created a dependence on what is more or less a single source located far from home in a region where the potential for conflicts is growing steadily.
No wonder that the U.S. and the West in general suddenly realised the precarious situation they are in with present shortage of semiconductor chips. In addition to a growing realisation that the extreme dependence on an Asian source of semiconductor chips might endanger Western economies and Western security.
The energy shortage in Europe today shows the consequences of becoming on a single source of supply. Relaying on cheap natural gas the supply from Russia has suddenly become a major problem for Europe due its active engagement in a proxy war against Russia.
 
The need for Action
A letter to congressional leaders sent on December 1, 2021, by a broad coalition of 59 U.S. CEOs and senior executives, calls for action to ensure the supply of semiconductors vital to virtually all sectors of the economy – including aerospace, automobiles, communications, clean energy, information technology, and medical devices. They refer to the present global chip shortage resulting in lost growth and jobs in the economy. “The shortage has exposed vulnerabilities in the semiconductor supply chain and highlighted the need for increased domestic manufacturing capacity.”
To alleviate the shortage, they urge “Congress to take prompt action to fund the “Creating Helpful Incentives for the Production of Semiconductors” (CHIPS) for America Act and enact a strengthened version of the “Facilitating American Built Semiconductors” (FABS) Act to include an investment tax credit for both design and manufacturing.” (semiconductors.org).
And Congress listened and acted.
 
The CHIPS and Science Act of 2022
In an effort to alleviate the chips shortage and re-establish the production of advanced microchips in the U.S. Congress recently introduced “The CHIPS and Science Act.”
Also known as “Chips Act of 2022” it was signed on by Biden on August 9, 2022. It will allocate $52.7 billion for a “CHIPS for America Fund.” This includes:
 
$39 billion to be used for manufacturing incentives, including $2 billion to focus solely on legacy chip production to advance economic and national security interests. For instance legacy chips used in cars and defense systems.
 
$ 13.2 billion to be used for R&D and workforce development, including for Department of Defense-unique applications—and for semiconductor workforce training.
 
$500 million for a “CHIPS for America International Technology Security and Innovation Fund” … for the purposes of coordinating with foreign government partners to support international information and communications technology security and semiconductor supply chain activities.
.
In a speech Biden emphasised that the “CHIPS and Science Act” was not just handling out blanks checks to companies: “I’ve directed my administration to be laser-focused on the guardrails that will protect taxpayers’ dollars. And we’ll make sure that companies partner with unions, community colleges, technical schools to offer training and apprenticeships and to work with small and minority- owned businesses as well.”
Guardrails are also meant to ensure that recipients do not use the funds to build facilities in China and other countries of concern, and to prevent companies from using the funds for stock buybacks or shareholder dividends.
To get support from the fund the recipients must also demonstrate significant worker- and community investment, in order to ensure that semiconductor incentives support equitable economic growth and development. Amongst others the act requires companies building new chip facilities to offer the prevailing wage. “The funds will also support good-paying, union construction jobs by requiring Davis-Bacon prevailing wage rates for facilities built with CHIPS funding.” (Fact sheet, CHIPS Act).
SIA (The Semiconductor Industry Association) of course applauded the “CHIPS Act”: “The bill’s investments in chip production and innovation will strengthen America’s economy and national security – both of which rely heavily on chips – and reinforce our country’s semiconductor supply chains … The CHIPS Act will help usher in a better, brighter American future built on semiconductors.”
https://www.semiconductors.org/sia-applauds-house-passage-of-chips-act-urges-president-to-sign-bill-into-law/
 
A European CHIPS Act
On February 8, 2022, The European Commission proposed a “European Chips Act” to confront semiconductor shortages and strengthen Europe’s technological leadership.mEurope being in a worse bind than the U.S. with regard to chips shortage and lack of a European production of advanced semiconductor chips. (See the previous SIA bar chart).
What does the Commission propose:
“With the European Chips Act, the EU will address semiconductor shortages and strengthen Europe’s technological leadership. It will mobilise more than €43 bn of public and private investments and set measures to prepare, anticipate and swiftly respond to any future supply chain disruptions, together with Member States and our international partners.”
 What the Commission aims to do sounds like little more than a wish list at the moment, as can be seen from these vague aims.

https://ec.europa.eu/info/strategy/priorities-2019-2024/europe-fit-digital-age/european-chips-act_en
 
The race is on. Other countries are planning to invest more in semiconductor manufacturing. Japan has approved a 774 bn yen (around 5.4 bn dollars), for semiconductor investments, and South Korea likewise is planning large semiconductor investments.
 
Signs of change
The early signs of government support for building new fabs for manufacturing semiconductor chips in U.S. has already led to a small wave of big announcements for new fabs.
Here just a selection:
As early as May 2020 TSMC (The Taiwan Semiconductor Manufacturing Company) announced it was going to build a $12.2 bn chip fab in Arizona. The first of its kind to mass produce 5nm chips in the U.S.

In July 2022 TSMC placed the last beam in their Fab21 building in Phoenix Arizona. Expecting mass production of leading edge chips to begin in 2024.

In November 2021 Samsung announced its commitment to build a $17 bn fab in Texas, also to begin production in 2024.

With the promise of receiving funding from the “CHIPS Act” Intel in January 2022 announced plan for a $20 bn fab in Columbus Ohio.

In may 2022 Texas Instruments “broke ground” for a 30 bn 300mm wafer fab in Texas (A semiconductor wafer is a thin slice of semiconductor substance, like crystalline silicon, used for the making of integrated circuits.).

Meanwhile Samsung in 2022 apparently announced plans for investing up to 192 bn over the next decades in 11 fabs in Texas.

While these plans for fabs may lead to rejuvenation of advanced semiconductor fabrication in the US, spurred along by the CHIPS Act’s $52 bn and the realisation that further investments in North East Asia may carry a growing risk, all is not well for the U.S.
The U.S. may not yet possess a sufficiently skilled workforce for the fabrication of advanced semiconductors, because the focus hitherto has been on creating expertise in chip design.
The amounts to be invested in fabs and the creation of a skilled workforce may turn out to be insufficient in relation to the investments in Taiwan, South Korea and most of all China.
And what if China came in possession of Taiwan’s fabulous fabs.
 
CHIP 4
Realising perhaps that even for the US it will next to impossible to achieve chips self-sufficiency, the US has proposed a semiconductor alliance to include the U.S. and the three Non-Chinese Asian partners including Taiwan, South Korea and Japan. Such an alliance would, as we can see from previous discussion, include all segments of semiconductor production from design, fabrication of chips, to assembly and packing. Of course, it could also be seen as a way to limit and contain Chinese influence.
For the time being a rather diffuse attempt, with built in contradictions.
“The Diplomat” reports that South Korea might be wary of such an alliance due to the its relations with China. With China accounting for 60 Percent of South Korea’s semiconductor export, and South Korean chip giants Samsung Electronics and SK Hynix having invested billions of dollars in key manufacturing facilities in China.
South Korea must of course fear Chinese retaliation if South Korea became active member of Chip 4. It must be assumed that Taiwan would be just as wary, looking to its own already strained relations with mainland China. Even Japan would have look to its own relations with China, its exports and investment, and may not won’t to get too close to an alliance with Taiwan for these reasons.
While Chip 4 may represent a further step in the Biden administration’s efforts to contain China in the global competition for hegemony, it will have wary and reluctant partners, and may escalate the war on chips. Leading to unknown retaliation from China and thus further escalation.
 
A spanner in the works for China
The U.S. is not only investing in leading edge chips production at home, it is also trying to trying to throw a spanner into Chinese plans for winning the future semiconductor race, by attempts to make sure that China cannot have access to leading edge semiconductor design and technology.
A start had already been made by the Trump administration. In May 2019 it issued an executive order banning the Huawei Technologies Co. from buying vital U.S. technology without special approval and effectively barring its equipment from U.S. telecom networks on national security grounds. Later even Huawei’s non-America suppliers of products had to stop the exporting to Huawei if their products contained U.S. technology.
The ban has been upheld by the Biden administration and has been a big blow to Huawei and its technologies, its products and of course its share price. In effect hampering Huawei’s technological development and worldwide sales.
Today U.S. is going much further in its efforts to hamper Chinese semiconductor fabrication and development. Since 2019 the U.S. has put pressure on The Netherland’s government in order make sure that the ASML company (Advanced Semiconductor Materials Lithography?) cannot export its more advanced systems to China.  In July 2022, it was reported that Washington has pressured the Netherlands government to take the campaign against China to a new level, with attempts to further limit ASML’s engagement in China.
What is means?
ASML has near monopoly on the design and manufacture of the EUV (extreme ultra violet) lithography machines that are used to print the ultrasmall, complex designs on microchip wafers, part of the process to produce leading edge sub 10 nanometre chips. (Todays striving is for 3 and 2 nm).
“ASML has sold a total of about 140 EUV systems in the past decade, each one now costing up to $200 million, ... The price tag for its next machine, called High NA will be more than $300 million.”
Of course, the U.S. wants to make sure that China’s chip fabs cannot get access to this technology, instead having to do with less advanced UV machines that make it impossible to produce leading edge sub 10 mm chips. “Any additional restrictions would deal a bigger blow to China’s efforts to become more self-sufficient in chips. An embargo could also cripple its ambitions to make chips that are close to today’s state-of-the-art.” (electronicdesign.com).
On August 12 the U.S. established new export controls on technologies that enable semiconductors, engines and power systems “to operate faster, more efficiently, longer, and in more severe conditions in both the commercial and military context” (BIS, Bureau of Industry and Security)

“The four technologies covered by today’s rule include two substrates of ultra-wide bandgap semiconductors: Gallium Oxide (Ga2O3), and diamond; Electronic Computer-Aided Design (ECAD) software specially designed for the development of integrated circuits with Gate-All- Around Field-Effect Transistor (GAAFET) structure; and Pressure Gain Combustion (PGC) technology (BIS).

Cryptic to most of us, but BIS has provided some explanation. Gallium Oxide allow semiconductors to work under severe conditions, important for miliary and space use.
ECAD is used in designing, analysing, optimizing, and validating the performance of integrated circuits or printed circuit boards.
GAAFET is the key to enable 3 nm and below technologies, allowing for faster and more energy efficient semiconductors.
While PGC represents “a novel approach for significantly increasing the efficiency of aerospace propulsion systems and ground-based power systems.” (Paxton).

These restrictions “will potentially have the greatest impact on the trade between China and the US compared to all other actions taken to date,” (IBS consulting).
Not enough for the U.S. in their war on chips with China. Now they are trying to hinder Chinese development in the areas of artificial intelligence (AI). An area in which China is trying to push ahead of the U.S.
On August 26 Nvidia, a multinational company making chips used for deep learning and AI, announced: “the U.S. government, or USG, informed NVIDIA Corporation, or the Company, that the USG has imposed a new license requirement, effective immediately, for any future export to China (including Hong Kong) and Russia of the Company’s A100 and forthcoming H100 integrated circuits.
Later the Company has been allowed to continue development of one of its less advanced AI chips in China.
Another company, AMD, has likewise had its export of MI250 artificial intelligence chips to China restricted.
It certainly looks as if the U.S. is doing all it can to hamper Chinese semiconductor development and their use, not the least in AI applications. Really throwing a spanner in the China’s chips and AI development. Perhaps hoping to delay China ambitious plans to overtake the U.S. in AI.
Alas, the U.S. war on China’s ambitious plans may have a negative impact on the U.S. itself.
A recent study has found that a full decoupling or even a modest decoupling from China may have serious implications for the U.S. semiconductor industry and its workforce, as can be seen from this table (Understanding U.S.-China Decoupling, U.S. Chamber of Commerce 2021)

China’s riposte in the war on chips
While China really cannot do much to avoid the U.S. attempts to hamper China’s semiconductor ambitions. It has reacted with angry words, and lobbying attempts in the U.S.
Somewhat amazingly, given China’s own actions, the Chinese Ministry of Commerce is arguing that the CHIPS Act “comes with discriminatory clauses and seriously violates market laws and international economic and trade rules” (Global Times).
The Chinese equivalent to SIA, the Chinese Semiconductor Industry Association, complained that “these provisions clearly deviate from the shared principle of being fair, open and non-discriminatory that the global semiconductor industry forged through practice over the past decades.” (Global Times). Wordy protests not really achieving anything.
The real question is. What can and will China do fulfil its own ambitious plan to leapfrog the U.S? In the immediate future probably not much. Looking a bit further there seems to be two possibilities. A dangerous one and long term one. The dangerous one: China blockading or invading Taiwan might force the U.S. and the West into a quid pro quo with China. Opening export to China in return for access to Taiwanese fabs. Or it might result in a tit for tat escalation and war.
Less dangerous in the short term is the Chinese goal to become the leader in selected aspects of AI in 2025 and the World leader in AI by 2030.
China may outspend the U.S. in R&D, in STEM education (Science, Technology, Engineering, and Mathematics), in creating an enormous and highly skilled workforce, and in investing in leapfrogging startup companies.
According the “Made in China Plan” China aims to achieve 70 percent self-sufficiency by 2025. To achieve that goal a national fund for investment in integrated circuits (The Big Fund) and 15 local government funds for IC development has been established with a combined amount of $73 bn according to a report from SIA: “This does not account for government grants, equity investments, and low-interest loans which exceeds $50 billion alone” (Taking stock of China semiconductor industry, SIA).
According to the SIA Report China is also rapidly closing the gap in AI chip design, “due partly to fast growing demand from China’s hyperscale cloud and consumer smart device market and lower barriers to entry in chip design. Chinese fabless firms are now taping out 7/5nm chip designs for everything from AI to 5G communications.”
China certainly has the ambition, and we are seeing their advances in the number of patents, for instance in relation 5G communication and quantum computing.
On September 8, 2022 Asia Times reported that China’s government says it will use the advantages of its “new-type whole-nation system” to catapult technological progress. Apparently meaning in translation: “That in order to improve the new nationwide system for tackling key and core technologies, it is necessary to organically combine the government, the market, and society, to scientifically plan, concentrate, optimize the mechanism, and coordinate tackling problems.” (From meeting of the Chinese Communist Party September 6, 2022). Whatever that means.
 
The warning from history
The South Korean giant Samsung’s remarkable example of leapfrogging the Japanese in the technological development and production of Memory chips (DRAMs), demonstrates that leapfrogging is possible. But it is certainly a very specific example of leapfrogging under rather favourable circumstances, where there is no serious attempt to contain the Korean leapfrogging.
Perhaps a historical example of leapfrogging under more difficult circumstances may show that it is impossible to contain and restrict new technologies to a single geographical region by export restrictions and other means when there is growing demands for these products. (like in China today).
Take the historical example of America colonies (later the U.S.) overtaking Britain in industrial textile manufacturing as an example.
The rapid industrialisation of Britain the eighteenth and nineteenth century was fuelled by British advances in textile manufacturing, steam power and iron-making.Up to mid nineteenth century it was also a period where ideas of mercantilism were prevalent. A system of political economy that sought to enrich the country by restraining imports and encouraging exports of finished goods.
Taking the example of the all-important textile industry it meant that Britain wanted to export all it could of the finished products, while trying its best to make sure that production knowledge, machines and artisans used to manufacture the products stayed in Britain.
 “Once British entrepreneurs had demonstrated the superiority of machinery in the manufacture of textiles, in the decades following the inventions of Hargreaves, Arkwright, Crompton and Cartwright, traditional efforts to contain British technology withing the kingdom was intensified. Checks against the outflow of Britain’s early industry were applied both by private businessmen and the government.” (Damming the Flood. David I. Jeremy). For a time, it became illegal to export industrial textile, metalworking, clock making, paper making and glass manufacturing equipment.
Not only the export of machinery for textile production was banned. No skilled artisans and manufacturers in the textile industry were legally free to leave Britain or Ireland to carry out their trade in other countries. “Textile printing workers were even forbidden to leave the British Isles.”
While some of these restrictions may remind one of the U.S. efforts to prevent the export of advanced semiconductors to China, at least similar restrictions do not (yet?) apply to people in the industry.
Did Britain succeed in its attempts to make sure that the American colonies, from where the raw cotton for the textile production came, could not establish their own textile industry?
No of course it didn’t. “During the revolution, American envoys in Europe accelerated efforts to steal technology and attract artisans. These initiatives continued during the Confederation period when both voluntary and official bodies attempted to speed technology transfer. The Pennsylvania Society for the Encouragement of Manufactures and the Useful Arts, for example, underwrote the establishment of a textile factory near Philadelphia and its leading official Tench Coxe helped smuggle over the technology. Coxe urged the Continental Congress to provide long-term monopolies to persons who introduced foreign technology, and he favored land grants as a lure to potential immigrants.” (Doron Ben Natar).
And the lures seemed to work. In 1789 one Samuel Slater, working as a supervisor at one of the advanced English water-powered cotton mills, embarked on a ship bound for America, lured by the bounties offered for workers who knew how to manufacture cotton textile. Slater carried no written plans for cotton mills with him, as he risked being searched when leaving Britain, but he had apparently memorized everything he knew about Arkwright’s inventions in water-powered cotton mills and the first industrial examples of the division of labour to make cotton textiles.
Slater built the first American cotton mill, paving the way for an American cotton textile industry. There were others like him and with that Ben Natar concludes “the United States emerged as the world's industrial leader by illicitly appropriating mechanical and scientific innovations from Europe"
Sound familiar doesn’t it. Remember the Trump administrations accusation that China was illegally appropriating knowledge and technologies from the U.S. “The theft of intellectual property by international actors represents a massive threat to the American economy. In 2017, the Commission on the Theft of Intellectual Property estimated that intellectual property theft inflicted a cost of somewhere between $225 billion and $600 billion annually on the American economy, with China the primary culprit. The scale of some individual instances of theft can be downright staggering—in one notable case, a Chinese company stole as much as $8.75 billion in microchip technology from Idaho-based Micron.”
Britain could neither keep Industrial knowledge, machinery or people at home, and it even became an important investor in the industrialisation in America, not the last in the rapid growth of railroads. And soon investments and inventions in the U.S. leapfrogged British industry.  “A golden torrent of British capital flowed abroad from 1870 to 1914, annually averaging about a third of the nation’s investment. In 1913, 32 percent of Britain’s wealth (a total of £4 billion at the time) was vested in overseas assets, primarily the bonds of railroads and utilities in the United States, Argentina, and other settler regions.” (The decline and fall of the British economy, D. Kedrosky).
Somewhere around the 1870’s the U.S. overtook Britain in manufacturing.
To compare with the present. Something similar seems to be happening in relation to China and the U.S. today. Similar to the flow of investments from Britain to the U.S. manufacturing in China is accompanied by an influx of foreign investments. According to the “Peterson Institute for International Economics” foreign direct investment in China grew to $334 in 2021, an all-time high.
In recent years China has thus become the manufacturing hub of the World. China accounts for around 29 percent of global manufacturing output, while the U.S. has slipped to 17 per cent and followed by Japan and Germany.(Statista).

 “China ranks first in terms of share of global output in 16 categories of 22 manufacturing categories tracked by the U.N., while second in six others. The data is from 2019, the most recent year available. China continues to dominate in light industries such as apparel and textiles, general sectors like basic metals and electrical equipment, and higher-end activities like computers and transport equipment. There’s hardly a sector in which China does not have at least a 20% global market share, while commanding 40%+ shares in electrical equipment, basic metals and computers. In textiles, apparel and leather, China’s share is more than half.”(Barrons).
As we seen China is not yet a champion in the production of advanced semiconductors, but then we have to remember that Taiwan is, and China insists that there is only one China and Taiwan is part of it. And if that also became the reality, China would jump to the front in the production of advanced semiconductors.  Production that is, not yet design. But China might be on the verge of overtaking the U.S. in areas related to Artificial Intelligence or AI.
A final report on AI from the U.S. National Security Commission on Artificial Intelligence (NSCAI) published in 2021 concludes: “The leading indexes that measure progress in AI development generally place the United States ahead of China. However, the gap is closing quickly. China stands a reasonable chance of overtaking the United States as the leading center of AI innovation in the coming decade. In recent years, technology firms in China have produced pathfinding advances in natural language processing, facial recognition technology, and other AI-enabled domains.”
Does history repeat itself? Not one to one of course. We are no longer talking textile machinery, but advanced semiconductors and AI. Looking at the data we have shown that it certainly seems probable that in the war on chips China might overtake the U.S. and thus the West. The present U.S. sanctions restrictions may hamper Chinese development in these areas, but also encourage Chinese to search for ways to leapfrog the U.S. based on their own efforts.
Like the British attempts to prevent the growth of textile manufacturing in the colonial US and later in India, it may prove impossible to stop the colossal Chinese momentum, in research, investment and production. The U.S. realization that China might soon overtake the U.S. in AI may represent the writing on the great wall. A kind of mene mene tekel upharsin for the West.