​​Hey, everybody, Peter Zeihan here coming to you from, where am I Orlando. The big news of this week is that the Biden administration has drastically increased the level or excuse me, decreased the level of access that the Chinese semiconductor firms can have to American technology. 

Now there is this general belief around the world that China is the world technological superpower, and it is able to cut off supply to pretty much everything for the rest of the world whenever it wants. And that is, well, that is unmitigated bullshit. 

There are three types of semiconductors. There is the high-end, they go into your cell phones, your servers, satellites, power management systems. Those exclusively come from places like Taiwan, Korea, Japan, in the United States. 

And contrary to excuse me, contrary to most people’s beliefs, over half of all chips made in the world by value actually originate within the United States. And almost all of the chips that are manufactured in Taiwan are not designed there. They’re also designed in the United States. So there’s no danger whatsoever in the high-end from an embargo sort of situation. 

Second, you have the mid-range chips that are in aerospace, automotive, and maybe the power control systems for your thermostat and your house. Those are Malaysia and Thailand. And those are also not made in China at all. 

What is going on with these new restrictions is the Chinese are now no longer able to import any of the chips of those two tiers, unless they get a special dispensation. 

The third type of chips is your Internet of Things, not your smartwatch, your dumb watch, like your digital Casio watch, if you remember those. This is your digital calculator, perhaps, your smart refrigerator that keeps track of your grocery list, things like that. Those are almost exclusively made in China. 

Now, what Biden has done is not just say that the Chinese can’t purchase the high and the mid-grade. They’re also saying they can’t purchase any of the equipment that’s necessary to make the high and the mid-grade to make sure that they never move up to that quality step. And there are now increasing steps that the Chinese cannot buy the tools that are necessary to operate what equipment they have for the low-grade. And we’re very close to the Biden administration saying that the Chinese can’t even import the equipment that they need to make the low grade and they are incapable of making that themselves. 

It’s not like this is a hammer. There’s an ecosystem of stuff that is required to build, install, operate and maintain any of the equipment even on the low end. And the Chinese cannot do any of it without 100% imported expertise and equipment. 

That is now what the Biden administration is going after. 

So where does this take us? Well, assuming we have no interruptions to the supply chains for the materials, that’s a different topic, we are looking at China perhaps being melon-scooped out of all global semiconductors over the course of the next two to three years. And that’s just the start of the Chinese problem. Because the Chinese used to import the medium and the high-quality products in order to build products and in order to do research. 

So I’m sure you’ve all heard about how the Chinese excel at things like hypersonics, or artificial intelligence and automation. They do the brain work by using the high-end chips and putting in their own software. If you can’t get the high-end chips, then those entire industries shrivel on the vine and go away. 

So more than anything that has happened in the world, at this point, this new step of restrictions threaten to throw the Chinese into a technological winter. And any concerns you have about China in its rise can be killed just by that. And that’s before you consider energy, or food or political dysfunction, or the Ukrainian war, or demographics, all of which are capable of tickling China without any help from the others. 

So we are now at the end of China’s technological rise. And the question now is how fast is the fall? Okay, that’s it for me. Until next time.