EP65: The South Korean Loophole: Is China’s Access to Advanced Technology Wide Open?

6 nov · Geopolitics Unplugged

00:10:08

Summary:

In this episode, we examine the growing tension between the US and South Korea regarding export controls on semiconductor technology to China. Despite international efforts to restrict China's access to advanced technology, South Korea's dependence on the Chinese market and lack of comprehensive export controls present a significant loophole. This loophole, fueled by South Korea's key role in the global semiconductor industry, weakens the effectiveness of export restrictions, potentially enabling China to obtain restricted technology through indirect channels. We emphasize the urgency of closing this loophole to ensure the efficacy of global efforts to safeguard advanced technology.

Questions to consider as you read/listen:

What are the implications of South Korea's lack of export controls on advanced semiconductor technology for the global effort to curb China's technological advancement?How do the competing priorities of South Korea's economic ties with China and its security alliance with the US impact its stance on semiconductor export controls?What are the potential consequences for South Korean companies and the global semiconductor industry if South Korea adopts stricter export controls on China?

Long format:

The South Korean Loophole: Is China’s Access to Advanced Technology Wide Open?

Introduction

As global powers increase restrictions on semiconductor and technology exports to safeguard critical advancements from unauthorized access, Japan, the Netherlands, the USA and Taiwan have implemented rigorous export controls aligned with U.S. policies aimed at limiting China’s access to cutting-edge semiconductor technology. However, a significant gap in these measures lies in the lack of similar restrictions in South Korea. Given South Korea’s central role in the semiconductor industry and its proximity to China, this absence of export controls represents a critical vulnerability in the broader strategy to curb China’s acquisition of sensitive technology. Without coordinated measures from South Korea, there exists a substantial risk of these technological safeguards being circumvented, potentially undermining the collective efforts of other nations.

INFORMATION

South Korea is considering export controls on semiconductor technology, in response to the US's request to limit the export of certain equipment and technologies to China:

Equipment and technology

The US is asking South Korea to limit the export of equipment and technologies used to make advanced logic chips and DRAM memory chips. This includes logic chips more advanced than 14-nanometer, and DRAM memory chips beyond 18 nanometer.

The South Korean government is concerned that export control measures on China could negatively impact the competitiveness of the South Korean semiconductor industry.

China is South Korea's biggest trading partner, and South Korea relies on China for trade.

But as of right now, there are no laws or regulations preventing export. It is up to the individual companies. The South Korean government says it is in favor of multi county talks aimed towards export curbs but does not seem to be independently committed to act.

This is a very large loophole for China. If the other countries, namely USA, the Netherlands, Japan and Taiwan are looking for their export controls to be effective rather than just hurt their companies bottom line, South Korean involvement isn’t just preferred. It is necessary.

In October 2023, the South Korean government announced that its semiconductor manufacturers, Samsung and SK Hynix, have secured waivers from U.S. export curbs. The waivers do not have a definite end date.

South Korea is a major player in the global semiconductor industry, with companies like Samsung and SK Hynix operating in China. However, China is South Korea's biggest trading partner, accounting for roughly half of South Korean semiconductor sales. South Korea is also a key ally of the US, and their security alliance is a cornerstone of their relations.

CONCLUSION

The absence of stringent export controls in South Korea creates a large and concerning loophole in the international effort to limit China’s access to advanced semiconductor technology. While Japan, the U.S., the Netherlands and Taiwan have tightened restrictions to protect sensitive technology, South Korea’s openness to China weakens this protective stance, potentially allowing restricted technology to enter the Chinese market through indirect channels. For the global strategy against unauthorized technology transfer to succeed, cohesive export controls from key players like South Korea will be essential. Closing this gap is critical to ensuring the effectiveness of semiconductor and technology curbs in an increasingly competitive and security-conscious global landscape.

Sources:

https://koreapro.org/2024/04/us-reportedly-presses-south-korea-to-tighten-chip-export-controls-on-china/#:~:text=for%20sensitive%20products.-,The%20U.S.%20has%20asked%20South%20Korea%20to%20tighten%20export%20controls,export%20controls%20for%20sensitive%20products

https://www.bloomberg.com/news/articles/2024-03-22/south-korea-targets-multi-country-talks-for-chip-export-controls#:~:text=South%20Korea%20is%20tapping%20into,as%20its%20biggest%20trading%20partner

https://www.japantimes.co.jp/business/2024/09/02/tech/south-korea-us-china-chip/#:~:text=%22The%20bigger%20the%20shock%2C%20the,important%20to%20us%2C%20too.%E2%80%9D

https://qz.com/south-korea-china-chip-exports-us-1851380981#:~:text=Bloomberg%2C%20citing%20unnamed%20sources%20familiar,memory%20chips%20beyond%2018%20nanometer

https://koreapro.org/2024/04/us-reportedly-presses-south-korea-to-tighten-chip-export-controls-on-china/#:~:text=South%20Korean%20officials%20are%20reportedly,export%20controls%20for%20sensitive%20products

https://www.bloomberg.com/news/articles/2024-03-22/south-korea-targets-multi-country-talks-for-chip-export-controls#:~:text=South%20Korea%20is%20tapping%20into,as%20its%20biggest%20trading%20partner

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Episode 81: Reshoring Revolution: How Jobs Are Returning to the USA and Changing Global Trade
15 nov· Geopolitics Unplugged
Summary:
In this episode, we explore the growing trends of reshoring and nearshoring, which involve bringing manufacturing operations back to a company's home country or relocating them to nearby countries. These trends are fueled by a desire for supply chain resilience, reduced reliance on foreign suppliers, and economic incentives like the Inflation Reduction Act and the US-Mexico-Canada Agreement. We present compelling statistics demonstrating the increasing popularity of these strategies, highlighting the potential for significant job creation and economic growth. We also discuss the role of government support in encouraging these shifts and the impact of technological advancements, such as automation, on making domestic production more competitive.
Questions to consider as you read/listen:
What are the primary economic and geopolitical factors driving the resurgence of reshoring and nearshoring?How are government policies and trade agreements influencing the reshoring and nearshoring trends?What are the future prospects for reshoring and nearshoring in the global manufacturing landscape?
Long format:
Reshoring Revolution: How Jobs Are Returning to the USA and Changing Global Trade
By Justin James McShane
TL;DR
Reshoring—bringing operations back home—and nearshoring—relocating them to nearby countries—are reshaping global supply chains. These trends are driven by the need for supply chain resilience, reduced dependency on foreign suppliers, and economic incentives like the Inflation Reduction Act (IRA) and US-Mexico-Canada Agreement (USMCA). Reshoring has brought nearly 2 million jobs back to the U.S. since 2010, with record-breaking growth in 2023. Nearshoring, especially in Mexico, is gaining momentum, offering lower costs and logistical advantages. Together, these shifts are creating a more regionalized, diversified, and secure trade environment, powered by automation, innovation, and government support. The statistics show that nearshoring and reshoring is not only happening and will accelerate in the near term and into the future.
INTRODUCTION
Reshoring, the practice of bringing business operations back to their home country after having been outsourced abroad, represents a transformative shift in global supply chain dynamics. While often associated with manufacturing, reshoring increasingly encompasses service and industrial sectors, driven by the desire to reduce reliance on complex and vulnerable international supply chains. This movement aligns with broader trends of decoupling, where nations strive to strengthen domestic capabilities amidst geopolitical uncertainties and economic pressures. However, this trend has met resistance from proponents of globalization, whom I term "reshoring deniers." These individuals argue that interwoven global supply chains are irreplaceable and beneficial. This piece will explore the rising momentum of reshoring, its statistical underpinnings, and the government incentives driving this shift, as well as the closely related trend of nearshoring, which aims to bring operations closer to home while retaining certain economic advantages.
INFORMATION
Restoring is the practice of transferring a business operation that was moved overseas (outsourced) back to the country from which it was originally relocated. This is mostly seen in the manufacturing sector but is not exclusive to it. It includes the service and industrial sects as well. Reshoring is a feature of decoupling whereby a country seeks to remove dependence on external supply chains and their complexities.
Some folks, in particular globalists who believe in interconnection between countries and intermeshed supply chains, deny that restoring is happen or that it is a “good” idea. I call them restoring deniers. Globalization is a historical process that describes the increasing connection between the world's economies, cultures, and populations. It's characterized by the movement of goods, services, capital, people, and ideas across borders. The term became more common in the 1980s due to technological advances that made it easier to conduct international transactions.
RESHORING FROM A STATISTICAL POINT OF VIEW
Here are the facts and the sources. What are yours other than your own personal experience?
The rate of reshoring in the United States has been increasing, with a record number of jobs announced in the first half of 2023.
2022: Reshored jobs increased by 25% compared to 2021. 2023: The Reshoring Initiative reported 182,000 jobs announced in the first half of 2023, which is more than the 340,000 jobs announced in the same period in 2022. Cumulative jobs: Since 2010, nearly two million jobs have been brought back, which is about 40% of what was lost to offshoring.
The Chips and Science Act, the Inflation Reduction Act (IRA), Infrastructure Investment and Jobs Act (IIJA), and the Bipartisan Infrastructure Law have incentivized domestic production.
Kearney, a global management consulting firm, revealed in a survey that 96% of CEOs are now evaluating reshoring their operations, or have done so already.
THE INFLATION REDUCTION ACT INCENTIVIZES RESHORING
The Inflation Reduction Act (IRA) incentivizes reshoring by US companies by providing significant tax credits and subsidies for domestic manufacturing of clean energy technologies, like electric vehicles, batteries, and solar panels, essentially making it more financially attractive for companies to produce these goods within the United States rather than overseas, thereby encouraging them to bring manufacturing back to the country (reshoring) to access these benefits. The IRA offers substantial tax credits specifically for companies that invest in domestic clean energy manufacturing, making it more cost-effective to produce these goods within the US. The incentives are designed to encourage the production of components within the US, not just the final assembled product, which helps to build a stronger domestic supply chain. By incentivizing domestic manufacturing, the IRA is expected to create new jobs in the clean energy sector across the country.
THE FUTURE FOR RESHORING
In the future, reshoring is expected to continue gaining momentum, with companies increasingly bringing manufacturing back to their home countries, driven by factors like geopolitical tensions, advancements in automation, and a growing preference for locally produced goods, leading to a more balanced approach to global supply chains with a focus on regional manufacturing and diversification of risk rather than complete reliance on offshore production; this could involve "near-shoring" to nearby countries with favorable conditions, and will likely require government support through policies that incentivize domestic manufacturing and workforce development. Reshoring is likely to become more prevalent as companies prioritize supply chain resilience and seek to mitigate risks associated with global disruptions. Automation and advanced manufacturing technologies will play a crucial role in making domestic production cost-competitive, enabling reshoring in industries previously considered too expensive to bring back. Instead of solely focusing on bringing production entirely back to the home country, companies may adopt a "China plus one" strategy, where they manufacture in multiple regions to diversify their supply chains (nearshoring).
NEARSHORING
Nearshoring is a business strategy that involves moving a company's operations from an offshore location to a nearby country or region, often to take advantage of lower labor costs, a similar time zone, and a shared culture. Nearshoring can help companies reduce lead times, improve quality control, and minimize supply chain disruptions. It can also help companies save money on labor, avoid language barriers, and tap into a global talent pool. Popular nearshoring destinations for US companies include Mexico, Canada, Central and South America, and the Caribbean. The trend of nearshoring has gained momentum in recent years, especially after supply chain disruptions during and after the pandemic. In late 2022, American manufacturers purchased more goods from nearshore countries than from China for the first time.
NEARSHORING STATISTICS
In 2021, 92% of U.S. manufacturing executives considered nearshoring or reshoring, up from 78% the previous year. Of those, 47% had already nearshored, 29% planned to nearshore in the next three years, and 16% were considering reshoring. US buyers prefer nearshoring over domestic sourcing. Only 20% of US buyers reported increasing domestic sourcing in the past 12 months. A Deloitte 2024 survey found that 62% of manufacturers have started nearshoring or reshoring their production. Mexico has become the source of the most imports to the United States, surpassing China. In 2022, 52.5% of Mexico's imports of parts and accessories for motor vehicles came from the U.S.
USMCA INCENTIVIZES TO NEARSHORING BY US COMPANIES
The United States-Mexico-Canada Agreement (USMCA) incentivizes nearshoring by US companies in several ways. The USMCA reduces trade barriers and simplifies customs clearance procedures. The USMCA encourages manufacturers to source components and raw materials from North America. This can help companies secure a reliable source of materials and avoid supply chain bottlenecks. The USMCA allows qualified products to be imported to the US from Mexico without incurring duties or taxes. Mexico has a de minimis tax-free threshold of US $50 and a tariff-free entry threshold of US $117. This frees a larger volume of trade from taxes, duties, and fees. The Mexican government expects U.S. nearshoring operations to grow the country’s economy by 3.5%. Manufacturing exports from Mexico are expected to grow from $455 billion in 2023 to $609 billion by 2028. From January to November 2023, Chinese goods accounted for 13.9 % of U.S. imports, while Mexican goods accounted for 15%. Sectors that benefit from the United States-Mexico-Canada Agreement (USMCA) are expected to grow by $38 billion in the next five years thanks to nearshoring.
CONCLUSION
The reshoring and nearshoring movement reflects a fundamental recalibration of global supply chain strategies, underscoring the necessity for resilience and adaptability in a rapidly changing economic and geopolitical landscape. Supported by substantial government incentives, such as the Inflation Reduction Act and the United States-Mexico-Canada Agreement, reshoring and nearshoring initiatives are empowering companies to reduce risks, cut costs, and build stronger domestic and regional production networks. These strategies not only create jobs and stimulate economic growth but also signal a shift toward a more balanced global trade environment. As automation and advanced technologies continue to evolve, reshoring and nearshoring are poised to play central roles in redefining the future of global manufacturing and supply chain management, ensuring that nations can navigate uncertainties with greater stability and independence.
SOURCES:
https://www.hinrichfoundation.com/research/article/trade-and-geopolitics/china-decoupling-vs-de-risking/#:~:text=Decoupling%20refers%20to%20a%20complete,and%20potential%20weaponization%20of%20energy
https://reshorenow.org/content/pdf/Reshoring_Initiative_2023_Annual_Report.pdf
https://stispfa.org/reshoring-unpacked-a-transformational-shift-from-global-to-local/#:~:text=Are%20Companies%20Actually%20Reshoring?,2023%2C%20resulting%20in%20365%2C000%20jobs
https://www.forbes.com/sites/jimvinoski/2024/01/25/covid-is-fading-but-reshoring-isnt/#:~:text=%E2%80%9CIn%20the%20face%20of%20a,be%20associated%20with%20onshore%20production.%E2%80%9D
https://optimation.us/blogs/manufacturing-trends-in-2024-its-all-about-reshoring/#:~:text=In%20addition%20to%20bringing%20back,a%20risk%20associated%20with%20this
https://stispfa.org/reshoring-unpacked-a-transformational-shift-from-global-to-local/#:~:text=Are%20Companies%20Actually%20Reshoring?,2023%2C%20resulting%20in%20365%2C000%20jobs
https://reshorenow.org/content/pdf/Reshoring_Initiative_2023_Annual_Report.pdf
https://manufacturing-today.com/news/why-the-reshoring-renaissance-is-the-future-of-u-s-manufacturing/#:~:text=Looking%20ahead%2C%20the%20reshoring%20trend,consumer%20preference%20for%20local%20products
https://www.forbes.com/sites/willyshih/2023/02/22/the-inflation-reduction-act-will-bring-some-manufacturing-back-to-the-us/#:~:text=What%20all%20this%20means%20is%20that%20it,to%20be%20shown%20below%20the%20EBITDA%20line
https://www.wri.org/insights/inflation-reduction-act-anniversary-manufacturing-resurgence#:~:text=At%20a%20factory%20in%20Jonesboro,were%20announced%20in%2044%20states
https://home.treasury.gov/news/press-releases/jy1830#:~:text=First%2C%20the%20Inflation%20Reduction%20Act%20provides%20targeted,create%20opportunity%20in%20communities%20across%20the%20country.&text=By%20creating%20incentives%20for%20paying%20prevailing%20wages,allow%20workers%20to%20earn%20while%20they%20learn
https://morelle.house.gov/funding-opportunities/inflation-reduction-act-consumers#:~:text=The%20Inflation%20Reduction%20Act%20is,per%20year%20in%20energy%20costs
https://www.fticonsulting.com/insights/articles/return-manufacturing-north-americas-reshoring-movement
https://www.columbiathreadneedle.co.uk/en/inst/insights/us-inflation-reduction-act-a-strong-force-to-accelerate-energy-transition-technologies/#:~:text=The%20act%20primarily%20aims%20to%20support%20US,chain%20of%20clean%20energy%20and%20transportation%20technologies
https://www.mholland.com/market-insights/inflation-reduction-act-will-spark-north-american-manufacturing-renaissance#:~:text=Inflation%20Reduction%20Act%20Will%20Spark,increased%20innovation%20and%20industrial%20productivity.%E2%80%9D
https://stispfa.org/government-incentives-fuel-us-reshoring-recovery/#:~:text=Inflation%20Reducation%20Act,Tilly%2C%20and%20an%20AMT%20webinar
https://www.investmentmonitor.ai/analyst-comment/analyst-comment-reshoring-nearshoring-is-the-future/#:~:text=In%20the%20coming%20years%2C%20reshoring,chain%20disruptions%20and%20boost%20competitiveness
https://www.worldfinance.com/markets/reshoring-the-future-of-supply-chains#:~:text=It's%20becoming%20less%20chain%2Dlike,economic%20challenges%20we're%20seeing.&text=Ultimately%2C%20the%20decision%20to%20relocate,some%20sort%20of%20competitive%20advantage
https://www.automate.org/industry-insights/reshoring-and-nearshoring-trends-making-north-america-competitive#:~:text=Both%20reshoring%20and%20foreign%20direct,Automation%20and%20Reshoring%20Initiative%C2%AE
https://www.nmb-t.com/resources/blog-post/reshoring-manufacturing-creates-production-jobs#:~:text=Reshoring%20manufacturing%20gained%20significant%20traction,continue%20in%202023%20and%20beyond
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EP80: The Future of Guyana
15 nov· Geopolitics Unplugged
Summary:
In this episode, we examine the potential for growth in Guyana due to its recent oil discoveries. While the country's economic prospects appear promising, it faces various challenges, including poverty, emigration of skilled workers, limited infrastructure, and political instability. We explore the social and economic indicators for Guyana, its oil and gas sector, its taxation system, and its potential for investment. Ultimately, we argue that Guyana's future depends on its ability to effectively manage these issues and leverage its oil revenues responsibly to become a relevant player on the global stage.
Questions to consider as you read/listen:
1. What are the most significant challenges that Guyana faces in its quest to manage its newfound wealth responsibly?
2. How will Guyana's growing oil and gas sector impact the country's economic, social, and environmental landscapes in the years to come?
3. What are the key strategies Guyana must implement to successfully transition from a raw commodity exporter to a more diversified and value-added nation?
Long format:
The Future of Guyana
TL;DR
Guyana has vast potential for growth thanks to major oil discoveries, which could help it become more modern and relevant globally. However, the country faces significant challenges like high poverty, brain drain, limited infrastructure, and political instability. Success depends on effectively managing these issues and leveraging oil revenues responsibly. If Guyana can do this, it may secure a stronger economic future and serve as a model for other small, resource-rich countries.
Introduction
Guyana, a small yet resource-rich nation on the northeastern coast of South America, stands at a critical juncture in its development. Following a series of major oil discoveries, the country now possesses an extraordinary potential to transform its economy and improve the quality of life for its citizens. However, this newfound wealth comes with its own set of challenges, ranging from a high poverty rate and emigration of skilled professionals to infrastructural limitations and political stability concerns. These factors will play a decisive role in shaping whether Guyana can leverage its resources to overcome poverty, curb the brain drain, and expand its influence within the hemisphere. This report delves into the many facets of Guyana’s evolving landscape, exploring its economic outlook, demographic profile, and infrastructure needs.
INFORMATION
Thanks to major oil discoveries Guyana has the POTENTIAL of developing itself into a more modern country. However, it does have significant headwinds. While it will not become a regional power player, it will likely join the ranks of relevant countries in the hemisphere. THE WORLD BANK HAS WRITTEN “The country is expected to remain one of the fastest growing economies with double-digit growth rates in 2023 and 2024 as additional oil fields start operation.”
WHERE IS GUYANA AND ITS BASIC STATISTICS?
Guyana is a country in the northeast of South America, on the Atlantic Ocean coast. Suriname to the east, Brazil to the south and southwest, and Venezuela to the west. It has 215,000 square kilometers, making it the third-smallest sovereign state in mainland South America. Its population of approximately 800,000 largely live along the northern coast. The interior is steppe, jungle and plains with mountains. Guyana is known for its many rivers, which is how it got its name, meaning "land of many waters". It's also home to Kaieteur Falls, the world's largest single-drop waterfall. English is the official language of Guyana which is interestingly the only South American country where English as the official language. Historically, it was part of the British Empire gaining its independence in 1966. They drive on the left.
POVERTY
Poverty is a significant issue in Guyana, with a high poverty rate and limited access to basic services in rural areas. Guyana's poverty rate is high, with the World Bank estimating that 48% of the population live in poverty. The Inter-American Development Bank (IDB) reported that in 2017, 41.2% of the population lived on less than $5.50 per day.
NEET RATE
In 2019, Guyana's NEET (not in education, employment, or training) rate for youth was 45.66%. NEET is the percentage of young people in a given age group who are not in education, employment, or training. For comparison purposes, in Latin America in 2023, 25.9% of young women were NEET, compared to 13.5% of young men
BRAIN DRAIN
Guyana's brain drain is the emigration of skilled and educated professionals from the country, which has had a significant impact on the country's ability to develop. Guyana has one of the highest emigration rates in the world, with over 55% of its citizens living abroad. More than 80% of Guyanese with a tertiary education have left the country. This is a significant issue for the future.
DEMOGRAPHIC CONCERNS
The proper way to look at whether or not a country is in demographic decline is to look at three variables: Total Fertility Rate (TFR), infant mortality rate and life expectancy. Ideally, you want a TFR is above the minimum replacement rate which is 2.1. You want a low mortality rate because having a high TFR but also a high infant mortality rate, then you will be in demographic decline. Thinking very myopically and morbidly, you do not want a long life expectancy because you will have a lot of non-working/non-producing folks that need to be supported.
The 2022 Total Fertility Rate (TFR) for Guyana is at 2.37 which is above the required 2.1 replacement rate to avoid demographic decline. However, it has declined a lot since the 1960s where it was 6.0.
And when we look at Guyanese TFR versus other countries, we see the following:
The infant mortality rate is shrinking well and is comparative to other developed countries as shown below:
INFRASTRUCTURE
Guyana's infrastructure is experiencing significant growth, but there are still challenges, particularly in rural areas. Guyana's digital infrastructure is limited, especially in rural areas. The country's terrain makes it difficult to deploy the necessary infrastructure for universal broadband access. Satellite internet providers are expected to play a key role in connecting rural communities. The coastal main road system is not continuous, and there are gaps where rivers intersect. People and goods move across these gaps by ferry, the Demerara Harbour Bridge, and the Berbice Bridge. Guyana is experiencing a construction boom, but there are several challenges. These include a shortage of skilled labor, regulatory challenges, corruption, and bureaucratic red tape. China is very heavily involved in this construction boom. Guyana is a formal part of the Chinese Belt and Road Initiative.
ECONOMY
The Guyanese economy is dominated by oil and gas. It will be discussed in its own section. Guyana's economy is heavily dependent on exporting six commodities: sugar, gold, bauxite, shrimp, timber, and rice. These commodities make up nearly 60% of the country's GDP. Mineral fuels, oils, and distillation products make up 54% of Guyana's total exports. Railway, tramway locomotives, rolling stock, and equipment make up 30% of Guyana's total exports. Non-traditional exports include value-added wood products, seafood, light manufacturing, garments and textiles, tourism, horticultural products and agro-processing, wood, ceramic and woven handicrafts, information and communications technology, and processed foods.
Major export products: Crude Petroleum 85.9% ($15.9B), Gold 7.36% ($1.36B), Rice 2.32% ($429M), Aluminium Ore 1.04% ($192M), and Hard Liquor 0.65% ($120M). (2022)
Export partners: US$18.5 billion; Panama 31.6%, Netherlands 15.5%, United States 12.8%, United Arab Emirates 6.39%, and Italy 6.35%. (2022)
GDP
Guyana's GDP in 2022 was $14.48 billion, and its GDP per capita was $16,777. In 2022, Guyana's GDP growth rate was 57.80%. In 2022, Guyana's real GDP was $4,608,724,292. Guyana's economy has experienced a period of double-digit GDP growth since the discovery of large offshore oil deposits in 2019.
UNEMPLOYMENT
As of 2023, Guyana's unemployment rate was 12.43%. This is the percentage of the labor force that is unemployed but available and looking for work. In 2023, Guyana's youth unemployment rate was 25.87%. This is the percentage of the labor force aged 15–24 that is unemployed but available and looking for work. IN 2020 it was 15.7%, in 2021 14.93% and 2022 12.43.%
EDUCATION LEVEL AND NUMBER OF UNIVERSITIES
Guyana's average education level is 9 years of schooling. A child who starts school at age 4 can expect to complete 12.2 years of school by age 18. In 2022, Guyana's literacy rate was 90.03%. In 2019, 4.469% of the population over 25 had at least a bachelor's degree or equivalent. Only 2% of children of the official primary school age are out of school. There are at least 11 universities and colleges in Guyana and 8 post secondary education trade schools.
LABOR FORCE
Guyana's workforce is made up of people ages 15 and older who are employed or looking for work in the production of goods and services. The workforce is diverse, with a relatively young population and a narrowing gender gap. The majority of workers are employed in the private sector, with a significant number working in the not-for-profit sector. In 2023, the labor force participation rate was 62.5% for men and 39.6% for women. This is higher than the labor force participation rate in high income countries. Guyana's education system has improved, leading to a more skilled workforce. However, there is a shortage of specialized skills in technical and vocational areas.
THE OIL AND GAS SECTOR
The future prospects of Guyanese oil and gas is pretty impressive. In 2021, most of the oil was sold to Asian countries, including China and India, while shipments to Europe accounted for around 16% of the total. In 2022, that dynamic has radically changed. While Asian buyers remain important, Europe has assumed the lion’s share of buying of Guyanese crude. From January to early September, it is estimated that cargoes to Europe, average 110,000 bpd, account for 49% of the Caribbean country’s oil exports. In 2023, Guyana produced around 142.9 million barrels of oil, or approximately 391,000 barrels per day. This is five times more than the amount of oil produced in 2020. Guyana's oil production in 2024 is estimated to be around 228 million barrels. This is a significant increase from 2023, when Guyana produced 68.7 million barrels in the same period. Exxon plans to increase its crude oil production by 18,000 b/d from the Unity platform. So it is booming.
But there are issues brewing and overflowing. There are several issues and arbitration in the oil and gas industry in Guyana, including:
Chevron and ExxonMobil's dispute over Hess Chevron and ExxonMobil are involved in arbitration over a disputed stake in a Guyana oil field:
Background: Chevron proposed a $53 billion takeover of Hess Corporation, which owns a 30% stake in the Guyana oil project. ExxonMobil, which operates the field with a 45% stake, claims a right of first refusal on Hess's stake. ExxonMobil is concerned that the merger could be a way to transfer assets, which would give ExxonMobil the right to buy out Hess's share.
Arbitration: An arbitration hearing has been scheduled for May 2025. The companies are confident that the arbitration will confirm that a right of first refusal does not apply to the merger.
China National Offshore Oil Corporation (CNOOC) is involved in arbitration over the Stabroek oilfield in Guyana in connection with a proposed merger between Chevron and Hess. CNOOC and ExxonMobil, which own 25% and 45% of the Stabroek block, respectively, are disputing the terms of their joint operating agreement. They claim a right of first refusal to Hess's stake in the block, which is a key part of the merger. CNOOC filed an arbitration application on March 15, 2024, and ExxonMobil and CNOOC merged their arbitration claims into a single case on March 26, 2024. The arbitration threatens to delay or even derail the merger, which was originally scheduled to close by October 2024. Chevron and Hess have agreed to extend the timeline by a year if the arbitration continues.
NATIONAL RESOURCE FUND
In 2019, Guyana created a Natural Resource Fund to help manage its wealth. The fund's resources are deposited in a bank in New York, and the parliament approves annual transfers to the national budget. It is funded by revenue from oil, gas, and mineral extraction, including: profit oil, royalties, and income tax or corporate income tax. The NRF is managed by the Ministry of Finance, which provides the Bank of Guyana with an Investment Mandate. The Bank of Guyana then manages the fund's operations.
POLITICAL STABILITY
Guyana has a history where political stability was challenged by ethnic divisions between the Afro-Guyanese and Indo-Guyanese communities, which has largely shaped the political landscape. The 1992 elections marked a shift towards more democratic governance with international oversight, but stability has been tested by election disputes in subsequent years. The 2020 elections in Guyana were highly contentious, leading to a significant political crisis due to allegations of electoral fraud. However, international pressure, legal proceedings, and recounts eventually led to the acceptance of the results by the major political parties, indicating a resilience in the democratic process despite initial turmoil. Guyana's World Bank Political Stability and Absence of Violence/Terrorism estimate for 2022 was around 0.02706, which suggests a relatively neutral stance in terms of stability, with a percentile rank improving to 58.02%. Political parties in Guyana are still largely organized along ethnic lines, which can lead to social and political tension, although recent political engagements have shown some signs of thawing.
CORRUPTION
Guyana has an average score of 40 and is ranked 87 out of 180 countries for the fourth consecutive year on the Corruption Perceptions Index. Leading the regional rankings are Uruguay and Canada, each with a score of 74, followed by the United States with 69. In Venezuela (14), Haiti (17) and Nicaragua (19), the countries with the lowest scores, it is difficult to draw a line between public institutions and criminal activities. There's a noted public perception of corruption, which impacts political stability. The government's handling of oil wealth and anti-corruption measures will be crucial for future stability.
HOW TO EXAMINE INVESTING IN FOREIGN CAPITAL PROJECTS or FDI
Here are some of my bigger take aways:
Whenever you are going to make a capital investment in a foreign market as especially when it involves property, you’d do well to consider several things: respect for the rule of law for private property ownership and stability of the regime. Primarily, one looks for how long entrenched and how well developed the legal system is with respect to private property ownership and especially foreign ownership of property. You are also, of course, concerned about taxation. Finally, NIMBY related issues should be considered.
Here is what I found:
RESPECT FOR PROPERTY RIGHTS
In summary, Guyana's constitution protects the right of foreigners to own property and land in the country. However, the property rights system in Guyana is complex and can be convoluted.
Guyana’s property rights framework comprises two distinct registries—the Deeds Registry and the Land Registry—with differing legal bases, leading to bureaucratic inefficiency, lack of transparency, and public mistrust. This system complicates property ownership transfers and deters foreign investment due to lengthy procedures and unreliable documentation. Foreign and domestic banks avoid mortgages in the traditional sense, viewing property-based loans as reputational consumer loans due to unreliable registry records and costly foreclosure processes. This undermines the potential for using property as collateral in financing, which is critical for capital-intensive sectors like oil and gas.
The Local Content Act (adopted in 2021) and the Investment Act of 2004 further fortifies this protection for investments and stipulates non-discrimination between foreign and domestic investors. In Guyana, the Local Content Act (LCA) of 2021 prioritizes the use of Guyanese goods, services, and workforce within the oil and gas sector, essentially forcing foreign companies operating in the industry to partner with local businesses and build local capacity, while the Investment Act of 2004 provides a broader framework for attracting foreign investment, ensuring that both local and foreign companies have a legal environment to operate within, although the LCA sets specific requirements for oil and gas operations to prioritize local participation. Companies operating in the oil and gas sector must submit local content plans outlining how they will meet the stipulated quotas, potentially impacting contract awards based on their commitment to local content.
Key to me is that The Investment Act provides legal protections and guarantees to foreign investors, aiming to attract international companies to Guyana's oil and gas sector while still ensuring local participation through the LCA. According to Guyana's Investment Act, foreign investors are protected by guarantees such as the right to freely repatriate profits and dividends, non-discriminatory treatment compared to domestic investors, the ability to employ foreign personnel when necessary, and the right to seek international arbitration in case of disputes such as International Centre for Settlement of Investment Disputes (ICSID).
<<<As an aside, the Guayanize government is very aggressive in trying to get oil and gas folks to “co-invest” in other industries. Like they will not leave you alone about it. The Government of Guyana is providing incentives for investments in sectors like agriculture, business support services, healthcare, information technology, manufacturing, and energy, particularly in remote areas. These incentives are administered through the Guyana Office for Investment (GOINVEST). >>>>
TAXATION
Entities engaged in petroleum activities would normally be taxed at a rate of 25% corporation tax as a non-commercial company. Other entities are taxed more or less as outlined here: https://www.grantthornton.aw/contentassets/e2c0e51bfb8f487b909dbc5420db05d3/tax_guyana-oil--gas-2022.pdf
Briefly…
Corporation Tax: Companies in the petroleum sector are taxed at 25% as non-commercial entities, with a dual rate (25% and 40%) applied for those involved in both commercial and non-commercial activities. Quarterly advance taxes are mandatory, and audited financial statements are required for filing. Expenses for income production are deductible, and losses can be carried forward indefinitely.
Capital Gains Tax: A 20% rate applies to gains from asset disposal held over a year, with losses available for offset for up to 24 years.
Withholding Taxes: Payments to non-residents, including dividends, interest, royalties, and rents, are generally taxed at 20%. Treaties with Canada, the UK, and CARICOM allow for reduced rates in certain scenarios.
VAT: A 20% VAT applies to most goods and services, while essential items and exports are exempt. VAT registration is mandatory for taxable activities exceeding GYD 15,000,000 (about $70,000 USD) annually.
Import Duties: Range from 5-150%, with exemptions available for specific cases, like temporary imports.
Wage Tax and National Insurance: Employers must withhold income tax and contribute to National Insurance. Employee income up to GYD 1,800,000 is taxed at 28%, and amounts beyond that at 40%.
Property Tax: Rates vary based on property valuation, starting from 0.5% for values exceeding GYD 40,000,000 ($190,000 USD).
INFRASTURCTURE
This is from my personal observations from when I went there. The country has a low percentage of paved roads, and the road network is aging and needs to be expanded. The main shipping port is congested, which affects imports, exports, and consumers. Guyana has frequent and unpredictable electrical outages, and I am told high electricity costs. Internet and telecommunications at the level that we take for granted here in the US is few and far between. There is a complete lack of a deepwater port, massively outdated infrastructure and a near total lack of road safety features.
NIMBY
While Guyana does not have a large or widely established environmental lobby, there is a growing movement of citizens and activists actively campaigning against the development of oil and gas, particularly focused on challenging ExxonMobil's operations and pushing for stricter environmental regulations, highlighting the work of lawyers like Melinda Janki who are leading legal battles against oil drilling in the country. This can be considered a developing environmental lobby against oil and gas development in Guyana, but it has not gathered too much steam and the money being generated is real and accounts for over 50% of the country’s budget.
GLOBAL VALUE CHAIN
If one is a structuralist in terms of economic development and adheres to Rostow's five stages of economic growth, then clearly Guyana is in the “take off stage” as it meets all of the conditions for take-off but certainly is not in the drive to maturity, maturity or age of mass consumption stages yet.
Right now Guyana sits at the second lowest stage of the Global Value Chain (GVC) as a pure raw commodity exporter. To move up the GVC to the next level which is manufacturing and/or processed/refined commodity exporter is through the well known process of focusing on and providing:
Improving coordination
Governments must create a clear vision and ensure the private sector is involved and capital is deployed in an efficient and controlled manner. What activities will be incentivized through reduced taxation, grants, preferential loans and the like and what activities will be “punished” through strict regulation and/or taxation needs to be very clearly defined and outlined.
Attracting investment
Opening borders and attracting foreign direct investment (FDI) will help countries enter GVCs and advance up the GVC ladder.
Improving infrastructure
Countries must invest in modernizing communications, roads, railways, and ports.
Reducing border delays
Small steps like speeding up customs can help countries transition from commodity exports to basic manufacturing.
Upgrading processes and products
Countries can improve efficiency by adopting better technology, or upgrade the quality of their products by using higher quality materials or through the use of domestic design.
Investing in education and training
Countries must invest in education and vocational training to complement their GVC strategies.
Comment:
What appears to be lacking is the first essential element: a unified vision. By self-admission, the government seems to be focused on attracting FDI which it does very well in the oil and gas sector, but not so well outside of that sector. It is making a major priority that one can see in infrastructure. Over the course of a year one can truly see the wide scale construction of roads and bridges, even the port is being improved, the electrical grid and basic as well as advanced electricity delivery has improved much and telecommunication and internet availability and quality (speed of data transfer) has improved a lot. Starlink has been invaluable although it is expensive for the average Guyanan. The average Guyanan in Georgetown (the capital) can be seen with a cell phone certainly and even the poor are seen largely with cell phones in hand in Georgetown. The two main carriers are Digicel and GT&T mobile. They have areas of 5G coverage even. Outside of Georgetown, there is no cell phone coverage. But also, in fairness, there’s not a lot of people outside of Georgetown and the coastal north. A satellite phone is your only option outside of the Georgetown area.
When asked about a vision, officials in the government focus on infrastructure and FDI in oil and gas. When prompted to discuss moving towards thoughts of manufacturing or processed/refined commodity exporter activities, the attitude seems to be best summed up as “we’ll get there”.
But one must openly ask if there is no vision beyond the immediate construction related tasks how one can expect to advance beyond being merely a raw commodity exporter?
Conclusion
In sum, Guyana's future hinges on its ability to navigate the complex interplay between rapid economic growth and the structural issues that have long hindered its progress. With its impressive GDP growth, driven by the booming oil and gas sector, Guyana could be on the cusp of becoming a more prosperous and modern nation. Yet, realizing this potential will require strong governance, substantial investment in education and infrastructure, and effective management of natural resources. If Guyana can address its developmental and social challenges, it may set a precedent for other small, resource-rich nations aspiring to leverage newfound wealth for national growth and stability. Guyana’s journey will be one to watch as it strives to become a relevant player on the global stage.
Sources:
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EP79:The Four Pillars of AI Processing Analyzing CPUs, GPUs, FPGAs, and ASICs
14 nov· Geopolitics Unplugged
Summary:
In this episode, we discuss the various types of chips used in Artificial Intelligence (AI), focusing on GPUs, CPUs, FPGAs, and ASICs. Each chip type has its own strengths and weaknesses: GPUs excel at processing power for complex tasks, CPUs are becoming less relevant as AI advances, FPGAs offer versatility and efficiency for custom applications, and ASICs specialize in specific AI tasks with high performance and energy efficiency. We conclude by highlighting the geopolitical implications of AI chips, including their impact on economic competitiveness, tech sovereignty, defense and intelligence sectors, innovation, and energy efficiency.
Questions to consider as you read/listen:
What are the different types of chips used in AI and how do they compare in terms of their strengths and weaknesses?How do AI chips impact global economic competitiveness, tech sovereignty, and defense capabilities?What are the broader implications of AI chips for innovation, alliances, and environmental sustainability?
Long format:
Four types of chips used in AI
There are essentially four different silicon options that can be used for the training and development of artificial intelligence technology: GPUs, CPUs, FPGAs, and ASICs.
GPUs
A GPU chip, or Graphics Processing Unit chip, is an electronic circuit that performs mathematical calculations at high speeds to handle graphics-related work. These are the type of “gammer chips” that PZ mentioned. GPUs have many smaller, more specialized cores that work together to divide processing tasks across many cores simultaneously. This design allows GPUs to perform the same operation on multiple data values in parallel, increasing their processing efficiency. Within GPUs, there are three subsets generally framed as:
Integrated GPUs: Built into a PC's motherboard, allowing laptops to be thin, lightweight, and power-efficient
Mobile GPUs: Found in larger laptops, these chips are less bulky than a full desktop-style GPU but offer better graphics performance than a CPU's built-in graphics power
High-end GPUs: Can sell for tens of thousands of dollars
Importantly, there are other types of chips used in AI these days.
CPUs
A central processing unit (CPU) is a general-purpose chip that can be used for some AI tasks, but it's becoming less useful as AI advances. CPUs are designed to handle sequential tasks, like running operating systems and managing applications. They can also be used for pre-processing data, initial data analysis, and orchestrating overall system operations. However, CPUs are less specialized than other chips, and their processing power tends to decline quickly compared to more specialized chips.
FPGAs
A Field Programmable Gate Array (FPGA) chip is a reprogrammable integrated circuit that can be used to accelerate artificial intelligence (AI) applications. An FPGA is a flexible computer component that can be reconfigured to meet specific needs after manufacturing. The circuitry inside an FPGA is not hard etched, unlike in graphics processing units (GPUs) or application-specific integrated circuits (ASICs). FPGAs are valued in AI for their versatility, power efficiency, and adaptability. They can be used to build neural networks from scratch and optimize applications for specific needs. FPGAs are particularly useful for real-time processing and prototyping new projects. FPGAs offer a number of benefits, including: reduced latency (FPGAs can provide low latency and deterministic latency (DL)); speed to market (FPGAs can help speed time to market by reducing the need to develop and release new hardware) and cost savings (FPGAs can help reduce costs by reducing the complexities of developing application-specific integrated circuits (ASICs)).
ASICs
ASIC stands for Application-Specific Integrated Circuit, and it's a type of computer chip that's custom-designed to perform a specific task, such as artificial intelligence (AI). ASICs are digital or analog circuits that are custom-built to perform a specific function. They're not reconfigurable and can't contain additional instructions. ASICs are often used in industry, intelligence agencies, space programs, and defense systems. They're also used in AI to create accelerator chips that are designed to support specific applications. ASICs offer similar computing ability to FPGAs, but they're not reprogrammable. Because their circuitry is optimized for a specific task, they often outperform general-purpose processors or other AI chips. ASICs are designed early in the process to address specific needs. The two primary ASIC design methods are gate-array and full-custom.
November 2024 Inventory of major AI chip designers and fabricators
Which one is better?
It depends.
FPGAs are best used for custom, low-latency applications that require customization for specific deep learning tasks, such as bespoke AI applications. FPGAs are also well suited for tasks that value energy efficiency over processing speeds.
Higher-powered GPUs, on the other hand, are generally preferred for heavier tasks like training and running large, complex models. The GPUs superior processing power makes it better suited for effectively managing larger datasets.
CPUs are fading off into the sunset. CPUs do offer some initial pricing advantages. When training small neural networks with a limited dataset, a CPU can be used, but the trade-off will be time. The CPU-based system will run much more slowly than an FPGA or GPU-based system. Another benefit of the CPU-based application will be power consumption. Compared to a GPU configuration, the CPU will deliver better energy efficiency.
The primary advantage of using ASICs (Application-Specific Integrated Circuits) in AI chips is their superior performance and energy efficiency for specific AI tasks, as they are custom-designed to excel at a particular workload, like neural network processing, resulting in significantly faster execution compared to general-purpose processors while consuming less power; making them ideal for applications with well-defined AI requirements, particularly in edge computing scenarios where power consumption is critical.
CONCLUSION
Understanding what these chips are, how they are best used and the related issues are important in geopolitics.
AI chips impact economic competitiveness. Advanced chip design and fabrication are crucial for countries aiming to lead in AI and tech innovation. Nations with robust AI chip industries can boost their economic power and maintain competitive advantages. For instance, the U.S., China, Taiwan, Japan and South Korea are major players in chip manufacturing, and access to AI chip technologies has become a priority to maintain economic influence.
AI chips impact tech sovereignty and trade relations. Given the strategic importance of AI chips, countries have become more protective of their semiconductor industries, as seen with the U.S.-China trade tensions. Export controls, such as those restricting high-end GPUs and ASICs, are designed to prevent rival nations from acquiring advanced AI capabilities that could threaten national security or economic interests.
AI chips impact defense and intelligence sectors. High-performance AI chips, especially ASICs and FPGAs, are increasingly critical in military applications for their processing power, low latency, and energy efficiency. Countries investing in custom AI chips for intelligence gathering, autonomous systems, and real-time decision-making gain substantial defense advantages. This has led to competition to secure supply chains, develop local industries, and ensure that military applications do not rely on foreign chip manufacturers.
AI chips impact innovation and alliances. Nations are fostering alliances to secure the resources and intellectual property needed for chip innovation. For instance, alliances like the Quad (involving the U.S., Japan, Australia, and India) focus on semiconductor supply chains as part of their strategy to counterbalance China's influence. Additionally, governments are investing in research and development to ensure that their tech ecosystems can support sustainable chip innovation, essential for long-term leadership in AI.
AI chips impact energy efficiency and environmental concerns. As countries work to balance energy policies and meet sustainability targets, the energy efficiency of AI chips, like those of FPGAs and ASICs, plays into larger energy strategies. Countries with a lead in energy-efficient AI chips may position themselves as leaders in sustainable technology, reinforcing their influence in international environmental and technology forums.
Sources:
https://aws.amazon.com/what-is/gpu/#:~:text=A%20graphics%20processing%20unit%20(GPU,for%20many%20compute%2Dintensive%20tasks
https://semiengineering.com/knowledge_centers/integrated-circuit/ic-types/processors/graphics-processing-unit-gpu/#:~:text=An%20electronic%20circuit%20designed%20to%20handle%20graphics%20and%20video
https://support.microsoft.com/en-us/windows/all-about-graphics-processing-units-gpus-e159bedb-80b7-4738-a0c1-76d2a05beab4#:~:text=The%20graphics%20processing%20unit%20(GPU,lightweight%2C%20and%20power%2Defficient
https://www.intel.com/content/www/us/en/products/docs/processors/cpu-vs-gpu.html#:~:text=The%20graphics%20processing%20unit%20(GPU,are%20built%20for%20different%20purposes
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EP78:The Arctic A New Frontier for Geopolitical Competition
13 nov· Geopolitics Unplugged
Summary:
In this episode, we discuss the growing geopolitical significance of the Arctic due to climate change. Melting ice is opening up new shipping routes and revealing valuable resources, attracting the interest of nations like Russia, the United States, and Canada. This competition, however, is tempered by existing frameworks like the Arctic Council and the Ilulissat Declaration, which promote cooperation. We also explores the potential for economic growth through resource extraction and the development of new shipping routes, including the Northern Sea Route and the Northwest Passage, known collectively as the Polar Silk Road. The article ultimately raises concerns about potential conflict arising from competing claims and military expansion while emphasizing the need for international cooperation in managing the evolving Arctic landscape.
Questions to consider as you read/listen:
What are the key geopolitical, economic, and environmental challenges facing the Arctic region as it opens up to increased resource extraction and shipping routes?How do the competing claims to the Arctic's resources and territorial waters influence global security and cooperation in the region?What are the major institutional and legal frameworks currently in place for managing the Arctic, and how effective are they in balancing competing national interests and global concerns?
Long format:
The Arctic: A New Frontier for Geopolitical Competition
By Justin James McShane
Today we look at the increasing interest in the Arctic due to climate change revealing new resource opportunities and shipping routes. We will discuss the territorial claims by Russia, the U.S., Canada, and other nations, and the potential for conflict or cooperation.
TL;DR:
Climate change is melting the Arctic, opening up valuable resources and new shipping routes, making it a hotbed for geopolitical competition. Russia, the U.S., Canada, and others are staking territorial claims, leading to both potential conflict and cooperation. Key organizations like the Arctic Council and agreements like the Ilulissat Declaration promote peaceful cooperation, but the rush for oil, gas, and strategic military bases could strain these frameworks. The stakes are high for global security, environmental sustainability, and economic gains in this evolving Arctic landscape.
BACKGROUND
From a remote, ice-bound frontier to a region of strategic importance due to climate change the arctic is now a new geopolitical space of growing importance. Global warming is melting the Arctic ice, opening up sea lanes and making previously inaccessible resources viable for extraction.
The amount of Arctic sea ice that survives the summer melt season has been declining rapidly. From 1979–2023, the amount of Arctic sea ice has decreased by 13% per decade. The oldest and thickest ice in the Arctic has declined by 95% over the past 30 years. Models project that for every 2°F of warming, the Arctic sea ice will decrease by about 15% annually and 25% in the summer. If emissions continue to rise, the Arctic could be ice-free in the summer by 2040.
WHAT INSTITUTIONS AND TREATIES CURRENTLY EXIST
The Arctic Council:
The Arctic Council has eight permanent member states: Canada, Denmark, Finland, Iceland, Norway, Russia, Sweden, and the United States. The Council has negotiated three legally binding agreements among the Arctic states, including agreements on search and rescue, oil pollution preparedness and response, and scientific cooperation. The Council has produced landmark studies, including the Arctic Climate Impact Assessment and the Arctic Marine Shipping Assessment.
Ilulissat Declaration:
The Ilulissat Declaration is a framework for cooperation between the five Arctic coastal states to address the challenges of climate change, resource development, and other issues in the Arctic Ocean. The declaration outlines principles for cooperation on legal arrangements, research, and managing natural resources. It also emphasizes the importance of international law, including the law of the sea, in governing the Arctic Ocean. Canada, Denmark, Norway, the Russian Federation, and the United States are signatories. The Ilulissat Declaration was adopted in 2008 in response to concerns about military conflict in the Arctic after Russia planted a flag there in 2007. The declaration was a preemptive act to reinforce order and stability in the region, and to head off calls for an Arctic Treaty that would dilute the influence of the coastal states.
WHAT IS AT STAKE?
Untapped resources:
There is untapped and unclaimed wealth that now due to climate change and arctic ice melting may be economically viable to extract. According to the U.S. Geological Survey, the Arctic is estimated to hold around 90 billion barrels of undiscovered oil, representing roughly 13% of the world's untapped conventional oil reserves, alongside approximately 30% of the world's undiscovered conventional natural gas reserves; additionally, the Arctic is believed to contain significant mineral deposits including diamonds, phosphate, iron ore, and potentially large, commercially viable fisheries due to climate change impacting ice cover. With melting ice, Arctic fisheries are projected to expand significantly, potentially leading to increased fishing activity. Despite the vast resource potential, extracting resources from the Arctic is complex due to harsh weather conditions and challenging ice environments, making development costly.
Overlapping claims:
There are overlapping claims by Russia, the United States, Canada, Norway, and Denmark (via Greenland) over extended continental shelves. The primary overlapping claim among Russia, the United States, Canada, Norway, and Denmark (via Greenland) regarding extended continental shelves is over the Lomonosov Ridge, an underwater mountain range in the Arctic Ocean, which each country claims as an extension of their continental shelf, leading to significant overlaps in their territorial claims in the central Arctic region. Each country has submitted claims to the United Nations Commission on the Limits of the Continental Shelf (CLCS) regarding their extended continental shelf boundaries, including the disputed areas. The overlapping claims raise concerns about potential disputes over access to resources like oil and gas in the Arctic region.
Military Base Expansions/Additions
A staggering 53% of the Arctic coastline belongs to Russia. Since 2005, Russia has reopened tens of Arctic Soviet-era military bases quietly. Wrangel Island, Cape Schmidt, Temp Air base and Kotelny Island developments are right across the Bering Strait from Alaska. As of February 2023, Russia had six bases, 14 airfields, 16 deep-water ports, and 14 icebreakers built. All of this gives evidence that Russia sees the Arctic as a priority including its self named Arctic Zone of the Russian Federation (AZRF). By contrast the US has only Eareckson Air Station in the strict definition of the Arctic. Candid has Nanisivik Naval Facility which is a Canadian Forces naval facility on Baffin Island, Nunavut. There are also Canadian Forces bases in the Northwest Territories and Nunavut. Demark has the Danish Joint Arctic Command (JACO) is headquartered in Nuuk, Greenland and Pituffik Space Force Base (formerly Thule Air Base). Norway is in the midst of spinning up an arctic base for long range drones in Andøya. Within the Arctic Circle are the Norwegian military bases of Bardufoss, Setermoen and Osmarka. All of these are being developed in conjunction with the US.
THE NEW SILK ROAD (THE POLAR SILK ROAD)-ARCTIC SHIPPING ROUTES
The Northern Sea Route is a shipping lane that connects Europe and Asia through the Arctic Ocean, north of Russia. It can reduce travel distance by up to 50% compared to the Suez or Panama Canal. The Northwest Passage which is a water route that connects the Atlantic and Pacific oceans through the islands of northern Canada. It can reduce travel distance by up to 32% compared to the traditional route through the Panama Canal. The Polar Silk Road is estimated to be between $4,000 billion and $26,000 billion. This is more than double China's GDP at its highest estimate. China has already invested over $90 billion in infrastructure, assets, and other projects in the Arctic. In a high-end climate change scenario, they could be open for shipping by the 2070s. Low end estimates say as soon as 2030.
CONCLUSION
In conclusion, the Arctic has transformed from a frozen expanse into a geopolitical arena filled with immense strategic and economic significance. Climate change continues to reveal untapped resources and new maritime pathways, turning the region into a frontier for potential conflict and competition among world powers. Territorial claims, resource extraction, and military developments are reshaping the Arctic, with Russia, the United States, Canada, and other nations vying for influence and access.
Existing frameworks, like the Arctic Council and the Ilulissat Declaration, aim to foster cooperation and stability, yet the intensifying competition underscores the limits of current governance structures in addressing emerging challenges. As these countries push the boundaries of territorial claims and military reach, the potential for collaboration remains uncertain. The decisions made today will shape the Arctic’s future, with far-reaching implications for global geopolitics, environmental stewardship, and economic development.
SOURCES:
https://climatechange.chicago.gov/climate-change-science/future-climate-change#:~:text=For%20every%202%C2%B0F,to%20global%20sea%20level%20rise
https://environments.aq/publications/antarctic-sea-ice-3-trends-and-future-projections/#:~:text=Sea%2Dice%20coverage%20is%20projected,alone%20whether%20these%20are%20changing
https://www.climate.gov/news-features/understanding-climate/climate-change-arctic-sea-ice-summer-minimum
https://arctic-council.org/about/#:~:text=The%20Arctic%20Council%20is%20the,of%20the%20eight%20Arctic%20States
https://arctic-council.org/news/reflections-on-the-past-and-future-of-the-arctic-council/
https://arcticportal.org/images/stories/pdf/Ilulissat-declaration.pdf
https://www.econstor.eu/bitstream/10419/256061/1/2008C18.pdf
https://www.thearcticinstitute.org/desecuritization-geopolitics-law-arctic/#:~:text=By%20Marc%20Jacobsen%20and%20Jeppe,their%20interactions%2C%20and%20their%20challenges
https://www.thesimonsfoundation.ca/highlights/ilulissat-and-arctic-amity-ten-years-later#:~:text=They%20were%20concerned%20because%20a,Paper%2C%20May%2014%202018.pdf
https://www.unclosdebate.org/argument/844/us-has-significant-interests-untapped-mineral-wealth-arctic#:~:text=The%20U.S.%20Geological%20Survey%20estimates,4
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EP77: From Imitator to Innovator: How ‘Made in China 2025’ aims to Transform China’s Position to the Top of the Global Value Chain
12 nov· Geopolitics Unplugged
Summary:
"Made in China 2025" is a comprehensive industrial policy implemented by the Chinese government to transform the nation into a global leader in high-technology manufacturing by mid-century. The plan emphasizes domestic innovation, reduced reliance on foreign technology, and the development of globally competitive Chinese brands. While "Made in China 2025" is seen as a positive step towards modernization by China, the policy has sparked justifiable considerable concern in the United States. Critics in the U.S. argue that the plan prioritizes state intervention, potentially distorts free markets, and raises concerns about intellectual property rights. Additionally, the policy's focus on self-reliance and the potential for China to dominate key technologies raises questions about national security and global influence. We analyze the core strategies of "Made in China 2025," the potential economic and geopolitical implications of its success, and the resulting tension between China and the U.S. as they compete for global leadership in high-tech industries.
Questions to consider as you read/listen:
1. What are the core strategies of "Made in China 2025" and how do they challenge American economic principles?
2. What are the potential economic, security, and diplomatic consequences for the US if China achieves its "Made in China 2025" goals?
3. What are the key differences between "Made in China 2025" and American economic values, and what are the implications of these differences for the global value chain?
Long format:
From Imitator to Innovator: How ‘Made in China 2025’ aims to Transform China’s Position to the Top of the Global Value Chain
TL;DR:
China’s “Made in China 2025” is an ambitious policy aimed at transforming its manufacturing sector into a global leader in high-tech industries like AI, aerospace, and robotics. The plan focuses on increasing domestic innovation, reducing reliance on foreign tech, and elevating China to a top position in the global economy by mid-century. This state-led, nationalist strategy contrasts sharply with U.S. free-market principles, as it leverages state support, technology acquisition by any means available, and strategic industry targeting to gain a competitive edge over American firms. Key sectors include advanced IT, green vehicles, aerospace, and medical devices, with heavy investment in talent and green manufacturing.
The potential shift of China to the top of the global value chain threatens U.S. economic dominance, risking American jobs, technological leadership, and influence over international standards and security. For the U.S., this creates critical challenges in maintaining its own competitive edge and ensuring fair global competition.
Introduction:
China’s “Made in China 2025” plan represents a formidable and well-crafted blueprint designed to elevate China’s global position in advanced manufacturing and technology. At its core, this strategy embodies China’s intention to secure economic self-reliance, modernize its industries, and ultimately challenge the United States’ leadership on the global stage. This is their plan to vault themselves to the very top of the global value chain (GVC). The policy signals China’s serious ambitions to not only compete with the United States but potentially surpass it in critical high-tech and industrial sectors. As this plan unfolds, it presents a significant threat to American economic interests and the principles of a free-market system, as China leverages a state-driven approach to challenge U.S. influence in global standards, technology, and trade.
INFORMATION:
"Made in China 2025" is China’s ambitious industrial policy designed to transform its manufacturing sector, focusing on increasing domestic innovation, boosting productivity, and reducing dependence on foreign technologies. The policy, which has been likened to the German "Industry 4.0" plan, emphasizes the integration of advanced technology, green manufacturing practices, and the development of globally competitive Chinese brands. Below is a detailed breakdown of the policy's core strategies, goals, and its ten priority sectors.
Core Strategies of "Made in China 2025"
To establish itself as a global manufacturing leader, China plans to:
Enhance Innovation Capabilities: Strengthen research and development (R&D), boost innovation within manufacturing firms, and create a supportive ecosystem involving government, industry, and academia. This includes establishing industrial innovation centers to advance critical technologies.
Prioritize Quality and Efficiency: Focus on high-quality production standards, introduce strict quality controls, and enhance brand reputation. The goal is to improve the quality and efficiency of Chinese manufacturing to compete with global standards.
Promote Green Development: Implement energy-saving practices, encourage resource recycling, and adopt sustainable production methods to build a green manufacturing system that minimizes pollution and resource consumption.
Optimize Industry Structure: Upgrade traditional industries, develop advanced manufacturing capabilities, and encourage the growth of service-oriented manufacturing. This shift focuses on developing high-value-added manufacturing activities.
Develop a Talent Pipeline: Train and recruit skilled professionals, technicians, and engineers to support the development of advanced industries. The government aims to create a robust workforce with expertise in cutting-edge technologies.
Foster International Collaboration and Expand Global Presence: Promote the internationalization of Chinese manufacturing firms by encouraging them to acquire foreign technologies, establish global R&D centers, and expand overseas markets.
Strategic Milestones
2020: Establish a strong base by advancing industrialization and improving manufacturing informatization and automation, with significant gains in specific technologies.
2025: Mark China's arrival in the ranks of world manufacturing powerhouses, with globally competitive Chinese brands and a robust capacity for innovation.
2035: Move into the middle ranks of world-leading manufacturing nations with industries that drive innovation globally.
2049: Achieve a position as a leading global manufacturing powerhouse, with China as a top industrial nation.
Ten Priority Sectors of "Made in China 2025"
The strategy focuses on ten core industries where China seeks to become a global leader, reduce its dependence on foreign technology, and promote self-reliance. Here’s a closer look at each sector and the specific measures to advance them:
Advanced Information Technology (IT):
Goal: Develop domestic capabilities in critical IT components like integrated circuits, high-performance computing, quantum computing, and advanced telecommunications.
Action: Invest heavily in R&D for key IT technologies, including 5G, artificial intelligence, and cybersecurity. The government will support developing core technologies such as high-end chips, system software, and large-scale data processing platforms.
High-End Numerical Control (CNC) Machinery and Robotics:
Goal: Build capabilities in precision machinery and automation, focusing on producing CNC machines, robotics for industrial automation, and additive manufacturing (3D printing).
Action: Establish joint research efforts for CNC machines and advanced robotics components, such as high-precision sensors and servo motors, to reduce reliance on foreign components.
Aerospace and Aviation Equipment:
Goal: Strengthen domestic capabilities in aircraft design and production, targeting commercial and military applications, including passenger aircraft and drones.
Action: Focus on developing large passenger jets, improving engine technology, and advancing unmanned aerial vehicle capabilities to support the aerospace sector’s independence and reduce the reliance on Western aerospace technology.
Maritime Engineering and High-Tech Ships:
Goal: Advance capabilities in maritime equipment, focusing on deep-sea exploration and high-tech shipbuilding, including oil rigs and LNG (liquefied natural gas) carriers.
Action: Develop advanced marine equipment and ships, emphasizing high-value-added segments like offshore oil and gas platforms, deep-sea exploration vessels, and luxury cruise ships.
Rail Transport Equipment:
Goal: Become a global leader in high-speed rail technology, urban transit systems, and heavy-haul rail systems.
Action: Invest in R&D for rail technology, particularly in high-speed trains and supporting infrastructure, and develop advanced manufacturing for energy-efficient and smart rail systems.
New Energy and Energy-Saving Vehicles:
Goal: Transition to electric and hybrid vehicles to reduce emissions and position China as a leader in new energy vehicles (NEVs).
Action: Support battery technology R&D, create incentives for electric vehicle production, and promote the adoption of fuel-efficient vehicle technology to meet stringent environmental standards.
Power Equipment:
Goal: Enhance China’s capacity in nuclear, wind, and solar energy equipment, targeting key components for domestic production.
Action: Strengthen technological capabilities in energy generation and distribution, focusing on green power equipment, such as wind turbines, solar panels, nuclear reactors, and smart grid technologies.
Agricultural Machinery:
Goal: Modernize agricultural equipment production to improve efficiency and reduce labor dependency in farming.
Action: Develop advanced machinery for planting, harvesting, and processing to support large-scale, efficient agricultural production, focusing on automation and precision farming.
New Materials:
Goal: Lead in producing materials like high-strength steel, lightweight composites, advanced polymers, and specialty metals.
Action: Boost R&D in new material sciences, focusing on high-performance structural and functional materials to replace imports in industries such as aerospace, defense, and telecommunications.
Biopharmaceuticals and High-Performance Medical Devices:
Goal: Increase capabilities in biotechnology and the production of advanced medical devices, reducing dependence on foreign pharmaceutical and medical technologies.
Action: Accelerate the development of innovative biopharmaceuticals, traditional Chinese medicines, and advanced diagnostics. Expand R&D in areas like personalized medicine and high-performance diagnostics, such as imaging and wearable devices.
Key Supporting Policies
Financial Incentives: Government subsidies, tax breaks, and funding for R&D in priority sectors.
Standards and Regulations: Establish strict quality standards and strengthen intellectual property rights protection to build internationally recognized brands.
Industrial Internet and Smart Manufacturing: Invest in smart manufacturing technologies, digitalize manufacturing processes, and create smart factories that improve efficiency and reduce costs.
Public-Private Partnerships: Facilitate partnerships between government, private firms, and research institutions to foster collaborative innovation.
Green Manufacturing Initiatives: Promote sustainable practices across the manufacturing sector to minimize environmental impact and meet global green standards.
Internationalization and Self-Reliance Goals
China aims to reduce reliance on foreign technology by developing domestic supply chains for critical components, materials, and high-tech products. Efforts include:
IPR Development: Strengthening intellectual property rights (IPR) to foster innovation and protect domestically developed technologies.
Acquisition of Foreign Technologies: Encouraging Chinese companies to acquire foreign firms or technology licenses, particularly in areas where China lags.
Export and Brand Building: Supporting Chinese firms in exporting goods to global markets, establishing Chinese brands as competitive alternatives to foreign brands.
Global Partnerships and Standard Setting: Working with international partners to establish global manufacturing standards, creating pathways for Chinese products to become globally dominant.
"Made in China 2025" is a roadmap for transforming China into a high-tech manufacturing powerhouse by mid-century. By focusing on innovation, quality, sustainability, and self-reliance, the policy envisions China as a world leader in advanced manufacturing and technology, capable of competing globally with established industrial powers.
"Made in China 2025" is considered by many in the United States to be incompatible with American economic and political values, largely due to its strategic approach to industrial policy, state intervention, and self-reliance in critical technologies. Here’s a breakdown of specific areas where the policy contrasts sharply with American principles:
1. State Intervention vs. Market-Driven Economy
Chinese Model: "Made in China 2025" relies heavily on state intervention and government-led initiatives. The Chinese government directs resources, offers subsidies, and sets industrial targets to bolster specific sectors, favoring domestic firms over foreign competitors.
American Value: The U.S. economy traditionally emphasizes free-market principles where market forces, rather than government directives, shape industry success. Heavy government intervention and favoritism toward state-favored companies is viewed as distorting fair competition and reducing economic efficiency.
2. Technology Transfer and Intellectual Property Concerns
Chinese Approach: As part of its industrial policy, China has encouraged aggressive acquisition of foreign technology through joint ventures, foreign acquisitions, and sometimes controversial practices around intellectual property (IP). Many Western businesses have faced pressure to share proprietary technologies as a condition of accessing the Chinese market.
American Value: The U.S. holds that intellectual property rights are fundamental to innovation. Forced technology transfers, IP theft, and the use of acquired technology for competitive advantage conflict with the American view that IP protection fosters innovation by ensuring creators benefit from their inventions.
3. Economic Nationalism vs. Global Economic Integration
Chinese Model: The policy prioritizes self-reliance, aiming to reduce dependence on foreign technologies, goods, and services by fostering homegrown alternatives. This nationalist approach extends to sectors like semiconductors, aerospace, and artificial intelligence, where China intends to replace imports with domestically produced technology.
American Value: While the U.S. supports national competitiveness, it traditionally advocates for global economic integration, open markets, and free trade, arguing that economic interdependence leads to greater efficiency and mutual benefits. China’s selective openness is seen as antithetical to the level playing field that the U.S. promotes globally.
4. Global Influence and Strategic Competition
Chinese Model: By dominating certain high-tech sectors, China aims to influence global standards, reshape international supply chains, and position itself as a leader in the Fourth Industrial Revolution. The Chinese government envisions a future where Chinese technologies and standards are the global norm, providing Beijing with greater geopolitical influence.
American Value: The U.S. values a multipolar global economy with competition among businesses, not direct government-driven dominance. This goal of reshaping global norms under China’s leadership poses a strategic challenge, as the U.S. sees it as undermining a free and open international system.
5. Trade Practices and Protectionism
American Values: The U.S. generally promotes open trade and opposes protectionism, favoring agreements and practices that enable fair competition without significant government barriers.
Made in China 2025: The policy has been interpreted as promoting a form of economic nationalism, with the explicit goal of reducing dependence on foreign technologies. Critics argue that this leads to protectionist practices, including preferential treatment for Chinese companies and barriers to foreign firms in key industries. For example, many high-tech sectors targeted by "Made in China 2025" have been difficult for foreign companies to penetrate, limiting market access and putting foreign companies at a competitive disadvantage.
6. Transparency and Rule of Law
Chinese Model: "Made in China 2025" operates within a context where government intervention is often opaque, and policy objectives can shift quickly with little public accountability. Regulatory favoritism and political incentives often drive business decisions, leading to practices that foreign companies see as unfair.
American Value: The U.S. promotes transparency, rule of law, and predictable regulatory frameworks to support business fairness and accountability. The perceived lack of transparency and impartiality in China’s system fuels American concerns that foreign companies and governments face an uneven playing field.
7. Individual Innovation vs. State-Driven Innovation
Chinese Model: The focus on state-led R&D centers, government-driven innovation goals, and close state-industry collaboration represents a top-down model of innovation. China’s strategy channels resources into areas it identifies as critical, often prioritizing efficiency over fostering individual or private-sector innovation.
American Values: U.S. culture traditionally emphasizes individual initiative, personal enterprise, and the notion that success is achieved through individual effort and innovation.
8. Environmental Standards and Labor Rights
American Values: American society increasingly values corporate responsibility, including environmentally sustainable practices and fair labor standards.
Made in China 2025: Although the policy mentions green manufacturing, China’s rapid industrialization has often come at a significant environmental cost, with critics noting that environmental standards are sometimes sacrificed for economic growth. Similarly, U.S. firms are often held to higher labor standards than some of their Chinese counterparts, which can lead to competitive imbalances when products enter global markets at lower prices due to cost advantages derived from less stringent regulations.
9. Global Security and Strategic Concerns
American Values: The U.S. aims to maintain a secure global order in which economic and strategic interests do not threaten international stability.
Made in China 2025: The policy’s focus on self-sufficiency and leadership in critical technologies like aerospace, telecommunications, and advanced materials has raised national security concerns in the U.S. Since many of these technologies have dual-use potential (both civilian and military), China’s development in these sectors is seen as potentially undermining U.S. security interests. This has led to a perception that "Made in China 2025" is a way to achieve technological supremacy that could disrupt the current balance of power.
In summary, "Made in China 2025" reflects an industrial strategy that diverges significantly from the market-oriented, competition-driven, transparent approach valued in the U.S. The policy’s state-led, nationalist orientation and strategic targeting of industries perceived as globally competitive are seen as challenging foundational American economic and cultural values, leading to tensions between the two countries. These differences drive concerns about fair competition, intellectual property, and market access, as well as broader questions about global economic security and the future of free-market capitalism.
Moving up the Global Value Chain (GVC)
“Made in China 2025” is China’s strategic push to dominate the global value chain by shifting from low-cost manufacturing to high-tech leadership. By fostering domestic innovation, particularly in sectors like AI, aerospace, and advanced robotics, China aims to reduce dependency on foreign technology and elevate its industrial standards to compete globally.
The plan emphasizes high-value production, sustainable practices, and rigorous quality control, positioning Chinese brands as trusted, cutting-edge players. With targeted investment in skilled talent and global expansion, China seeks to reshape international markets, setting standards that align with its strengths. Ultimately, “Made in China 2025” is China’s blueprint for economic independence and dominance in key technologies, challenging current global leaders and securing a top position in the global economy.
If China rises to the top of the global value chain and the U.S. loses its dominant position, several significant shifts would impact global economics, security, and influence:
1. Economic Dependence on China: Countries worldwide would increasingly rely on China for high-tech goods, critical materials, and advanced manufacturing. This dependency could grant China greater control over global supply chains and trade, allowing it to set terms and pricing for essential goods and technologies.
2. Loss of U.S. Technological Leadership: As Chinese companies lead in advanced sectors like AI, aerospace, and telecommunications, U.S. companies may lose their competitive edge, reducing innovation-driven economic growth. This would likely lead to fewer high-paying tech jobs in the U.S. and could impact the overall economy, as critical sectors lose market share to Chinese firms.
3. Shifts in Global Standards and Influence: China, as the new technological leader, would likely set international standards for emerging industries, from 5G to AI ethics. This shift could influence the global economy to align more with Chinese priorities, favoring state-driven systems over market-driven principles. U.S. companies would be forced to adapt to these new standards or risk exclusion from key markets.
4. Increased National Security Concerns: A China-led global value chain would give China leverage in technologies with dual civilian and military applications. The U.S. and its allies might face increased vulnerabilities if critical technology supply chains are under Chinese control, as these could be weaponized or restricted in times of geopolitical tension.
5. Erosion of U.S. Soft Power and Diplomatic Influence: Losing economic leadership would also weaken U.S. influence in global institutions and trade alliances. China’s rise could enable it to exert more influence over organizations like the WTO or IMF, challenging the liberal, rules-based order that the U.S. has long championed. This shift would likely reduce American leverage in shaping international policies on human rights, environmental standards, and security.
6. Potential for Economic Instability: If the U.S. economy becomes heavily reliant on imported technology and critical materials, domestic industries may decline, leading to job losses and economic inequality. A less self-sufficient U.S. economy could struggle to respond to global crises or adapt to rapid technological shifts without reliance on China.
In summary, China’s dominance in the global value chain would challenge the U.S. economically, strategically, and diplomatically, leading to a world where China’s priorities increasingly shape the international landscape. For the U.S., staying competitive would require major investments in innovation, trade alliances, and technology to avoid ceding ground in a critical era of global restructuring.
Conclusion:
The “Made in China 2025” policy is more than an industrial roadmap—it’s a strategic plan to reshape the global economic landscape and challenge the United States’ long-standing industrial dominance. By targeting key high-tech sectors, focusing on self-reliance, and advancing state-led initiatives, China is positioning itself as a major player in industries that will define the future.
For the United States, the stakes are high, as the policy raises concerns about fair competition, intellectual property, and even national security. Understanding this ambitious strategy is essential for assessing the real challenges and implications it poses for the U.S., underscoring the urgent need to address this emerging global competition.
Source:
https://cset.georgetown.edu/wp-content/uploads/t0432_made_in_china_2025_EN.pdf
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EP76: US Oil, LNG, and Carbon Capture: Inside the Next Energy Czar’s Bold Energy Vision-Doug Burgum
12 nov· Geopolitics Unplugged
Summary:
In this episode, we explore the potential candidacy of North Dakota Governor Doug Burgum as the "energy czar" for the United States under a future administration. Burgum advocates for a balanced approach to energy policy, combining support for traditional energy sources, particularly oil and gas, with progressive environmental goals. He is notably pushing for carbon neutrality in North Dakota by 2030, relying on carbon capture and storage (CCS) technologies. We highlight the increasing strain on the U.S. energy grid due to rising domestic demands and global market shifts, and Burgum’s potential role in navigating this complex landscape while promoting both economic growth and sustainability.
Questions to consider as you read/listen:
What are the key challenges and opportunities facing the U.S. energy sector?How does Governor Burgum's energy policy address the challenges and opportunities facing the U.S.?What are the potential implications of Doug Burgum's energy policies for the U.S. economy and environment?
Long format:
US Oil, LNG, and Carbon Capture: Inside the Next Energy Czar’s Bold Energy Vision-Doug Burgum
By Justin James McShane
TL;DR:
President-elect Trump is considering North Dakota Governor Doug Burgum as “energy czar.” Burgum combines support for traditional energy with progressive environmental goals, aiming to make North Dakota carbon-neutral by 2030 using carbon capture and storage (CCS). The U.S. energy sector is strong and self-sufficient, with record oil and LNG exports, but rising domestic energy demands from manufacturing, infrastructure projects, and tech growth are straining the grid. Burgum’s balanced approach could help the U.S. continue its energy independence while addressing sustainability and economic growth.
Introduction:
As President-elect Trump considers North Dakota Governor Doug Burgum for a potential role as “energy czar,” Burgum’s unique blend of traditional energy support and progressive environmental policies make him an intriguing choice for shaping America’s energy future. The United States, a global leader in energy production and exports, faces a period of extraordinary opportunity and challenges in the energy sector. With a robust oil, natural gas, and liquefied natural gas (LNG) export infrastructure, the U.S. is well-positioned for continued growth. However, rising domestic energy demands, global market shifts, and ambitious economic goals, including semiconductor production and reshoring manufacturing, are pushing the energy grid to its limits. As the country stands at the precipice of unprecedented energy transformation, Burgum’s policies and perspectives on balancing fossil fuel reliance with carbon neutrality are poised to play a significant role in addressing these demands while striving for sustainable progress.
INFORMATION
President-elect Trump is looking toward North Dakota Gov. Doug Burgum (R) as a potential “energy czar. Who is he? What does he believe in?
The USA is in a very important period where energy policy is going to vital. This incoming administration has inherited a very strong US energy sector.
The US has been a net exporter of petroleum since 2020. In 2023, the US exported 1.64 million barrels of petroleum per day more than it imported. The United States is a net crude refinery product exporter and a large one at that. Further, the US is the world’s biggest LNG exporter. The US became the world's leading LNG exporter in 2023, surpassing Australia and Qatar. In 2023, the US exported an average of 11.9 billion cubic feet of LNG per day, which was a 12% increase from 2022. The US continued to be the world's largest LNG exporter in 2024, shipping 56.9 million metric tons of LNG in the first eight months. However, export prices dropped by more than 25% from the first half of 2023, which led to a $4 billion drop in export revenues. The US is projected to double its LNG exports by the end of the decade as new export facilities are built along the US coastline.
The US has an estimated 1.66 trillion barrels of technically recoverable oil resources. That’s enough oil for 227 years. If the oil is devoted exclusively to gasoline production, it is enough gasoline to fuel the transportation sector for 539 years at 2023 usage levels, the report stated.
Total technically recoverable resources of natural gas in the U.S. amount to 4.03 quadrillion cubic feet, according to the report, which stated that, at the current consumption rate, that’s enough natural gas for the next 130 years. The 4.03 quadrillion cubic feet figure is a 47 percent increase in the estimate of technically recoverable natural gas since IER’s 2011 report, the study highlighted. The report also pointed out that the U.S. has over 65 quadrillion cubic feet of in place natural gas resources.
Again, we are a net exporter. US shale oil is light and sweet, while a lot of oil coming from OPEC is medium or heavy, and often sour. This is due to the nature of result of fracking as it not just recovering blobs of pools of oil but rather in simplistic terms out of the porous rocks. It is thought that because the shale oil is “younger” than the pooled oil that it has less contamination (sulfur).
Why does this matter? Until recently, US refineries were set up to process the dirtier more contaminated Middle East sour oil almost exclusively. As a product of legacy we do still import sour oil. However, we are in a pretty mad race to retool our domestic refineries to sweet. Sweet (API value less than 40 and sulfur less than 0.5%, really hydrogen sulfide (H2S) gas) is easier, less costly and less energy intensive to refine. So we are all over that.
An abundant sweet source with sweet refineries being retooled or added. Look out for US energy.
Sounds great right?
It is but….
We have a totally unprepared energy grid for what comes next. We are in an unprecedented time of an exploding demand for energy. We are in a period of hyper growth. Our economy is humming. Thanks to the Inflation Reduction Act, we are building out and replacing infrastructure unlike any other time in history. We are also reshoring our manufacturing and industrial capacities at an accelerated rate. The deglobalization phenomenon and decoupling and shortening of supply chains with its building of manufacturing and industrial plants costs a lot of energy. Plus, we have declared a policy intent to win the Asians semiconductor war. AI and semiconductor and related manufacturing and use takes more energy than you can imagine.
These demands are all coming to a head. And a planned and careful approach is needed if we want to continue our quality of life, the growth of our economy, reshoring and also AI and semiconductor ambitions.
Doug Burgum’s energy policies and thoughts
He stands out fairly uniquely among Republican leaders with his carbon neutral stance. In 2021, he signed legislation creating a Clean Sustainable Energy Fund to support low-emission technology projects. He set an ambitious goal to make North Dakota carbon-neutral by 2030. This vision, announced in 2021, aims to balance environmental responsibility with the state’s economic reliance on fossil fuels. His approach leverages carbon capture and storage (CCS) technology, which captures carbon dioxide emissions from fossil fuel operations and stores them underground. By doing so, Burgum hopes to reduce carbon emissions without compromising North Dakota’s thriving oil and gas sector, particularly in the Bakken region.
Burgum’s carbon-neutrality goal has generated significant private-sector interest, sparking a reported $25 billion in investments from energy companies eager to capitalize on CCS and other environmentally focused technologies. In remarks at the North Dakota Petroleum Council’s annual meeting, Burgum highlighted these investments as proof that economic growth and environmental responsibility can coexist. Furthermore, he supports using captured carbon dioxide in enhanced oil recovery, a process that not only reduces emissions but also boosts oil production by injecting CO2 into underground reservoirs.
Agriculture also plays a crucial role in Burgum’s carbon-neutral strategy. He advocates for farming practices that sequester carbon in the soil, adding another layer to his comprehensive approach to climate and energy policy. North Dakota’s expansive agricultural lands offer a unique opportunity for carbon storage, reinforcing his commitment to sustainability across multiple sectors.
Burgum is a strong supporter of traditional energy infrastructure, like the Dakota Access Pipeline, which he believes is vital for the state’s economic health and energy independence. He has frequently emphasized that energy independence is not only an economic priority but also a matter of national security. In his view, relying on domestic oil and gas production shields the U.S. from volatile global energy markets and strengthens its geopolitical standing.
In addition, Burgum is a vocal critic of federal policies that he sees as overly restrictive for the fossil fuel industry. He has criticized the Biden administration’s policies, such as subsidies for electric vehicles and regulations phasing out gas stoves in certain new housing. He argues that these initiatives threaten consumer choice and undercut the economic potential of liquid fuels. Instead, Burgum supports opening federal lands managed by the Bureau of Land Management to increase domestic energy production, including oil, gas, and rare earth metals essential for various industries.
Burgum’s approach reflects his belief that carbon neutrality and energy sector growth can coexist, using advanced technology and smart policies to support both goals. By fostering a favorable regulatory environment and encouraging innovation, he positions North Dakota as a model for how traditional energy industries can adapt and contribute to environmental solutions, all while ensuring economic growth and energy security.
Conclusion:
In navigating the complexities of the U.S. energy landscape, Doug Burgum’s vision underscores a commitment to both economic growth and environmental responsibility. His approach, combining advanced technologies like carbon capture and a favorable regulatory environment for traditional energy, could help shape a new model for sustainable development. As the U.S. aims to maintain its energy independence, support burgeoning industries, and meet increasing power demands, a thoughtful strategy led by individuals who understand both fossil fuels and clean energy innovation will be vital. Burgum’s potential leadership as energy czar offers a pathway for the U.S. to strengthen its global energy standing while supporting national security and economic resilience, aligning with the country’s drive for both stability and innovation in this crucial era.
Sources
https://thehill.com/homenews/campaign/4981850-trump-considering-burgum-for-energy-czar/
https://www.ft.com/content/6c390cc1-f5b8-4096-a361-c53d8145b85a
https://www.usnews.com/news/top-news/articles/2024-11-08/trump-considering-doug-burgum-as-new-energy-tsar-to-slash-regulations-ft-reports
https://www.usnews.com/news/best-states/north-dakota/articles/2023-03-07/burgum-says-every-north-dakotan-feels-oil-and-gas-impact
https://bismarcktribune.com/mandannews/local-news/burgum-posts-video-message-about-dapl/article_89fe54a0-7760-510b-9ba8-25b4f646da4e.html
https://www.usatoday.com/story/news/politics/elections/2023/10/19/doug-burgum-new-hampshire-addiction-climate-change/71200204007/
https://www.washingtonpost.com/politics/2024/05/09/trump-oil-industry-campaign-money/
https://bismarcktribune.com/news/state-and-regional/burgum-touts-goal-to-make-north-dakota-carbon-neutral-by-2030/article_35efd7f5-8633-536a-becf-7ea9a7b11c37.html
https://www.willistonherald.com/news/oil_and_energy/burgum-net-neutral-goal-set-off-25-billion-cascade-of-interest-in-north-dakota/article_d2671f8c-1cb0-11ec-afb0-53512052e8d2.html
https://www.eia.gov/tools/faqs/faq.php?id=727&t=6#:~:text=The%20resulting%20total%20net%20petroleum%20imports%20(imports,Canada%2C%20Mexico%2C%20Saudi%20Arabia%2C%20Iraq%2C%20and%20Brazil
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EP75: The Renewable Delusion: Why Transition Alone Won’t Power Tomorrow’s World
11 nov· Geopolitics Unplugged
Summary:
In this episode, we examine "The Renewable Delusion: Why Transition Alone Won’t Power Tomorrow’s World," which argues against a full-scale transition to renewable energy sources, claiming that such a shift is impractical for meeting the needs of megacities and modern life. Instead, the author advocates for a diversified energy strategy that prioritizes nuclear energy as the primary source, with natural gas serving as a backup. The author supports their claims by analyzing key metrics such as energy density, power density, energy return on investment, and cold start times, concluding that nuclear energy is superior to renewables in terms of efficiency, reliability, and scalability.
Questions to consider as you read/listen:
What are the strengths and weaknesses of nuclear energy compared to other energy sources, particularly renewable energy sources, in meeting the energy demands of modern societies?What are the key factors to consider when evaluating the practicality and sustainability of a large-scale energy transition away from fossil fuels, and what are the potential consequences of such a shift?How does the concept of energy diversification, incorporating both non-renewable and renewable sources, differ from energy transition, and what are the advantages and disadvantages of each approach?
Long format:
The Renewable Delusion: Why Transition Alone Won’t Power Tomorrow’s World
By Justin James McShane
October 30, 2024
TL;DR:
An effective energy policy should prioritize affordability, reliability, and minimal environmental impact. Key metrics like energy density, power density, EROI, and cold start times reveal that nuclear energy, due to its high density and efficiency, is the best option for meeting large-scale energy demands. Natural gas also offers flexibility and reliability, making it a viable backup when nuclear is not feasible. While renewables have their place, a total reliance or even majority reliance on them is impractical for sustaining megacities and modern life. A diversified approach—anchored in nuclear and natural gas, with renewable supplementation—best ensures a stable, sustainable energy future.
Introduction:
In a world increasingly focused on sustainable development and economic stability, determining the best path forward for energy policy demands a nuanced approach. Energy systems must be economically viable, environmentally sensitive, and capable of delivering reliable power on demand. The balancing act between these factors is challenging, particularly with growing calls for energy transition toward renewables. However, by analyzing key metrics such as energy density, power density, energy return on investment (EROI), capacity factor, and cold start times, we can begin to identify which energy sources best meet modern society's extensive demands. In examining these metrics, nuclear energy and natural gas emerge as essential components in creating an effective, diversified energy policy. This analysis delves into the attributes that make nuclear and natural gas energy sources crucial for supporting the continuous energy flow (base load) required for contemporary urban and industrial needs, while considering the limitations and benefits of renewable options like wind and solar. As we shall see an energy transition to entirely to renewables or even one where it is predominately renewables is not possible if we want to keep our mega cities and current lifestyle.
Information:
The goal of any energy system is to be affordable in order to drive economic development and improvements in quality of life, reliable so as to be available on demand in its various forms, most of all as uninterruptible electricity, and convenient to give consumers virtually effortless access to preferred household, industrial, and transport energies. Where environmental concerns sit in the weighing of the above is debatable but the above sentiments, I don’t think are reasonably debatable.
In environmental terms, power density is about claiming space: land use intensity (m2/W) is its obvious inverse. But there are other intensities to consider, above all the intensity of water use (g H2O/J) and carbon intensity (g C/J), a marker of the human interference in the global biogeochemical carbon cycle that quantifies the emissions of CO2, the dominant anthropogenic greenhouse gas. How that is balanced is beyond the scope of this treatment.
Importantly, we can to a degree reduce all of these goals stated above (but for the priority/value judgement involved with environmental issues) into 5 statistics as they are quantifiable: (1) energy density, (2) power density, (3) energy return on investment, (4) capacity factor and (5) cold start up times. Let’s look at each.
ENERGY DENSITIES
The heat value of a fuel is the amount of heat released during its combustion. Also referred to as energy or calorific value, heat value is a measure of a fuel's energy density and is expressed in energy (joules) per specified amount (e.g. kilograms). There are many reasons to prefer sources of high energy density, particularly in modern societies demanding large and incessant flows of fuels and electricity. Obviously, the higher the density of an energy resource, the lower are its transportation (as well as storage) costs, and this means that its production can take place farther away from the centers of demand.
Heat value/ Energy Density
Natural uranium, in FNR
28,000 GJ/kg
Uranium enriched to 3.5%, in LWR
3900 GJ/kg
Natural uranium, in LWR (normal reactor)
500 GJ/kg
Natural uranium, in LWR with U & Pu recycle
650 GJ/kg
Hydrogen (H2) (in theory, no prototype)
120-142 MJ/kg
Methane (CH4)
50-55 MJ/kg
Liquefied petroleum gas (LPG)
46-51 MJ/kg
Petrol/gasoline
44-46 MJ/kg
Diesel fuel
42-46 MJ/kg
Crude oil
42-47 MJ/kg
Natural gas
42-55 MJ/kg
PV panel
39.5 MJ/lg
Dimethyl ether - DME (CH3OCH3)
29 MJ/kg
Hard black coal (Australia & Canada)
c. 25 MJ/kg
Hard black coal (IEA definition)
>23.9 MJ/kg
Methanol (CH3OH)
22.7 MJ/kg
Wind turbine
21.48 MJ/kg
Sub-bituminous coal (Australia & Canada)
c. 18 MJ/kg
Sub-bituminous coal (IEA definition)
17.4-23.9 MJ/kg
Lignite/brown coal (IEA definition)
<17.4 MJ/kg
Firewood (dry)
16 MJ/kg
Lignite/brown coal (Australia, electricity)
c. 10 MJ/kg
Geothermal (heat capacity of water)
4.186 MJ/kg
*Uranium figures are based on 45,000 MWd/t burn-up of 3.5% enriched U in LWR
MJ = 106 Joule, GJ = 109 JMJ to kWh @ 33% efficiency: x 0.0926One tonne of oil equivalent (toe) is equal to 41.868 GJ
POWER DENSITIES
Power is simply energy flow per unit of time (in scientific units, joules per second, which equals watts, or J/s = W), spatial density is the quotient of a variable and area, and hence power density is W/m2, that is, joules per second per square meter. The power density rates include not just the physical power plants land footprint but also all right of way (ROWs) considerations including aspects such as transmission lines, access ways, set backs and substations. Perhaps the most important attribute of an energy source is its density: its ability to deliver substantial power relative to its weight or physical dimensions. When choosing a power source, you want a higher power density so that in the smallest space possible, we can produce the most energy so that land can be otherwise used for agriculture, industrial use, residential use, commercial use or even leisure use as opposed for power generation.
For renewables, the research provides these values.
For non-renewables, the research reveals the following.
In other words, we can compute that one nuclear power plant produces the energy of thousands of wind turbines easily. To generate the same amount of energy as a typical nuclear reactor, it would take several hundred wind turbines depending on the size of the reactor and the wind turbine, with estimates often ranging between 500 and 1,000 or more turbines to match the output of a single nuclear reactor. A nuclear power plant has several reactors typically. This just gets us to equivalent power rates referring to Watts. When we add in the spatial component (m2), we can very plainly see that “energy transition” is problematic. For example, wind turbines must be set apart to avoid excessive wake interference. Turbines must be placed at least three, and better five, turbine diameters apart in the crosswind direction, and at least six and preferably ten diameters in the downwind direction. You can do the math, 1000s of turbines separated that much by regulation versus the typical footprint of a nuclear power plant doesn’t compare.
Just to further put a point on the issue of total energy transition away from fossil fuels towards lower density intermittent renewables, Professor Smil is instructive and is worth directly quoting:
Tomorrow's societies, which will inherit today's housing, commercial, industrial, and transportation infrastructures, will need at least two or three orders of magnitude more space to secure the same flux of useful energy if they are to rely on a mixture of biofuels and water, wind, and solar electricity than they would need with the existing arrangements. This is primarily due to the fact that conversions of renewable energies harness recurrent natural energy flows with low power densities, while the production of fossil fuels, which depletes finite resources whose genesis goes back 106–108 years, proceeds with relatively high power densities… Fossil fuels (when transportation and transmission ROW needs are included) generally supply energy with power densities higher than those prevailing in city downtowns, and the only instances in which the power densities of energy use surpass those of common ways of energy production are the energy-intensive industrial processes (often well above 1,000 W/m2) and city blocks consisting of densely packed high-rise buildings (on an annual basis they can go well above 500 W/m2) and during short periods of peak demand (driven by winter heating or summer air conditioning) in downtown cores, where they can go to as much 1,000 W/m2 or even more… Net fossil fuel imports added about 750 GW to the domestic production, and so the power density of the entire system would be about 50 W/m2. As expected, the overall power density of the nascent energy supply delivered by new conversions of renewable energy sources is much lower: the growing triad of wind turbine–generated electricity, solar electricity, and liquid biofuels reached a bit over 60 GW in 2010, and even after counting only the land actually occupied by wind turbines and their infrastructure and excluding all transmission ROWs the new renewable system delivers with an overall power density of just 0.4 W/m2, less than 1/100th of the currently dominant arrangements… If all of America's gasoline demand in 2012 (a total of 16.96 EJ, or 537.87 GW) were to be supplied by corn-based ethanol produced with that power density, then the United States would have to be growing corn for ethanol on 234 Mha, an area nearly 75% larger than that of all recently cultivated land and a third larger than the country's total cropland… [In conclusion], such a ramping-up of all kinds of capacities [that come with a total transition from fossil based fuels to strictly renewables]—design, permitting, financing, engineering, construction, all going up between one and five orders of magnitude in less than two decades—is far, far beyond anything that has been witnessed in more than a century of developing modern energy systems. And that still leaves out two other key facts, namely, that such a gargantuan renewable energy system would need an enormous expansion of high-voltage transmission and would require the creation of an entirely new, hydrogen-based society….To totally de-carbonize Britian in favor of renewables would require 240,000 km2 which is essentially the entire area of Britain. The same holds true for Germany as it would require about 350,000 m2 which is likewise essentially the country’s entire area. And there is Japan, which to decarbonize would require nearly 600,000 km2 of land which is nearly 60% more than the area of the four main islands. [Finally,] a reality check is in order: how can this prospect be squared with the growth of megacities whose densely crowded, high-rise blocks may average throughout the year more than 500 W/m2 and reach 1,000 W/m2 during the hours of peak demand? Since 2007 more than half of the world's population has been living in cities. By 2050 that share will be above 70%, and more than half will live in megacities with populations of more than 10 million, areas with the highest power density of final energy uses. Even if the power densities of energy use in many megacities were to decline gradually in the decades ahead, it would be impossible to supply them with decentralized PV-based electricity…. New energy arrangements are both inevitable and desirable, but without any doubt, if they are to be based on large-scale conversions of renewable energy sources, then the societies dominated by megacities and concentrated industrial production will require a profound spatial restructuring of the existing energy system, a process with many major environmental and socioeconomic consequences.
(Power Density: A Key to Understanding Energy Sources and Uses (MIT Press) by Vaclav Smil
ENERGY RETURN ON INVESTMENT
Energy Return on Investment (EROI) is a ratio that measures the amount of usable energy produced from an energy source compared to the amount of energy used to create it. An EROI of less than or equal to one means the energy source is a net "energy sink" and can no longer be used as an energy source. An EROI of about 7 is considered break-even economically for developed countries, providing enough surplus energy output to sustain a complex socioeconomic system and cities.
Life-cycle energy ratios for various technologies
Source
R3 energy ratio – EROI
(output/input)
Hydro
Uchiyama 1996
50
Held et al 1977
43
NZ run of river
Weissbach 2013
50
Quebec
Gagnon et al 2002
205
Nuclear (centrifuge enrichment)
See Table 1
81
PWR/BWR
Kivisto 2000
59
PWR
Weissbach 2013
75
PWR
Inst. Policy Science 1977*
46
BWR
Inst. Policy Science 1977*
43
BWR
Uchiyama et al 1991*
47
Coal
Kivisto 2000
29
black, underground
Weissbach 2013
29
brown,open pit, US
Weissbach 2013
31
Uchiyama 1996
17
Uchiyama et al 1991*
16.8
unscrubbed
Gagnon et al 2002
7
Kivisto 2000
34
Natural gas
- piped
Kivisto 2000
26
- CCGT
Weissbach 2013
28
- piped 2000 km
Gagnon et al 2002
5
LNG
Uchiyama et al 1991*
5.6
LNG (57% capacity factor)
Uchiyama 1996
6
Solar
Held et al 1997
10.6
Solar thermal parabolic
Weissbach 2013
9.6
Solar PV
rooftop
Alsema 2003
12-10
polycrystalline Si
Weissbach 2013
3.8
amorphous Si
Weissbach 2013
2.1
ground
Alsema 2003
7.5
amorphous silicon
Kivisto 2000
3.7
Wind
Resource Research Inst.1983*
12
Uchiyama 1996
6
Enercon E-66
Weissbach 2013
16
Kivisto 2000
34
Gagnon et al 2002
80
Aust Wind Energy Assn 2004
50
Nalukowe et al 2006
20.24
Vestas 2006
35.3
Geothermal
Traditional
9
Enhanced Geothermal Systems (EGS)
unknown
CAPACITY FACTOR
Capacity factors allow us to examine the reliability of various power plants. It basically measures how often a plant is running at maximum power. A plant with a capacity factor of 100% means it is capable and does produce power all the time at full load. Nuclear has the highest capacity factor of any other energy source—producing reliable, carbon-free power more than 92% of the time. That’s nearly twice as reliable as a coal (49.3%) or natural gas (54.4%) plant and almost 3 times more often than wind (34.6%) and solar (24.6%) plants.
Capacity Factor
Nuclear
92.7%
Geothermal
71%
Natural Gas
54.4%
Coal
49.3%
Hydropower
37.1%
Wind
34.6%
PV
24.6%
COLD START TIME
Cold start time is the time from full shut down for greater than 24 hours to full achieving full load. We want fast cold state up time to meet our goal which is to make sure that we have energy when there is a demand for it.
Hydrogen
30 seconds to a few minutes in theory
Natural gas
several minutes to 6 hours
Wind
10 minutes
Solar
10 minutes
Hydroelectric:
10 minutes
Geothermal
2-4 hours
Coal
6-48 hours
Nuclear
12 hours
ENVIORNMENTAL IMPACT:
And as a bonus for those interested in the numbers when it comes to environmental impact, I have provided both water related statistics and issues as well as gCO2/kWh and “green house gas” emission rates for consideration.
gCO2/kWh
Japan
Sweden
Finland
coal
975
980
894
gas thermal
608
1170 (peak-load, reserve)
-
gas combined cycle
519
450
472
solar photovoltaic
53
50
95
wind
29
5.5
14
nuclear
22
6
10 - 26
hydro
11
3
-
CONCLUSION
In conclusion, determining an optimal energy policy requires balancing multiple priorities such as affordability, reliability, and convenience. Through key metrics like energy density, power density, energy return on investment (EROI), and cold start times, we can assess various energy sources in a way that readily reveals the strengths of nuclear energy over others. Nuclear power, with its high energy density and superior EROI, stands out as the most efficient and practical solution for meeting large-scale energy demands. One nuclear reactor can generate the same amount of energy as hundreds, if not thousands, of wind turbines, all while requiring far less land and infrastructure. The power density of nuclear energy also allows for continuous, uninterruptible electricity generation, a critical requirement for industrial and societal stability that intermittents like wind and solar cannot.
While natural gas offers a lower EROI and less energy density than nuclear, it still surpasses most renewable sources in terms of efficiency and reliability. Natural gas, with its shorter cold start times and more manageable infrastructure, represents a viable alternative when nuclear energy is not practical over the other alternatives.
By the numbers, nuclear energy should be the primary focus for long-term energy solutions, with natural gas as a secondary option. This approach ensures that energy policy remains centered on practical, scalable solutions that support economic growth and uninterrupted energy supply, providing the best outcomes for modern society’s demands. In the end, the logical outcome is energy diversity instead of energy transition away from fossil fuels or nuclear if we want to keep our mega cities and current quality of life and rates of growth.
“Energy transition" refers to a large-scale shift in an entire energy system, typically moving away from fossil fuels and towards renewable energy sources to combat climate change, while "energy diversification" means actively increasing the variety of energy sources used within a system, which can include incorporating renewables but also means relying on multiple sources to reduce dependence on any single one, enhancing energy security; essentially, diversification is a tactic within a broader energy transition strategy.
While adding intermittents is politically appealing a goal of shifting the entire energy system to that exclusively is not wise and is not something that can be done if we want to keep our mega cities and current quality of life and rates of growth. Basing our energy sector on non-renewables primarily nuclear and natural gas and supplementing that with occasional intermittents is a sound path forward that is supported by the data.
Conclusion:
The data-driven approach to energy policy reveals a clear path: a balanced system grounded in nuclear and natural gas, supplemented by renewable energy where feasible. Nuclear energy, with its unmatched energy density and EROI, proves indispensable for sustaining large populations and high-demand areas. Natural gas provides flexibility with quicker cold start times, making it a practical complement to nuclear. Although the allure of a complete shift to renewables is strong, the demands of megacities and modern life require energy diversity rather than a singular transition or even one that is dominated by renewables. Moving forward, embracing a diversified energy portfolio allows for stability, economic growth, and resilience against the constraints of any single energy source. To secure an efficient, reliable energy future, we must prioritize solutions grounded in practicality and scalability, ensuring that energy policy serves both current needs and long-term sustainability.
Sources:
Power Density: A Key to Understanding Energy Sources and Uses (MIT Press) by Vaclav Smil
https://world-nuclear.org/information-library/facts-and-figures/heat-values-of-various-fuels
https://corporatefinanceinstitute.com/resources/accounting/energy-return-on-investment-eroi/#:~:text=Energy%20return%20on%20investment%20(EROI)%20is%20a%20ratio%20that%20measures,gained%20from%20selling%20said%20energy
https://www.investopedia.com/terms/e/energy-return-on-investment.asp
https://www.sciencedirect.com/science/article/abs/pii/S0360544213000492
https://www.sciencedirect.com/science/article/pii/S0301421518305512#:~:text=3.1.&text=Geothermal%20energy%20systems%20vary%20from,We/m2)
https://www.energy.gov/ne/articles/what-generation-capacity
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EP74: Ukraine will just build a nuclear bomb in 6 months
11 nov· Geopolitics Unplugged
Summary:
In this episode, we examine the possibility of Ukraine developing a nuclear weapon within six months. Justin James McShane, debunks this claim by outlining the technical challenges and logistical hurdles that would need to be overcome. He points out Ukraine's lack of enriched uranium, the complex process of uranium enrichment, and the need for specialized equipment and expertise in manufacturing gas centrifuges. McShane also emphasizes the difficulty of securing necessary materials and establishing a covert production facility in a war zone. He concludes that a six-month timeframe is unrealistic and highlights the significant resources and expertise required for a successful nuclear program.
Questions to consider as you read/listen:
1. What are the technical challenges and logistical hurdles Ukraine faces in building a nuclear weapon?
2. What factors would make it extremely difficult for Ukraine to develop a nuclear weapon in a short timeframe?
3. How do the current circumstances and the history of Ukraine's nuclear program affect the plausibility of this scenario?
Long format:
Ukraine will just build a nuclear bomb in 6 months…
Trying to guess the new administration and what it will do in Ukraine and the reactions of Ukraine or Russia is a fool’s errand. Some folks say “they [Ukraine] will build a [nuclear] bomb in 6 months. Checkmate.”
Let’s look at that claim.
1 Ukraine has zero stockpile of high enriched uranium (HEU).
2 According to my research the Ukrainians have four nuclear power plants. One is currently under Russian control. So they potentially have low enriched uranium (LEU).
3 LEU needs to be enriched to 90% for it to be considered weapons grade uranium otherwise known as HEU. That process to enrich from LEU to HEU requires gas centrifuges.
4 A nuclear bomb requires about 25 kilograms (55 pounds) of uranium enriched to 90% to 93% U-235.
5 Ukraine has zero gas centrifuge manufacturing in Ukraine needed to enrich LEU to HEU. How do we know? IAEA. It is unlikely that Ukraine would be able to buy HEU in the open market because whoever sells it is under export restrictions requiring licensing and even if not, then that company will know it will definitely be used. Not great optics.
6 So companies or a government consortium needs to be spun up quick to produce Zippe-type centrifuge or American style centrifuges. Can that be done covertly? Maybe. The physical plant could be under 500 m2. But it’s a battle zone and who knows if they can keep a lid on it. It would seem logical to me that Russia would target such companies and physical plants. But for the sake of this thought exercise that the Russians can’t destroy the static sites where these centrifuges are made…. moving on.
7 So they’d have to secure a lot of material unnoticed. That includes: carbon fiber, maraging steel and high-strength aluminum; Items for electric power control systems, such as frequency convertors and process control software; Equipment to operate cascades, such as pressure transducers and vacuum pumps. Those are pretty unique systems and if bought suddenly sure signal what you are doing. After they get the materials in sufficient amounts then they have to physically make the centrifuges which takes time. Then they have to test them to make sure they work according to specifications which takes time.
8 Using non-cascading methods, it takes 4,000 centrifuges to produce 25 kg of 90% uranium per year. They have to let them run for a year to have enough HEU for ONE bomb. Just one.
9 Let’s say the Ukrainians decide to get a lot more sophisticated and the Russians let them. Let’s say that on their own they build a 12-cascade plant can produce 90 kg of HEU per year. That’s 3 bombs only in a year’s time. That cascading pipework which is complex and under the best circumstances could add several weeks or months up front. It is difficult to run and maintain if you have zero experience.
Six months? The math isn’t there. There’s an entire bunch of if’s and best case scenarios.
(By way of reference Iran is a lot closer because they already have plenty of gas centrifuges constructed and likely have them in cascade)
10 Let’s leave all of the above behind…. There is delivery of the bomb. Having a bomb doesn’t matter at all unless you can put it on target. The next question is the method of delivery. Dropping a bomb is easy presuming it is stable and small enough and you have a big enough bomber to deliver it.
Delivering a bomb aboard a missile rather than simply dropping it from the air entails mastering both ballistics — all the calculations involved in getting the warhead to its target — and the miniaturization of the nuclear charge so that it can be mounted on the warhead. Not as easy but possible if given enough time.
I would think for all of the above reasons six months is not realistic or possible.
If you *think* or *believe* or *feel* I am wrong, please tell me of the above where I am wrong. An appeal to authority (i.e., because so and so said so) that’s quite fine but if they don’t provide facts, sources or an alternative timeline with details than the above, then that’s not too useful, I suggest.
Sources:
https://www.sciencedirect.com/topics/engineering/enriched-uranium#:~:text=Thus%2C%20for%20example%2C%20to%20produce,require%20more%20than%204000%20centrifuges.&text=This%20is%20for%200.2%25%20tails,HEU%20would%20be%20much%20reduced
https://pubs.aip.org/physicstoday/article/61/9/40/413428/The-gas-centrifuge-and-nuclear-weapons#:~:text=More%20than%2090%20kg/yr,LEU%20for%20an%20undeclared%20facility
https://www.wilsoncenter.org/publication/ukraine-and-soviet-nuclear-history#:~:text=This%20report%20informs%20Molotov%20in,outside%20in%20Ukraine%20in%20Kazan
https://ukrainian-studies.ca/2023/03/23/russias-disinformation-goes-nuclear/#:~:text=Russian%20claims%20that%20Ukraine%20has,power%20plants%20from%20international%20suppliers
https://world-nuclear.org/information-library/country-profiles/countries-t-z/ukraine#:~:text=In%20April%202015%20Energoatom%20signed,Canada%20%E2%80%93%20was%20signed%20in%20April
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EP73: Iran’s Nuclear Crossroads: Will Regional Tensions Push Tehran Over the Edge to Nuclear Weapons?
11 nov· Geopolitics Unplugged
Summary:
In this episode, we discuss the increasing likelihood of Iran developing nuclear weapons. The article "Iranians Debate Whether It’s Time To Develop Nuclear Weapons" by Javad Heiran-Nia published by the Stimson Center outlines Iran’s internal debate on this topic, highlighting the growing support for nuclear armament fueled by regional tensions. We explore potential consequences, including a possible arms race in the Persian Gulf, increased security concerns for Israel, and the challenging of U.S. influence in the region. We analyze potential reactions from key players such as the Gulf countries, Israel, and the United States, revealing the complex geopolitical implications of Iran’s decision.
Questions to consider as you read/listen:
What are the key arguments for and against Iran developing nuclear weapons?How could Iran's potential nuclear ambitions impact the security and power dynamics of the Middle East?What are the potential international consequences of Iran withdrawing from the NPT?
Long format:
Iran’s Nuclear Crossroads: Will Regional Tensions Push Tehran Over the Edge to Nuclear Weapons?
By Justin James McShane
A well written and well researched provocative piece published by the Stimson Center entitled “Iranians Debate Whether It’s Time To Develop Nuclear Weapons” by Javad Heiran-Nia published today 8 November 2024 provokes some comments.
TL;DR:
Iran is debating whether to pursue nuclear weapons or expand its missile range beyond a 2,000 km limit. This shift, highlighted by recent comments from Iranian leaders, reflects mounting internal support for nuclear armament amidst regional tensions. If Iran exits the NPT or changes its defense policy, it could trigger a Persian Gulf arms race, heighten security concerns for Israel, and challenge U.S. influence in the region. The global community is watching closely, as any decision could reshape the Middle Eastern security landscape.
Introduction
The question of whether Iran will develop nuclear weapons or extend its self-imposed 2,000-kilometer missile range cap is increasingly relevant amidst heightened regional tensions and evolving security dynamics. A recent article by Javad Heiran-Nia for the Stimson Center, titled “Iranians Debate Whether It’s Time To Develop Nuclear Weapons,” delves into this complex issue, offering insights into Iran’s internal debate and the potential implications for the broader Middle East. This discussion brings into focus not only Iran’s commitments under the Nuclear Non-Proliferation Treaty (NPT) but also how shifts in its defense doctrine could affect security from the Persian Gulf to the United States.
INFORMATION
The Treaty on the Non-Proliferation of Nuclear Weapons (NPT) is a pivotal international agreement aimed at preventing the spread of nuclear weapons, promoting peaceful uses of nuclear energy, and advancing nuclear disarmament. Established in 1968 and effective from 1970, the NPT has become a cornerstone of global nuclear non-proliferation efforts.
Iran’s Participation in the NPT
Iran was among the original signatories of the NPT in 1968 and ratified it in 1970, committing to abstain from developing or acquiring nuclear weapons. As a non-nuclear-weapon state under the treaty, Iran is obligated to allow International Atomic Energy Agency (IAEA) inspections to verify its compliance.
Withdrawal Process from the NPT
Article X of the NPT outlines the withdrawal procedure:
A state may withdraw if it determines that extraordinary events related to the treaty’s subject matter have jeopardized its supreme interests.
The withdrawing state must provide a three-month notice to all other treaty parties and the United Nations Security Council, including a statement of the extraordinary events it considers to have jeopardized its interests.
This provision underscores the gravity of withdrawal, as it could significantly impact international security and non-proliferation norms.
Statements by Alaeddin Boroujerdi and others a growing demand
Alaeddin Boroujerdi, a prominent Iranian politician and former chairman of the Iranian Parliament’s National Security and Foreign Policy Commission, has addressed Iran’s stance on the NPT. In 2004, he stated that if the UN Security Council were to issue a resolution mandating the suspension of Iran’s uranium enrichment, the Iranian Parliament might consider suspending Iran’s NPT membership. More recently he has again stated to beat the drum towards nuclear weapons.
if Israel “dares to damage Iran’s nuclear facilities, our level of deterrence will be different. We have no decision to produce a nuclear bomb, but if the existence of Iran is threatened, we will have to change our nuclear doctrine.”
He is not alone former Iranian foreign minister, Kanal Kharrazi has said if Israel “dares to damage Iran’s nuclear facilities, our level of deterrence will be different. We have no decision to produce a nuclear bomb, but if the existence of Iran is threatened, we will have to change our nuclear doctrine.”
On Oct. 18, nearly 40 members of parliament sent a letter to Iran’s Supreme National Security Council, its top security policymaking body, requesting that the council revise the defense doctrine of the Islamic Republic of Iran to permit development of nuclear weapons.
The Tabnak news agency, which is affiliated with Mohsen Rezaei, a veteran former commander of the Islamic Revolutionary Guards Corps (IRGC), asked readers for their views. Of 66,000 people who responded, two-thirds were in favor.
The Tehran Times newspaper affiliated with Ayatollah Khamenei wrote in a frontpage editorial on Oct. 8 entitled “Rising call for nukes” that more than 70 percent of the Iranian people want to get the atomic bomb.
Significance of these datapoints
Boroujerdi’s remarks are noteworthy due to his influential role in shaping Iran’s foreign and security policies. His statements reflect the perspectives of key Iranian policymakers and signal potential shifts in Iran’s nuclear policy, which could have substantial implications for regional and global security dynamics. Given Iran’s strategic position and the international community’s interest in nuclear non-proliferation, such statements warrant close attention from global stakeholders.
Iran’s internal debate about pursuing nuclear weapons development has intensified against a backdrop of recent security incidents, including Israeli airstrikes on Iran-linked sites and increased regional pressure. While Iran has long maintained that its nuclear program is solely for peaceful purposes, voices within its government and military are now questioning if a nuclear deterrent could better secure national interests and act as a counterbalance to adversaries in the region, particularly Israel and the United States.
Proponents of nuclear armament in Iran argue that a nuclear arsenal would serve as a strategic deterrent, making it less likely for other nations to act aggressively toward Iran. This viewpoint suggests that the recent conflicts and heightened hostility underscore Iran’s vulnerability and justify the need for stronger defensive capabilities, including nuclear weapons.
On the other side of the debate, some Iranian officials are concerned that pursuing nuclear weapons could backfire. They warn that it might lead to international isolation, as well as sanctions from countries beyond the U.S., including Europe and neighboring states, which could destabilize Iran’s already challenged economy. There are also concerns about escalating a regional arms race, potentially prompting neighboring countries to pursue their own nuclear capabilities.
The debate includes consideration of extending Iran’s missile range beyond the current self-imposed 2,000-kilometer limit. Some Iranian military leaders advocate this extension as a means of bolstering Iran’s defensive reach and ensuring that it can respond effectively to threats at greater distances, which would include targets further across the Middle East and potentially southern Europe. Others, however, are wary of the risks of expanded missile capability, which could provoke preemptive actions or sanctions from other nations and lead to greater instability in the region.
In essence, the discussion within Iran represents a major shift in how some officials perceive the strategic benefits of a nuclear deterrent versus the diplomatic, economic, and security risks associated with nuclear weaponization. This internal debate is emblematic of Iran’s broader reassessment of its defense posture in light of recent threats and could significantly alter its future stance in regional and global security dynamics.
The Aftermath of Leaving NPT
If Iran were to develop nuclear weapons, the geopolitical repercussions would be significant, with direct implications for countries in the Persian Gulf, Israel, and the United States, each of which has distinct reasons for concern. In fact, simply announcing an intent to leave the NPT would likely create a sense of destabilization and perhaps a strong reaction.
Persian Gulf Countries
Persian Gulf countries, such as Saudi Arabia, the UAE, and Bahrain, would likely view an Iranian nuclear arsenal as a destabilizing force. Iran’s acquisition of nuclear weapons could initiate a regional arms race, with these Gulf states potentially seeking their own nuclear capabilities as a countermeasure.
Although Saudi Arabia would most certainly wish to develop its own nuclear program, it does not have a nuclear power plant in the country and therefore is quite far behind (measured in many years) from developing a stand alone nuclear program that would ultimately yield domestically made nuclear weapons. However, the UAE does have a nuclear power plant. Therefore its path to producing its own home grown nuclear weapons is much easier only requiring advanced centrifuges that it could construct on its own because the designs and engineering specifications are unfortunately in the public domain due to AQ Khan. It could have nuclear weapons in months or a year if it entered into a crash program.
Such a race would increase tensions and military expenditures across the region, possibly diverting resources from economic development and escalating security risks. Additionally, a nuclear-armed Iran could embolden its regional influence, intensifying concerns among Gulf nations regarding Iran’s support for proxy groups and its potential to exert more significant political and military sway over regional affairs. This situation would raise security stakes and foster an atmosphere of heightened distrust and instability.
Israel
For Israel, a nuclear-armed Iran is a critical security threat. Israel views Iran’s potential for nuclear weapons as an existential danger due to Iran’s hostile stance toward Israel and its support for anti-Israel groups like Hezbollah. With Iran possessing nuclear capabilities, Israel would likely feel compelled to enhance its own defense posture, potentially considering preemptive or preventive strikes to neutralize any nuclear threat before it fully materializes. This tension could lead to a cycle of escalations, risking direct military conflict between Iran and Israel. Furthermore, Israel might seek closer collaboration with other countries in the region and the West to counterbalance Iran, potentially realigning regional alliances and further polarizing the Middle East.
The United States
The United States response to Iranian withdrawal from the NPT in theory is pretty well known to all of the parties. The incoming president has made no secret of his pro-Israel stance and also his “maximum pressure” approach to Iran.
Launched after the U.S. withdrew from the Joint Comprehensive Plan of Action (JCPOA) in 2018, the “maximum pressure” campaign involved a series of stringent economic sanctions, diplomatic isolation efforts, and increased military posturing in the region.
The economic sanctions included a campaign re-imposed sanctions lifted under the JCPOA, targeting Iran’s key economic sectors, particularly its oil exports, which are a primary source of revenue. Secondary sanctions were applied, pressuring international companies and countries to cease business with Iran or face penalties, effectively cutting Iran off from much of the global financial system. Sanctions extended to Iran’s metals, shipping, and banking sectors, heavily constraining Iran’s economy and contributing to high inflation, currency devaluation, and significant economic hardship for the Iranian populace. The U.S. imposed sanctions on high-ranking Iranian officials, including members of the Islamic Revolutionary Guard Corps (IRGC), which the U.S. designated as a foreign terrorist organization. Sanctions extended to entities linked to Iran’s missile program and organizations the U.S. believed were involved in human rights abuses or regional destabilization activities, like Iran’s support for Hezbollah and other proxy groups. The U.S. increased its military presence in the Persian Gulf, deploying additional aircraft carriers, troops, and missile defense systems to deter any potential Iranian aggression. There were specific actions, such as the assassination of Qasem Soleimani, a top IRGC commander, in early 2020, which were justified as necessary for protecting U.S. interests and allies in the region. The U.S. engaged in extensive diplomatic efforts to rally allies and partners to take a tougher stance on Iran, though many European allies continued to support the JCPOA. Despite resistance from some allies, the U.S. pursued “snapback” sanctions under the JCPOA, seeking to reinstate UN sanctions on Iran, though this move was controversial and met with limited support globally.
If this was Iranian life under the prior Trump administration, if Iran withdraws from the NPT, it is hard to believe that the actions against Iran become anything less and most likely would be far, far worse.
The US, which has historically sought to limit nuclear proliferation, especially in volatile regions, would be deeply concerned about an Iranian nuclear capability. A nuclear-armed Iran could limit U.S. influence in the Middle East and complicate Washington’s ability to protect its allies, especially Israel and Gulf states, without risking nuclear escalation. Additionally, Iran’s nuclear development could undermine U.S. efforts at non-proliferation globally, setting a precedent that might encourage other nations to pursue nuclear weapons if they believe it strengthens their security. For the U.S., a nuclear Iran would likely mean reassessing its military presence and alliances in the region, possibly committing more resources to contain and counter Iran’s expanded influence.
In summary, Iran’s development of nuclear weapons could dramatically shift the regional balance of power, prompting a security dilemma that affects not only Iran’s neighbors but also global actors with strategic interests in the Middle East. The potential for miscalculations and escalations would place all parties on high alert, making diplomatic solutions more challenging and the security environment significantly more precarious.
CONCLUSION
Iran’s potential steps toward nuclear capability and expanded missile reach represent a critical juncture that could alter the strategic balance across the Middle East and beyond. Should Iran withdraw from the NPT or further its nuclear ambitions, the resulting geopolitical ripple effects would be profound, raising concerns about a new arms race in the Persian Gulf, the security of Israel, and the future of U.S. influence in the region. As Tehran navigates its internal debates and weighs regional pressures, global stakeholders remain watchful, recognizing the stakes involved and the urgent need for careful diplomacy in preventing further escalation.
Sources
https://www.stimson.org/2024/iranians-debate-whether-its-time-to-develop-nuclear-weapons/
https://nournews.ir/fa/news/172662/%D8%AE%D8%B1%D8%A7%D8%B2%DB%8C-%D8%AF%D8%B1-%D8%B5%D9%88%D8%B1%D8%AA-%D8%AA%D9%87%D8%AF%DB%8C%D8%AF-%D9%85%D9%88%D8%AC%D9%88%D8%AF%DB%8C%D8%AA-%D8%A7%DB%8C%D8%B1%D8%A7%D9%86%D8%8C-%D8%AF%DA%A9%D8%AA%D8%B1%DB%8C%D9%86-%D9%87%D8%B3%D8%AA%D9%87%E2%80%8C%D8%A7%DB%8C-%D8%AE%D9%88%D8%AF-%D8%B1%D8%A7-%D8%AA%D8%BA%DB%8C%DB%8C%D8%B1-%D9%85%DB%8C%E2%80%8C%D8%AF%D9%87%DB%8C%D9%85
https://www.isna.ir/news/1403071813914/%D9%86%D8%A7%D9%85%D9%87-%DB%B3%DB%B9-%D9%86%D9%85%D8%A7%DB%8C%D9%86%D8%AF%D9%87-%D9%85%D8%AC%D9%84%D8%B3-%D8%A8%D9%87-%D8%B4%D9%88%D8%B1%D8%A7%DB%8C-%D8%B9%D8%A7%D9%84%DB%8C-%D8%A7%D9%85%D9%86%DB%8C%D8%AA-%D9%85%D9%84%DB%8C-%D8%AF%D8%B1%D8%A8%D8%A7%D8%B1%D9%87-%D8%AA%D8%AC%D8%AF%DB%8C%D8%AF-%D9%86%D8%B8%D8%B1
https://www.tehrantimes.com/news/504740/Rising-call-for-nukes
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EP72: Memory Wars: Why DRAM and HBM Must Be the Next Front in AI Export Restrictions: How Memory Tech Could Shape China’s Superpower Ambitions
8 nov· Geopolitics Unplugged
Summary:
In this episode, we argues that to effectively limit China's ambitions in AI, export control policies need to broaden their focus beyond integrated circuits to include DRAM and HBM memory technologies with greater specificity. We emphasize that these memory technologies are critical for AI systems' performance, and without restrictions on them, efforts to contain Chinese advancements in AI could be ineffective. We explore the importance of DRAM and HBM in AI development, the current state of these technologies, and the challenges facing their future development. Finally, we highlight the major players in the DRAM and HBM market, including the export restrictions implemented by different countries, and calls for a more comprehensive approach to control the export of these critical technologies.
Questions to consider as you read/listen:
What are the current export restrictions on DRAM and HBM technologies, and how are these restrictions impacting China’s AI development?How are the key players in DRAM technology, particularly Samsung, SK Hynix, and Micron, responding to the growing demand for HBM for AI applications?What are the challenges facing DRAM technology in the future, and how are companies like Micron attempting to overcome these obstacles to maintain their leadership in AI-related memory?
Long format:
Memory Wars: Why DRAM and HBM Must Be the Next Front in AI Export Restrictions: How Memory Tech Could Shape China’s Superpower Ambitions
(One sentence thesis: To effectively limit China's announced desire to be THE global leader for AI technology and its application, export control policies must broaden their focus beyond integrated circuits to equally prioritize DRAM and HBM memory technologies, as these are critical components in high-performance AI systems)
By Justin James McShane.
TL;DR:
While export controls on integrated circuits (ICs) are crucial to limit China’s announced intention to develop into THE global leader for AI technology and its application, DRAM and HBM memory technologies are just as vital. These memory components drive AI performance, and without robust restrictions on them, efforts to contain Chinese ambitions in AI could fall short. Policymakers from the US, Japan, South Korea and Taiwan should prioritize DRAM and HBM export controls alongside ICs to create a more comprehensive strategy in safeguarding AI-related technology leadership.
Background
Reported today (8 November 2024) in DigiTimes Asia was an article about the HBM3E “wars”. (https://www.digitimes.com/news/a20241108PD211/micron-hbm-competition-samsung-hbm3e.html ) The article points to the previous dominance of South Korea’s Samsung Electronics and SK Hynix in this technology but notes that Micron Technology (US) is coming on strong due in part to CHIPS Act subsidy based spending. Micron's HBM3E is considered to be more power and thermally efficient than its competitors. Micron's HBM3E 12-high capacity is 50% higher than the current HBM3E 8-high, which allows larger AI models to run on a single processor. Micron is looking to expand its market share through HBM3E installations and early HBM4 work. However, SK Hynix began volume production of the world's first 12-Layer HBM3E. SK Hynix claims to be 8.8 times more efficient than Samsung and Micron in HBM production. It is a fun “battle” to watch as the pace of innovation is quite high paced.
Introduction:
As artificial intelligence (AI) rapidly transforms global industries, the technologies driving its evolution demand careful scrutiny, particularly concerning national security and economic competitiveness. Integrated circuits (ICs), often at the heart of AI systems, have garnered considerable focus in efforts to regulate China’s access to advanced computing capabilities. However, dynamic random-access memory (DRAM) and high-bandwidth memory (HBM) are equally critical to the infrastructure powering these systems. This oversight could limit the effectiveness of export controls. This article argues that curbing China's ambitions in AI requires prioritizing and equating DRAM and HBM restrictions alongside IC regulations. By exploring the current landscape of DRAM and HBM technology, this piece highlights the vital need to inventory existing restrictions on these technologies and calls for further, more comprehensive actions if the policy goals of curbing Chinese ambitions in AI are to be realized.
Why does this matter?
There has been a lot of attention placed on artificial intelligence (AI). And with that attention most of the conversation focuses on the subject of integrated circuits, otherwise known as semiconductors or simply chips. A lot of focus goes on these little important physical units, the chips and for good reason as they are the fundamental building blocks of AI. With this article, I wish to go to a deeper level of beyond the building blocks to the house itself which is DRAM (pronounced D-RAM) technology.
DRAM technology in the context of AI
DRAM (dynamic random access memory) is a type of memory that is critical for artificial intelligence (AI) applications and is in high demand. DRAM is a type of RAM (random access memory) that stores data and program code in computers. It's a volatile memory, meaning it only saves data while the device is powered on. DRAM is used in many devices, including PCs, laptops, smartphones, and tablets. AI applications require high-performance computing (HPC) systems to process large amounts of data and complex computations. DRAM is a key component of data processing, and AI servers need six times the amount of DRAM as standard servers. High Bandwidth Memory (HBM) is a type of DRAM that uses stacked chips to achieve high-speed data transfer and low power consumption. HBM is used in AI applications, graphics cards, and supercomputers. The increasing use of AI is driving demand for memory and storage. This is expected to lead to more DRAM capacity expansion in laptops and servers.
High Bandwidth Memory (HBM) explained
High Bandwidth Memory (HBM) is a computer memory technology that offers high data speeds and low power consumption. It's used in high-performance computing applications, AI, and other areas where fast data access is required. HBM uses 3D stacking to pack more memory chips into a smaller space, which reduces the distance data needs to travel between the memory and processor. HBM's high bandwidth and low latency architecture makes it a good choice for AI applications that require large amounts of memory. It also has a small form factor compared to Dynamic Random Access Memory Dual In-Line Memory Module (DRAM DIMMs) where the computer memory that contains one or more DRAM chips is on a printed circuit board (PCB) that are commonly used in desktops, laptops and servers.
The different levels of High Bandwidth Memory (HBM) chips are:
HBM: The first generation of HBM has a data rate of 1.0 GB/s and a bandwidth of 128 GB/s per deviceHBM2: The second generation of HBM has a data rate of 2.0 GB/s and a bandwidth of 256 GB/s per deviceHBM2E: The third generation of HBM has a data rate of 3.6 GB/s and a bandwidth of 461 GB/s per deviceHBM3: The fourth generation of HBM has a data rate of 6.4 GB/s and a bandwidth of 819 GB/s per deviceHBM3E: is the curent state of the art and has the fastest and highest capacity high-bandwidth memory for advanced AI innovation with 8-high, 24GB cube that delivers over 1.2 TB/s bandwidth at superior power efficiency.HBM4: The next generation of HBM will have a larger physical footprint and double the channel count per stack compared to HBM3
The current best state of the art for DRAM AI technology
As of today, the state-of-the-art DRAM technology is considered to be the "1α" (1-alpha) manufacturing process, which offers significant improvements in bit density, power efficiency, and performance, currently being produced by companies like Micron. This represents the most advanced DRAM process technology available, pushing the boundaries of scaling and density within the current DRAM architecture.
The Key aspects of the current state-of-the-art DRAM include:
Advanced node scaling: Utilizing the latest manufacturing nodes, like 1α, to achieve smaller transistors and higher density on the chipHigh Bandwidth Memory (HBM): Stacking multiple DRAM dies vertically to achieve significantly higher memory bandwidth compared to traditional planar DRAM.3D stacking techniques: Utilizing wafer bonding technology to stack different components within the DRAM chip, enabling more complex architecturesMaterial innovations: Exploring new materials for capacitors to improve storage capacity and reduce leakage current.
The challenges for future DRAM technology
There are physical limitation issues. As transistors become smaller, maintaining sufficient cell capacitance and signal integrity becomes increasingly difficult. There are power consumption issues. Balancing performance with power consumption as scaling progresses is not going to be easy. There are manufacturing complexity issues. The increasing complexity of 3D stacking and advanced manufacturing techniques.
DRAM assembly details
DRAM is assembled in a number of steps that include: thinning of the wafer, attaching the wafer to an adhesive backing, dicing the wafer into individual dimes using a diamond edge saw, picking the individual dies from the after, placing the dies on the circuit board, connecting the sold gold wire to connect each chip to the circuit board and encapsulating each die into a protective plastic package.
DRAM/PCB equipment
Key equipment used in PCB assembly includes: solder paste printing machines, solder paste inspection (SPI) machines, pick-and-place machines, reflow soldering machines, wave soldering machines, glue dispensing machines, and automated optical inspection (AOI) machines, all used to precisely apply solder paste, place components on the board, and inspect for defects throughout the assembly process.
DRAM design and assembly work flow
A CAD department maps out each layer of the PCB. The assembly starts after the CAD design is submitted. The manufacturing process begins with Surface-Mount Technology (SMT). The screen printer is the first step for the loaded components. After solder is placed, an automated inspection occurs, then surface mounting of resistors, capacitors, and components like DRAM chips. These PCBs are then passed through the reflow oven, where the solder is cured by high temperature cycles. After reflow, the products undergo a final inspection. Next, products go through the labeling system, important to tag the product part number and provide security features. For modules to work, though, they have to go through Automatic Serial Presence Detect (AutoSPD), which programs them to be identifiable and accessible by computers. Some products at this point undergo functional testing then further assembly for heatspreaders. It is then tested in real world conditions and visually inspected.
The major players in DRAM technology in AI
The major companies in the global DRAM technology market for AI are in listed order of highest marketshare: Samsung Electronics (South Korea), SK Hynix (South Korea), and Micron Technology (USA). These three companies collectively hold the majority of the market share, making it highly concentrated. Collectively, these three companies hold 90% of the global marketshare.
China has several companies that produce DRAM chips such as ChangXin Memory Technologies (CXMT), Fujian Jinhua Integrated Circuit (JHICC) (part of China’s Made in China 2025 program) and Tsinghua Unigroup. However, none of these currently make HBM chips at scale but they are ramping up efforts to do so. Without HBM DRAM chips, you don’t have AI chips.
HBM DRAM technology and export restrictions
In 2022, the US Department of Commerce , Bureau of Industry and Security banned export of any DRAM memory chips of 18nm half-pitch or less. The US is reportedly considering tightening restrictions to capture all HBM2, HBM3 and HBM3E chips as well as the tools required to make them.
Japanese restrictions primarily target the equipment needed to manufacture high-performance DRAM chips with smaller node sizes and not older generation DRAMs. Japanese companies like Nikon, Tokyo Electron, and Screen Holdings are subject to these export controls, as they produce key semiconductor manufacturing equipment (SME)
I could not find specific references to confirm that Taiwan has similar restrictions or that they do not have similar restrictions. I found some suggestions that it may be controlled as a Strategic High-Tech Commodities (SHTC) and under the “catch-all” control measure.
South Korea is reportedly considering export restrictions on DRAM chips. Just as I previously wrote when I highlighted that despite pressure from the US that South Korea stands alone as the only integrated chip fabricator that does not have export restrictions at all, South Korea is concerned about its impact on its economy if these proposed restrictions were to go in place as China is its major trade partner. The US government has granted Samsung Electronics and SK Hynix an indefinite waiver on restrictions to export advanced chip-making equipment to China. This waiver is expected to help the two companies maintain their competitive advantage in China's semiconductor supply chain.
Conclusion:
In conclusion, as the competitive race to lead AI advancements accelerates, it is essential for global leaders to recognize that export controls on integrated circuits alone may be insufficient to curb Chinese ambitions. DRAM and HBM memory technologies are integral to AI functionality, making them as critical to monitor and restrict. Given the growing strategic value of these memory technologies, coordinated, robust restrictions are imperative to preserve economic stability, national security, and the upper hand in AI development. Moving forward, international policymakers from the US, Japan, Taiwan and South Korea must extend the scope of export controls to include DRAM and HBM more specifically, creating a robust framework that effectively responds to the complexities of modern technological competition if the goal is to curb Chinese ambitions of dominance in AI.
Sources
https://www.digitimes.com/news/a20241008PD212/sk-hynix-samsung-hbm-production-micron.html#:~:text=SK%20Hynix%20highlights%20its%20HBM,better%20than%20Samsung%20and%20Micron
https://www.micron.com/about/blog/applications/ai/micron-continues-memory-industry-leadership-with-hbm3e-12-high-36gb#:~:text=Micron%20HBM3E%2012%2Dhigh%20boasts%20an%20impressive%2036GB,avoiding%20CPU%20offload%20and%20GPU%2DGPU%20communication%20delays
https://www.atpinc.com/blog/what-is-ai-artificial-intelligence-ai-servers-memory
https://www.driehaus.com/perspectives/High-Bandwidth-Memory-Technology-for-AI-Applications#:~:text=Prakash%20Vijayan%2C%20CFA-,High%20Bandwidth%20Memory%20Technology%20for%20AI%20Applications,bandwidth%2C%20density%2C%20and%20efficiency
https://www.lenovo.com/us/en/glossary/what-is-dram/#:~:text=DRAM%20stands%20for%20%E2%80%9Cdynamic%20random,is%20running%20programs%20or%20applications
https://www.techtarget.com/searchstorage/definition/DRAM
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EP71: Ports, Power, and Provocation: China's Naval Ambitions from Djibouti to Cuba
8 nov· Geopolitics Unplugged
Summary:
In this episode, we explore the growing trend of China establishing military bases around the world, particularly in strategically important locations along maritime trade routes. The author of the study, Justin James McShane, argues that this expansion represents a significant shift in China’s ambitions, moving from a regional defense posture to a global power projection strategy. We detail China's existing bases in Djibouti, Gwadar, Cambodia, and Tajikistan, and discuss the potential for new bases in Cuba, Equatorial Guinea, Gabon, and other locations. This expansion poses significant security and economic challenges for the United States, as it could disrupt global trade, compromise U.S. security, and alter the balance of power. We conclude by emphasizing the importance of understanding and addressing these developments, suggesting that the United States must reassess its strategies and strengthen its alliances to counterbalance China’s growing influence.
Questions to consider as you read/listen:
What are the strategic implications of China's growing network of military bases around the world?How does China's pursuit of a "blue water navy" impact its global presence and influence?What are the potential security concerns and challenges posed by China's military expansion?
Long format:
Ports, Power, and Provocation: China's Naval Ambitions from Djibouti to Cuba
By Justin James McShane
(One sentence thesis: Not well known to most but China’s global expansion of military bases from Djibouti to Cuba signals a shift towards power projection and control over strategic routes, posing significant security and economic challenges for the United States.)
TL;DR:
China has established military bases around the world—in Djibouti, Gwadar, Cambodia, Cuba, and Tajikistan—strategically placing itself near key shipping routes and U.S. interests. This expansion aims to create a true “blue water navy” that can project power globally. Americans should be concerned, as China’s new bases could disrupt global trade, compromise U.S. security, and shift the balance of power.
Introduction:
China's global influence has grown substantially over the past two decades, with its ambitions stretching far beyond its immediate borders. Nowhere is this more apparent than in the development of strategic military and logistical bases around the world. As China expands its presence in locations such as Djibouti, Gwadar, Cambodia, Cuba, and other possibilities such as Equatorial Guinea, the implications for the United States and its allies become increasingly pressing. These outposts, coupled with China’s efforts to build a true “blue water navy,” signify a shift from regional defense to global force projection. Americans should pay close attention to these developments, as China’s expanding military footprint in these key locations could reshape global power dynamics, affect U.S. security, and challenge long-standing economic and strategic interests across critical maritime routes and in the Western Hemisphere.
INFORMATION
In my prior posts I suggested a definition of what constitutes a “blue water navy”.
I wrote then…
Here is a proposed standardized definition of “blue water navy” that I suggest:
“A blue water navy is able to independently and regularly sustain and operate in open ocean at distance from your own territorial waters and Exclusive Economic Zone (EEZ) a force projection to both deliver a large number of combat troops and associated logistics and also protect long distance shipping lanes vital for your home country’s trade.
Sustained means measured by at least one month of force projection activities with support as well as full time shipping lane protection.
Plus there has to be a component of demonstrated force projection and shipping lane protection orientation if not actual capabilities beyond one’s EEZ.
A blue water Navy must have the capability to detect, identify and engage targets over the horizon. This implies some degree of sophistication in intelligence, surveillance and reconnaissance (ISR) as well as weapon capabilities.
I do think that some static features to serve as minimum requirements would be necessary to serve as thresholds. I propose:
At least one functional aircraft carrier that is open sea worthy.A cadre of cargo ships that can be used in trade and/or logistics enablers for far off force projection.Submarines (both attack and Ballistic missile submarines)CruisersDestroyersFrigatesLanding craft”
When my definition was applied to China I concluded that the PLAN was not a blue water navy because:
“What makes it not a blue water navy is logistics, sustained force projection realities and its orientation. The PLAN fleet lacks the necessary logistical infrastructure, operational range, and global basing capabilities to project significant military power across vast expanses of the open ocean. It lacks friendly ports that would be available to it in the time of global conflict. It also primarily focuses its naval operations within its near seas, particularly around the East and South China Seas. [It’s naval strategy is focused mostly on anti-access/area-denial (A2/AD) strategy] This means they are not currently capable of sustained operations far from their home shores like a true blue water navy would be.”
Well, there is some cause for stopping and reevaluating this in terms of a trend.
DJIBOUTI
This is China’s only claimed military base outside of China. It began in 2017. Its location is strategically important because it is in the commercial shipping area of the Red Sea that is under attack by pirates off Somalia as well as the Houthis in Yemen. The heavily fortified base is 0.5 square kilometers (0.2 sq. mi) in size and staffed by approximately 1,000–2,000 personnel, and has an underground space of 23,000 square meters. The base has a 400m runway with an air traffic control tower, as well as a large helicopter apron.
PAKISTAN
China has already acquired control of Gwadar Port on 16 May 2013. Originally valued at $46 billion, the value of CPEC projects was $62 billion as of 2020. By 2022, Chinese investment in Pakistan had risen to $65 billion. China refers to this project as the revival of the Silk Road. China's continued investment in the port, despite its lackluster performance, has raised suspicions that it is intended for use as a Chinese navy base. Gwadar Port is located at the mouth of the Persian Gulf, at the junction of major oil trade and shipping routes. It's also near the Straits of Hormuz, which are used by more than 17 million barrels of oil per day.
CAMBODIA
The PLAN developed Ream Naval Base on the Gulf of Thailand in late 2022. It has a pier facility that could berth an aircraft carrier. Its strategic position is clear when one looks at a map as the Straight of Malaca is nearby.
TAJIKISTAN
The Chinese maintain a small military post in Gorno-Badakhshan., It is a mountainous region in eastern Tajikistan. It is not on the shore or have access to any waterway, but it is important to note. The Chinese insist that it is not a military base but instead is an outpost. But it is one.
CUBA
Recent satellite imagery analyzed by the Center for Strategic and International Studies (CSIS) reveals China’s expanding military presence in Cuba, with four key signals intelligence (SIGINT) sites
Bejucal: Located near Havana, this site has undergone significant upgrades over the past decade, including the addition of a new radome, indicating an evolving mission set.
El Salao: Situated east of Santiago de Cuba, construction began in 2021 on a large circularly disposed antenna array (CDAA). Once operational, this facility could monitor U.S. military activities, including those at the nearby Guantanamo Bay Naval Base.
Wajay: Approximately 10 kilometers north of Bejucal, this complex has expanded over 20 years to include 12 antennas and various support facilities, suggesting a complex SIGINT mission.
Calabazar: Close to Wajay, this military complex hosts over a dozen dish antennas and pole antenna arrays, indicating involvement in space-monitoring and SIGINT operations.
These developments suggest that China is enhancing its intelligence-gathering capabilities in the Western Hemisphere, potentially intercepting sensitive communications from U.S. military bases and other strategic sites. The proximity of these facilities to the southeastern United States raises significant security concerns.
EQUATORIAL GUINEA
China’s pursuit of a naval base in West Africa, particularly in Equatorial Guinea, has garnered significant international attention. Reports indicate that China is negotiating with Equatorial Guinea to establish a military presence at the Port of Bata, a deep-water commercial port on the Gulf of Guinea. This development would mark China’s first permanent military installation on the Atlantic coast, enhancing its global naval reach. U.S. defense officials have expressed concerns, noting that such a base could enable Chinese warships to rearm and repair in proximity to the U.S. East Coast, posing strategic challenges. The potential base aligns with China’s broader strategy to protect its overseas interests and secure maritime routes, especially in regions like the Gulf of Guinea, which is vital for global shipping and has faced piracy issues. While some analysts argue that fears of China’s Atlantic naval ambitions may be overstated, the establishment of a base in Equatorial Guinea would signify a notable shift in China’s military posture, with implications for U.S. and European security interests.
GABON
In August 2023, then-President Ali Bongo of Gabon disclosed to U.S. officials that he had privately assured Chinese President Xi Jinping of China’s permission to establish a military presence on Gabon’s Atlantic coast. This revelation alarmed the U.S., which views the Atlantic as a strategic area and perceives a Chinese naval base there as a significant security threat. Following a military coup in Gabon, U.S. diplomats engaged with the new authorities to dissuade them from honoring Bongo’s commitment. Concurrently, the U.S. has been urging Equatorial Guinea to reject similar Chinese overtures for a naval base, emphasizing the potential risks to regional stability and U.S. security interests.
But it doesn’t stop there.
The October 2023 U.S. Department of Defense China’s Military Power Report outlined that the PRC has already considered “Burma [Myanmar], Thailand, Indonesia, Pakistan, Sri Lanka, United Arab Emirates, Kenya, Equatorial Guinea, Seychelles, Tanzania, Angola, Nigeria, Namibia, Mozambique, Bangladesh, Papua New Guinea, Solomon Islands, and Tajikistan” as potential locations and that it probably already has attempted to set up bases in Namibia, Vanuatu, and the Solomon Islands. In comparison, a July 2023 AidData publication highlighted on eight possible basing locations, based on Chinese financial flows abroad: Hambantota, Sri Lanka; Bata, Equatorial Guinea; Gwadar, Pakistan; Kribi, Cameroon; Ream, Cambodia; Vanuatu; Nacala, Mozambique; and Nouakchott, Mauritania.
Conclusion:
China’s global strategic expansion through its bases in places like Djibouti, Gwadar, Cambodia, and Cuba is reshaping the international landscape. By securing footholds along vital maritime routes and near U.S. interests, China’s long-term ambitions are clear: to enhance its ability to project power and protect its expanding interests worldwide. For the United States, understanding and addressing these developments is essential. America must reassess its strategies and strengthen its own alliances to counterbalance China’s growing influence. By staying vigilant and proactive, Americans can help ensure that the country remains secure and prepared to meet the challenges posed by a rapidly changing global power structure.
Sources:
https://foreignpolicy.com/2022/03/03/china-pla-navy-base-west-africa-atlantic-equatorial-guinea/
https://thediplomat.com/2024/02/china-continues-its-search-for-a-maritime-military-presence-in-west-africa/
https://japan-forward.com/the-security-implications-of-a-chinese-military-base-in-equatorial-guinea/
https://www.defense.gov/News/News-Stories/Article/Article/2969935/general-says-china-is-seeking-a-naval-base-in-west-africa/
https://ecfr.eu/article/chinas-new-military-base-in-africa-what-it-means-for-europe-and-america/?amp
https://www.wsj.com/world/africa/u-s-china-tensions-have-a-new-front-a-naval-base-in-africa-616e9e77
https://media.defense.gov/2023/Oct/19/2003323409/-1/-1/1/2023-MILITARY-AND-SECURITY-DEVELOPMENTS-INVOLVING-THE-PEOPLES-REPUBLIC-OF-CHINA.PDF
https://docs.aiddata.org/reports/harboring-global-ambitions/Harboring_Global_Ambitions.html
https://www.newsnationnow.com/world/china/satellite-images-chinese-military-presence-cuba-csis/amp/
https://www.ispionline.it/en/publication/not-military-base-why-did-china-commit-outpost-tajikistan-32177
https://www.specialeurasia.com/2021/10/28/chinese-military-base-in-tajikistan-regional-implications/
https://jamestown.org/program/china-increasing-its-military-presence-in-tajikistan/
https://www.scmp.com/comment/opinion/article/3231705/why-fears-chinese-naval-base-pakistans-gwadar-port-are-overblown
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Episode 70: The New Star Wars: Can China Survive the Semiconductor Squeeze? A New Modern Cold War (An opinion piece)
8 nov· Geopolitics Unplugged
Summary:
In this episode, we argue that China's reliance on imported semiconductors and AI technology creates a vulnerability that could ultimately lead to its downfall, similar to how the Soviet Union was weakened by technological advances. In the episode, we opine how the US and its allies, specifically Taiwan, Japan, (South Korea) and the Netherlands, have a powerful opportunity to strategically limit China's access to these critical technologies, which could effectively cripple its economic and to a degree its advanced ISR related military capabilities. We conclude by questioning whether the global community is prepared for the potential consequences of China's decline, including the need to absorb its manufacturing output and navigate the geopolitical shift.
Questions to consider as you read/listen:
What are the key technological and economic vulnerabilities of China in the current global landscape?What roles do semiconductors and AI play in shaping the geopolitical power balance between China and the West?How might a potential "collapse" of China impact the global economy and geopolitical order?
Long format:
The New Star Wars: Can China Survive the Semiconductor Squeeze? A New Modern Cold War (An opinion piece)
By Justin James McShane
Disclaimer:
The views expressed in this piece are solely my own, based on my observations and interpretation of the current global landscape. I am not a policy maker, or a policy influencer—just an informed individual sharing my perspective. While I strive to present factual information, much of what follows is my personal opinion on the challenges and opportunities presented by China’s position in the world. Please keep in mind that this is not a prediction of what will happen, but rather a suggestion for what might be done. I welcome your thoughts and interpretations, as this issue impacts us all.
WHAT SHOULD BE DONE ABOUT CHINA?
Let me be frank. I don't know when China or even if China is going to collapse. A lot of very learned geopolitical subject matter experts have opined that there is going to be a collapse of China primarily due to demographic pressures. I do think that there are a lot of strain on the system (demographics, unemployment, economy, deflationary pressures, overproduction, environmental, political and on and on).
In my humble opinion, the US Department of Commerce in conjunction with Taiwan, Japan, and the Netherlands have a good strategy. Unfortunately, at the present South Korea has not joined that. Here is why I think it is a good strategy.
Again, in my opinion, the semiconductor chip race and AI is the battle for the future. It is water wars important in my opinion. The country or countries that stay on top of this technology and at the least delay the technology to its adversaries is the way to stay on top of the global value chain. Period. Full stop. Again, this is my opinion.
Again, in my opinion the Chinese have shown a total lack of fair play with other countries and international norms of (fair) trade. Their overcapacity (dumping) is Exhibit A. But an important and less known issue is the efforts by the Chinese United Front that I wrote about days ago. It is like Russian active measures but much more covert and includes sanctioned large scale industrial and commercial espionage and at times sabotage.
A lot of folks look to the end of the USSR and what accelerated it as a model perhaps. When doing so and examining what pushing the life support that the USSR was on to its final end, some point to increased defense spending, but in my belief it was technology--the spread of integrated information sharing systems and the beginning of mass use of computers at the individual level and information sharing via them and most especially the threat of the SDI (Star Wars). If SDI could be built, then it would be a destabilizing technology for sure. Although Gobachev claims at the time and in later interviews that he was never afraid of SDI because he thought the technology was beyond the US's current capabilities (which was true), he sure acted in accord with it being a concern. Gorbachev responded to Reagan’s first letter, again voicing his concern over SDI. He emphasized that “space-strike weapons…possess the capability of being used both for defensive and offensive aims.” All leading Gorbachev to present “an unprecedented program to completely eliminate nuclear weapons” in three stages by the year 2000.
China, in my opinion, has values, priorities and goals that are incompatible with ours at the core. I have read Made in China 2025 and it is remarkable. It is brilliant, and well thought out but it reveals the incompatibility for all who care to read it.
While the trade wars that already exist are pressure the BIGGEST source of pressure that will cause China to "fall" are semiconductors/AI, in my opinion.
People, I think, fail to understand the scope of semiconductors (let alone AI). Virtually 100% of the world's electronics contain semiconductor chips.
Currently, the Chinese are restricted by available equipment to make anything less than 28nm node chips at scale if they are not allowed to import. [See my post about how they possible could make down to 3nm but how horribly inefficient and what a low yield with unacceptably high rejection rate it would be] If they are not allowed to import, they have zero AI chips. Zero.
Just to help us all personalize what the world would be like if you were restricted to only 28nm node chips, here is an example: 5G networks require chips that are smaller than 28 nanometers (nm). There goes all of our cell phones. Every single one. Further, an iPhone 8 used a 10nm node size chip. An iPhone 6 used a 20nm chip. Most modern high end cars use under 28nm chips.
Interestingly enough most military systems that filed deployed (aircraft, hypersonic missiles, etc) are not based upon low nm node sized chips, but high-level computers such as those used in ISR and AI based computing certainly requires under 28 nm systems.
Semiconductors and AI are China's Achilles Heel. They need them but they have utterly failed to develop a domestic China based ability to make any at scale below 28nm when the current state of the art is 2nm (an iPhone 16 has a 3nm chip) and also in AI. They make zero AI chips. They import them all.
This is our modern Star Wars and we (Taiwan, The Netherlands, South Korea and Japan) generally control all of the cutting edge of it.
If we continue to push this and get SK on board in terms of global export bans on the chips and related technologies China as we know it disappears instead of waiting for demographic decline outcomes.
The only question (much like with the case about the Soviet Union) is what comes next? Is what came after the Soviet Union better or worse? Is what comes after China better or worse?
There is also timing. If China ceases to function, I don’t know if we Americans (and our alleys) are prepared today to absorb it all in terms of manufacturing and industrial output as our re-shoring efforts aren’t complete. Are we ready for the pivot to elsewhere?
So, what comes next? Dunno
And is this the right time? Dunno
What do y’all think?
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Episode 69: Light-Speed AI: Why China’s Taichi Chip Should Put the U.S. on High Alert
8 nov· Geopolitics Unplugged
Summary:
In this article, we focus on the Taichi photonic computer chip, a novel AI chip developed in China that leverages light for data processing. This technology could significantly advance China's AI and semiconductor industries, potentially surpassing Western dominance. The chip's energy efficiency and speed are highlighted as major breakthroughs, outperforming current electronic chips by orders of magnitude. We explore the implications of this technological leap, specifically focusing on the potential need for expanded export controls to prevent China from gaining a monopoly in these crucial fields. We also examines the challenges of mass production, including the reliance on various systems and the lack of standardized processing techniques. Restricting exports and carefully regulating access to the core components of this technology may be necessary to prevent China from achieving its self-declared intention of dominance in AI and semiconductor industries—an ambition that has clear economic and strategic ramifications.
Questions to consider as you read/listen:
What are the key technical advantages and disadvantages of the Taichi photonic computer chip compared to traditional electronic chips?How does the development of the Taichi photonic computer chip potentially impact the global semiconductor landscape and international relations?What are the potential applications and limitations of the Taichi photonic computer chip in advancing artificial intelligence and other technologies?
Long format:
Light-Speed AI: Why China’s Taichi Chip Should Put the U.S. on High Alert
(One sentence thesis: The Taichi photonic computer chip, a breakthrough AI technology developed in China, poses a strategic challenge to Western dominance in semiconductors, signaling an urgent need for expanded export controls to prevent China’s potential technological and geopolitical ascendancy.)
TL;DR:
The Taichi photonic computer chip is a high-speed, energy-efficient AI chip developed in China that uses light instead of electricity to process data. This chip could give China a major edge in AI and semiconductor technology. To prevent China from gaining dominance in these critical fields, the US, Japan, and Taiwan (and South Korea which has no export restrictions now) should consider expanding export controls to include photonic technology and its components.
Introduction
The Taichi photonic computer chip represents a potential revolutionary advancement in the field of artificial intelligence (AI) and photonics. Developed in China, this cutting-edge technology leverages the speed of light to process complex computations and train artificial general intelligence (AGI) models with unprecedented efficiency. As a potential game-changer in AI and semiconductor technology, the Taichi chip is highly efficient, boasting performance metrics that far exceed the capabilities of traditional electronic chips. It is not yet ready for commercial application and commercial production at scale, but it is coming. With China spearheading this development, the West must consider the geopolitical implications of such technological advancements. Restricting exports and carefully regulating access to the core components of this technology may be necessary to prevent China from achieving its self declared intention of dominance in AI and semiconductor industries—an ambition that has clear economic and strategic ramifications.
What is a Taichi photonic computer chip?
The Taichi photonic computer chip is a large-scale AI chip that uses light to perform calculations and train artificial general intelligence (AGI) models. It is novel and emerging technology. It is being developed in China natively. The Taichi chip uses light-based processing to perform AI tasks, such as processing, transmitting, and reconstructing images. It's designed to be used in high-efficiency AGI applications.
Who discovered it and who is developing it?
Taichi builds upon an earlier photonic chip called the optical parallel computational array (OPCA) developed by the same Tsinghua team. The Taichi chip was developed by a team of engineers lead by Professor Lu Fang and Professor Qinghai Tai from Tsinghua University and the Beijing National Research Center for Information Science and Technology.
How does it work?
Unlike traditional electronic circuits, Taichi utilizes integrated photonic circuits, harnessing the speed of light for processing information. The Taichi chip uses two types of light-based processing: diffraction and interference. Diffraction scatters light signals into channels that combine to solve a problem. Interference combines light waves, which can either boost or inhibit each other. These photons power tiny on-board electrical switches that turn on or off when voltage is applied. Specifically, it uses a fully reconfigurable Mach-Zehnder interferometer (MZI) arrays. Mach-Zehnder interferometers are devices that utilize the interference of light waves to perform operations like splitting, combining, and modulating optical signals.
How is it made?
It uses a chiplet-based construction. The chiplets in the Taichi photonic computer chip work by performing calculations in parallel and then integrating the results to reach a solution. The Taichi chip is made up of multiple chiplets, which are integrated circuits that each carry out a specific function. Chiplets are smaller, specialized dies that are interconnected within a single package. This design allows for greater flexibility, efficiency, and scalability in chip design. In a simple Photonic integrated circuit (PIC) design, light from a laser source would be coupled into a waveguide, then pass through a modulator where the signal is encoded by adjusting the light's phase based on the electrical input. This modulated light would then travel through further waveguides to reach the desired destination on the chip. Other components of the PIC include but are not limited to lasers, optical amplifiers, photodetectors, couplers, splitters, filters, multiplexers, demultiplexers, switches, and various types of optical resonators.
All Photonic integrated circuits (PICs) are generally made in the same way with some notable exceptions that are beyond the scope of this article. The process is similar to how electronic integrated circuits are made: coat the wafer, create a mask, project the pattern (lithography), develop the photoresist and etch and deposit the materials.
It uses Thin-film lithium niobate (TFLN). Thin-film lithium niobate (TFLN) is a crystalline material that's used in integrated photonic devices. It's made by bonding a thin layer of lithium niobate to a substrate like silicon dioxide or sapphire. It is used in components like modulators, and waveguides.
What are its performance characteristics?
As light travels much faster than electrical signals, this allows for potentially much faster computations, which could accelerate AI model training and inference times
The researchers claim that it outperforms current smart chips by two to three orders of magnitude.
The Taichi chip is over 100 times more energy efficient than previous photonic chips. It's also able to process images at nanosecond speeds, which is around a million times faster than current methods. Researchers claim that this product is roughly 100 times more energy efficient and 10 times more area efficient than previous other optical neural networks.
The researchers claim that it is much more energy efficient than the current commercial AI chips on the market. They claim, for example, that it is 1000 times more energy efficient than Nvidia’s high performance H100 GPU chip. 160 tera-operations per second per watt (TOPS/W) energy efficiency.
The Taichi chiplet has shown its impressive abilities through some remarkable accomplishments. For instance, it was able to accurately classify items into 1000 different categories with an accuracy of 91.89%.
Compared to existing photonic neural network chips, Taichi offers a twofold improvement in energy efficiency while maintaining comparable computing accuracy.
How can this change the AI market? Is it ready?
As Elon Musk likes to say, ideas are cheap, manufacturing is expensive.
Integrating Taichi with existing AI infrastructure and software could present technical hurdles.
But, it is a technology to watch. For instance, Taiwan Semiconductor Manufacturing Company (TSMC) has assembled a team of about 200 researchers focused on ultra-high-speed silicon photonic chips and is collaborating with Broadcom and Nvidia. This is especially so as we are reaching the limits of physics when it comes to traditional semiconductors (Moore’s Law).
The chip's architecture allows for modular scaling, enabling the creation of more powerful AI systems by combining multiple Taichi chiplets to handle complex tasks that might be beyond the capabilities of current chips.
As it is currently in research and development it is not ready for commercial mass production as of today, although some PICs are being produced commercially just not the Taichi photonic computer chip. Although the Taichi chip is compact and energy-efficient, it relies on many other systems, such as a laser source and high-speed data coupling. These other systems are far more bulky than a single chip, taking up almost a whole table.
There are also process and manufacturing related issues to work out. For example, photonic materials like thin-film lithium niobate lack standardized processing techniques,
Currently, no country has the capability to harness this technology for mass production beyond proof of concept and limited prototypes.
Will this frustrate US, Dutch, Japanese and Taiwanese export controls?
In the 14th Five-Year Plan, a section on strengthening the power of the country’s strategic technology includes photonics in a list of technologies for which national labs should be built (State Council, March 13, 2021). Xi loves the technology.
Some in the industry claim that this process will allow China to entirely bypass US microchip restrictions. https://wccftech.com/china-claims-a-breakthrough-in-silicon-photonics-as-it-tries-to-circumvent-us-export-controls-on-euv-lithography/ The lithography devices needed are not the cutting edge EUVs or NAEUVs but ones that can work at about 32nm node side. Recall China does have domestic internal capacity and technical knowledge to make DUVs at the 28n m level. If the US and the others want to frustrate China’s quest for semiconductor and AI dominance, it would be wise to include this technology and its component parts to a ban.
Conclusion
In an era where AI and semiconductor advancements are pivotal to national and economic security, the Taichi photonic computer chip exemplifies both the promise and peril of rapid technological innovation. As China progresses in developing this light-based AI processing technology, it challenges the traditional semiconductor strongholds of the US, Japan, and Taiwan. To safeguard their interests and curb China's ambitions, these countries must look to expand export controls to include photonic chips and their associated components. The Taichi chip serves as a reminder of the importance of strategic foresight in technology regulation, especially as we edge closer to an AI-driven future.
Sources:
https://singularityhub.com/2024/04/15/a-new-photonic-computer-chip-uses-light-to-slash-ai-energy-costs/
https://techxplore.com/news/2024-04-taichi-large-scale-diffractive-hybrid.html
https://singularityhub.com/2024/04/15/a-new-photonic-computer-chip-uses-light-to-slash-ai-energy-costs/
https://techxplore.com/news/2024-04-taichi-large-scale-diffractive-hybrid.html
https://www.livescience.com/technology/computing/china-s-upgraded-light-powered-agi-chip-is-now-a-million-times-more-efficient-than-before-researchers-say#:~:text=The%20Taichi%20chip%20works%20similarly,by%20up%20to%202%2C500%20times
https://www.ee.tsinghua.edu.cn/en/info/1076/1572.htm
https://www.edgecomputing-news.com/news/chinas-taichi-photonic-chip-ushers-in-light-speed-ai-revolution/#:~:text=Unprecedented%20energy%20efficiency%20and%20speed,time%20of%20just%206%20nanoseconds
https://www.youtube.com/watch?v=uGFJuzMPwC0
https://www.science.org/doi/10.1126/science.adl1203
https://www.gov.cn/xinwen/2021-03/13/content_5592681.htm
https://archive.ph/THqyp
https://jamestown.org/program/illuminating-the-future-developments-in-prc-photonic-microchip-production/
https://www.edgecomputing-news.com/news/chinas-taichi-photonic-chip-ushers-in-light-speed-ai-revolution/#:~:text=Overall%2C%20as%20an%20AI%20chip,from%20a%20typical%20photonic%20chip
https://www.scmp.com/news/china/science/article/3258854/could-chinas-taichi-light-based-chip-show-way-ai#:~:text=Scientists%20with%20Tsinghua%20University%20have,efficient%20than%20traditional%20electronic%20chips.&text=In%20a%20paper%20published%20in,the%20manner%20of%20various%20artists.&text=The%20chip%20uses%20photonic%20integrated,less%20energy%20than%20electronic%20devices
https://thebossmagazine.com/photonic-chips-ai-energy/
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EP68: Think Building a Cutting-Edge Chip Factory is Easy? Think Again. Here's the Dirty Truth Behind Clean Rooms
7 nov· Geopolitics Unplugged
Summary:
In this episode, we discuss the critical role of cleanrooms in semiconductor manufacturing, emphasizing the need for stringent control over particles, temperature, humidity, and chemicals to prevent contamination. We outline the standards including ISO 14644-1 and ISO 14644-2 standards for cleanroom classification and maintenance, explaining how laminar airflow, HEPA/ULPA filtration, and meticulous personnel practices ensure a contamination-free environment. We further delves into the construction and maintenance of ISO Class 5 or better cleanrooms, outlining essential components like modular panels, sealed windows, pressurization, and high air change rates. We highlight the importance of routine monitoring, cleaning protocols, personnel training, and scheduled maintenance in preserving the cleanroom environment and ensuring the successful production of high-quality semiconductors. It really is not that easy to start up from scratch and designing, building and maintaining a clean room is just one part of the complexity of modern advanced semiconductor fabrication.
Questions to consider as you read/listen:
What are the essential components of a cleanroom environment and their role in the semiconductor manufacturing process?How do ISO 14644 standards impact the design, construction, and operation of semiconductor cleanrooms?What are the key challenges and considerations in maintaining the cleanliness and functionality of a cleanroom over time?
Long format:
Think Building a Cutting-Edge Chip Factory is Easy? Think Again. Here's the Dirty Truth Behind Clean Rooms
The news is full of countries stating that they are going to make semiconductors and fabricate them. Whether it is India or UAE or Germany or Italy or Vietnam. It is really not that simple.
So you want to make a cutting edge chip fabrication plant from scratch with no native experience? Good luck. Just one level of difficulty is in designing, constructing and maintaining a clean room.
INTRODUCTION
Cutting-edge semiconductor plants need clean rooms to prevent contamination during the production of microchips, which are incredibly sensitive to particles and impurities. Even a single dust particle or microscopic contaminant can cause defects in semiconductor chips, rendering them unusable or significantly reducing their performance and reliability. Here’s why clean rooms are essential:
Particle Control: Semiconductor chips are made using processes that involve etching and layering at microscopic scales. Particles much smaller than a human hair can interfere with these processes, leading to malfunctions. Clean rooms keep airborne particles to a minimum to avoid contamination.
Temperature and Humidity Regulation: Semiconductor manufacturing is extremely sensitive to changes in temperature and humidity, which can affect chemical reactions and the precision of lithography (the process of patterning circuits on chips). Clean rooms maintain strict environmental control to ensure consistent quality.
Chemical Control: Many materials and chemicals used in semiconductor production are reactive. Clean rooms limit contaminants, including gases and ions, which could react with these chemicals and ruin the chips.
Precision in Lithography: Advanced semiconductor chips are made at extremely small scales, with features as small as a few nanometers. For lithography to be precise, the environment needs to be tightly controlled, and vibrations must be minimized. Clean rooms help to provide these conditions.
Yield Improvement: The production of semiconductor chips is complex, and defects are costly. Clean rooms help maximize the yield of usable chips per wafer by reducing defects, which is crucial given the high costs associated with semiconductor manufacturing.
Clean rooms are classified by the number of particles they allow per cubic meter, with semiconductor fabs often requiring Class 1 or even stricter classifications, meaning they permit as few as one particle per cubic meter of air. These conditions are fundamental for producing the advanced technology found in modern electronics, where even minor defects are unacceptable.
THE STANDARDS
ISO 14644-1 and ISO 14644-2 are critical standards for defining and maintaining cleanroom environments, especially for industries like semiconductor manufacturing, where air purity is paramount to avoid contamination.
ISO 14644-1: Classification of Air Cleanliness by Particle Concentration
ISO 14644-1 provides criteria for classifying the cleanliness of air in cleanrooms by measuring particle concentration. Semiconductor facilities commonly require an ISO Class 5 or lower environment, demanding stringent control of airborne particles, especially since microscopic contaminants can severely impact microchip functionality.
For ISO Class 5, a cleanroom must have a maximum of 3,520 particles per cubic meter at a size of 0.5 microns or larger. This level of cleanliness ensures that the semiconductor manufacturing process remains largely free of particulates that could damage the delicate circuitry and photolithography patterns on silicon wafers.
ISO 14644-2: Monitoring and Compliance Verification
ISO 14644-2 complements ISO 14644-1 by providing guidelines for monitoring, verifying, and maintaining the cleanliness of the cleanroom environment over time. This standard specifies the testing frequency and protocols necessary to confirm continued compliance with the established cleanliness class, based on particle concentrations. For semiconductor cleanrooms, this monitoring process is critical due to the sensitivity of microelectronics to particulate contamination.
Laminar Airflow in Semiconductor Cleanrooms
Laminar airflow is essential in semiconductor cleanrooms to maintain cleanliness by ensuring a consistent, unidirectional flow of air, typically moving vertically from the ceiling to the floor. High-efficiency particulate air (HEPA) filters or ultra-low penetration air (ULPA) filters are often used to filter incoming air, ensuring only clean, particle-free air reaches sensitive areas. This airflow system helps sweep away contaminants generated by personnel or equipment, preventing particles from settling on wafers and equipment.
Monitoring and Control
Monitoring the cleanroom involves continuous particle counting and environmental control to detect deviations from cleanliness standards. Advanced monitoring systems are used to detect particle concentration, humidity, and temperature. Semiconductor cleanrooms often have real-time particle counters, which are strategically placed to alert personnel to any increase in particle concentration immediately. This ongoing monitoring is vital for maintaining compliance with ISO standards and detecting any potential contamination risks promptly.
Cleanroom Suits and Personnel Training
Personnel working in semiconductor cleanrooms wear specialized cleanroom suits, which cover their entire body, including gloves, masks, and sometimes face shields. These garments are designed to contain human-generated particles such as skin flakes, hair, and other contaminants. The suits are made from materials that do not generate lint or static and are typically reusable after decontamination.
Proper training of personnel is another critical aspect of maintaining an ISO Class 5 environment. Staff must be trained on correct gowning procedures, handling of cleanroom equipment, and movement techniques within the cleanroom. Even minimal movement can disturb airflow and release contaminants, so personnel are trained to minimize unnecessary motion. They also learn protocols for entering and exiting the cleanroom to prevent cross-contamination from external areas.
Constructing and maintaining ISO Class 5 or better cleanrooms for semiconductor manufacturing requires careful design and rigorous protocols to control particulate contamination. Here’s a breakdown of the key components and practices:
Construction of ISO Class 5 or Better Cleanrooms
Room Design and LayoutModular Panels and Seals: Walls, floors, and ceilings are made from non-shedding, easily cleanable materials, often prefabricated modular panels that are smooth, sealed, and designed to prevent particle accumulation.Sealed Windows and Doors: Cleanrooms have airtight windows, limited entry points, and doors with airlocks to maintain pressure control and minimize the chance of outside contaminants entering.Pressurization: Higher air pressure inside the cleanroom than in adjacent spaces prevents unfiltered air from entering. Positive pressure keeps airborne particles from infiltrating the cleanroom environment.Filtration Systems and HVACHEPA/ULPA Filters: High-efficiency particulate air (HEPA) filters or ultra-low penetration air (ULPA) filters remove 99.99% of particles down to 0.3 microns. These filters are typically installed in the ceiling to facilitate laminar airflow.Laminar Flow Design: A unidirectional, vertical airflow pushes particles down and out of the room. This reduces the likelihood of particles settling on sensitive equipment.Return Air Vents: Vents are positioned near the floor to allow filtered air to exit, drawing contaminants out of the environment.Flooring and SurfacesAntistatic, Smooth Flooring: Flooring is typically made of seamless vinyl or epoxy, reducing particle generation and making surfaces easy to clean. Floors are often conductive to prevent static build-up, which can attract particles.Rounded Corners and Coved Floors: Corners are rounded, and wall-floor junctions are coved to eliminate particle traps, facilitating thorough cleaning.Airflow and Ventilation RatesHigh Air Change Rates: ISO Class 5 cleanrooms require around 240-600 air changes per hour. This high turnover rate keeps particulate levels low.Temperature and Humidity Control: Precise control of temperature and humidity prevents static electricity buildup and reduces particle generation, which is especially crucial in semiconductor manufacturing.
Maintenance of ISO Class 5 or Better Cleanrooms
Routine Monitoring and TestingParticle Counting: Continuous or periodic particle counting is performed to ensure compliance with ISO Class 5 standards. Real-time monitors detect changes in particulate levels, alerting staff to any potential contamination.Environmental Monitoring: Humidity, temperature, and pressure levels are continually monitored, as these factors influence particle behavior and static accumulation.Cleaning ProtocolsRegular Cleaning Cycles: All surfaces, including walls, floors, and equipment, are frequently cleaned using lint-free wipes, HEPA-filtered vacuums, and approved cleaning solutions.Minimizing Surface Contact: Equipment and work surfaces are minimized and specifically arranged to reduce particle generation.Cleaning of Equipment and Instruments: Equipment is cleaned to prevent particles from being reintroduced into the cleanroom. Some tools are kept in isolated spaces or mini-environments with even stricter cleanliness controls.Personnel and Equipment ControlGowning and De-Gowning Procedures: Personnel wear full cleanroom suits, gloves, masks, and eye protection, all of which are donned in designated gowning rooms. These garments prevent human-generated particles (skin flakes, hair) from contaminating the environment.Training and Compliance: Personnel are trained on proper entry, exit, and movement protocols to avoid disrupting airflow. Training emphasizes minimal movement and strict adherence to cleanroom practices.Use of Pass-Through Chambers: Materials and equipment enter through specialized pass-through chambers, minimizing door openings and reducing contamination risk.Scheduled Maintenance and Filter ReplacementFilter Replacement and Testing: HEPA or ULPA filters require regular inspection and replacement to maintain optimal filtration efficiency.Pressure Differential Verification: Air pressure differentials are regularly tested to ensure positive pressure is maintained, which prevents external air from entering.Routine Certification and Compliance AuditsPeriodic Recertification: Cleanrooms are recertified periodically to ensure they meet ISO 14644-1 standards. This includes particle counting and full-system inspections.Audits and Process Reviews: Regular audits and process reviews help identify areas for improvement in maintenance and operations, ensuring the cleanroom remains compliant over time.
Through these construction and maintenance practices, ISO Class 5 cleanrooms are built and preserved to meet the stringent cleanliness standards needed for semiconductor manufacturing.
Conclusion
ISO 14644-1 and ISO 14644-2 establish the standards and protocols for cleanroom classification, monitoring, and compliance verification, ensuring that semiconductor facilities can achieve and maintain the required level of air cleanliness. Laminar airflow, continuous monitoring, cleanroom suits, and personnel training are all integral to meeting these stringent standards and preventing contamination, which is critical to the high-precision semiconductor manufacturing process.
Sources:
Cleanrooms for Semiconductor Fabrication Plants: A Comprehensive Guide to Design, Construction, and Operation by Charles Nehme
Clean Room Design Minimizing Contamination Through Proper Design By Bengt Ljungqvist, Berit Reinmuller
Cleanroom Technology: Fundamentals of Design, Testing and Operation by William Whyte Jr.
Semiconductor Microchips and Fabrication: A Practical Guide to Theory and Manufacturing 1st Edition by Yaguang Lian
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EP67: The Lithium Gold Rush: Can the American Smackdown Formation Transform the U.S. from Lithium Dependence to Lithium Independence?
7 nov· Geopolitics Unplugged
Summary:
In this episode, we explore the potential of the Smackdown Formation in Arkansas as a source of lithium, particularly for battery production. The discovery of significant lithium deposits within the formation has sparked interest in Direct Lithium Extraction (DLE) technology, a faster and more efficient process compared to traditional methods. While Standard/Equinor's project utilizing repurposed bromide wells shows potential cost savings, we highlight the volatility of the lithium market, including historical price drops and uncertain demand as a concern. This market instability presents substantial risk for investors, potentially impacting the financial viability of the project despite its promising technological advancements.
Questions to consider as you read/listen:
What are the potential benefits and risks of the Smackdown Formation's lithium extraction project?How does Direct Lithium Extraction (DLE) technology compare to traditional lithium extraction methods, and what are its implications for the lithium market?What are the key factors that will influence the economic viability of lithium extraction in the Smackdown Formation, and how might these factors change in the future?
Long format:
The Lithium Gold Rush: Can the American Smackdown Formation Transform the U.S. from Lithium Dependence to Lithium Independence?
SMACKDOWN FORMATION
Smackover Formation is an extensive, porous, and permeable limestone aquifer that hosts vast volumes of mineral rich brine. According to reports that broke on October 24, 2024 machine learning (AI) was used to examine data to discover that within that brine is believed to be a large volume of lithium. Samples from Arkansas were analyzed by the USGS Brine Research Instrumentation and Experimental lab in Reston, VA, and then compared with data from historic samples within the USGS Produced Waters Database of water from hydrocarbon production. The machine learning model was then used to combine lithium concentrations in brines with geological data to create maps that predict total lithium concentrations across the region, even in areas lacking lithium samples. Lithium is used in batteries. The U.S. relies on imports for more than 25% of its lithium. The USGS estimates there is enough lithium brought to the surface in the oil and brine waste streams in southern Arkansas to cover current estimated U.S. lithium consumption. The low-end estimate of 5 million tons of lithium present in Smackover brines is also equivalent to more than nine times the International Energy Agency’s projection of global lithium demand for electric vehicles in 2030.
THE TECHNOLOGY BEING USED AND MEANS OF PRODUCTION
Standard/Equinor and ExxonMobile are the two main outfits that will be exploring and producing lithium at this field. They both use the same exact technology. They are both using Direct Lithium Extraction (DLE) technology. It is a process that very loosely is like fracking which is my somewhat area of expertise.
Direct lithium extraction (DLE) often involves drilling wells into lithium-rich saltwater reservoirs, which can range in depth but are typically between 300 and 2,000 meters underground. This depth is crucial to reach the brine layers that contain sufficient lithium concentrations. The extraction wells are usually drilled vertically, although some advanced methods may include horizontal or directional drilling to increase contact with brine-rich areas and improve lithium recovery rates.
Once the brine is brought to the surface, it goes through a series of steps to selectively pull out lithium using specialized materials or filters, often relying on ion-exchange or adsorption technology.
No additional water is typically introduced into the well in direct lithium extraction (DLE). Fracking chemicals are generally not used in DLE. DLE doesn’t rely on fracturing the rock to release lithium, unlike hydraulic fracturing (fracking) used in oil and gas extraction. Instead, it simply involves pumping the naturally occurring lithium-rich brine up to the surface through wells, where lithium is then extracted through chemical processes.
While the specifics can vary depending on the company or technology, the general process includes the following steps:
Brine Pumping and Pre-Treatment: The lithium-rich brine is pumped from the underground reservoir to the surface. Sometimes, it undergoes initial filtration to remove larger particles and impurities, such as sand or debris.
Lithium Adsorption/Absorption: The brine is then passed through a series of filters, membranes, or specialized materials designed to attract and hold lithium ions. Common materials used in this step include lithium-specific adsorbents, which can selectively trap lithium while letting other minerals and salts pass through. These adsorbents are often lithium-selective resins or materials like manganese oxide or aluminum-based composites.
Elution (Lithium Release): Once the lithium is captured on the adsorbent, a chemical wash (usually a mild acid or a proprietary solution) is applied to release the lithium from the adsorbent material. This wash produces a concentrated lithium solution, sometimes called a "lithium eluate."
Purification: The lithium-rich solution is then further purified to remove any remaining impurities or unwanted ions, such as calcium, magnesium, or potassium, which may be present in the brine. This is typically done through additional filtration or precipitation steps.
Conversion to Lithium Compounds: The purified lithium solution can then be processed into a commercially usable lithium compound, often lithium carbonate or lithium hydroxide, which are commonly used in batteries. This final step typically involves precipitation reactions or crystallization to produce the desired lithium product.
Reinjection of Brine: After lithium extraction, the remaining brine, now with much lower lithium content, is reinjected back into the reservoir. This helps to reduce environmental impact by maintaining local groundwater levels and minimizing waste.
Each of these steps is designed to maximize lithium recovery while using less water and space than traditional methods. The specific materials and chemical processes in each step are often proprietary and can vary depending on the technology provider.
DLE does not require drying for months. DLE is a faster and more efficient alternative to traditional lithium extraction methods (Chile), which can take months to years. DLE can extract lithium from brine in hours or days.
I really didn’t get that deep into whether or not the pre-existing extraction wells could be repurposed without significant cost other than taking Standard’s say so. I would have gone there next or eventually I suppose. But in all truth I got gun shy with the 80% and also thoughts of possible softening of demand and what if both ExxonMobile and Standard pump out this much on top of Australia and Argentina and Chile. It’s not a mature enough or stable enough market for my liking. Your mileage may, of course, vary.
Whether it is a pre existing hole that can be repurposed doesn’t impact the means or technology between the two projects.
THE ECONOMICS OF THE STANDARD/EQUINOR PROJECT
I chose to examine the Standard/Equinor proposed exploration and production as they have made public their investment prospectus. Like all prospectus, they need to be read with some suspicion as it is definitely an advertisement to invest. In my past experience, such things need to be not only read critically but also with notions of increasing costs, adding time to time tables for delays and finally reducing yield projections.
Standard/Equinor have a potential advantage over ExxonMobile as their project calls for repurposing existing well infrastructure used in bromide extraction now for lithium extraction. This is potentially a large start p cost savings to the tune of between $2.5 to $7 million in well drilling and initial production costs. In theory, former bromide wells could potentially be repurposed for direct lithium extraction (DLE), depending on the specific geological and chemical characteristics of the brine in those wells. Bromide and lithium are often found in similar types of brine reservoirs at similar depths, so existing bromide wells might have infrastructure and access to brine sources that could contain lithium, making them candidates for DLE with some adjustments.
Bromide wells already have the necessary infrastructure, such as pumps, pipes, and well casings, which could be adapted for lithium extraction. However, the equipment might require upgrades to accommodate the specific needs of DLE technology, such as specialized filtration and extraction systems. Any repurposing of wells would need to meet environmental regulations for DLE, which differ from bromide extraction. Regulations may cover reinjection practices, groundwater management, and waste disposal.
Nevertheless with all things being equal, the initial costs of extraction will be less for Standard/Equinor than ExxonMobil.
THE SPECIFICS OF THE STANDARD/EQUINOR PROSPECTUS
The South West Arkansas Project Pre-Feasibility Study (PFS) by Standard Lithium and Equinor presents an investment overview and analysis for Standard Lithium Ltd.'s and Equinor’s project provides the relevant information.
The following key investment aspects and assumptions have been outlined:
Project Scope and Ownership:
Standard Lithium holds the rights to extract lithium from brine under an option agreement with TETRA Technologies Inc., with a 10-year exploratory period.
The project targets lithium-rich brine within the Smackover Formation, covering an area of approximately 36,839 acres.
The study expands upon a 2021 Preliminary Economic Assessment, offering updated methods and extraction plans to produce lithium hydroxide, primarily for battery applications.
Production Capacity and Methodology:
Target production is 30,000 tonnes per annum (tpa) of battery-grade lithium hydroxide, with potential to increase to 35,000 tpa.
The resource extraction involves a network of brine supply and injection wells, leveraging a refined flowsheet based on Direct Lithium Extraction (DLE) technology. Brine from wells will be processed and reinjected to maintain aquifer pressure.
Economic Viability and Cost Estimates:
Capital Expenditure (CAPEX): Estimated at $1.3 billion, including contingency, primarily for the well field, pipelines, DLE units, and processing facilities.
Operating Expenditure (OPEX): Estimated at $5,229 per tonne of lithium hydroxide, with electricity and reagent costs as major components.
Revenue and Profitability: The study assumes a lithium hydroxide price of $30,000/tonne, yielding strong financial projections:
Net Present Value (NPV): $3.09 billion after-tax, based on an 8% discount rate.
Internal Rate of Return (IRR): 32.8% after-tax.
Assumptions and Risks:
Market Price Stability: A flat rate of $30,000 per tonne for lithium hydroxide over the project life.
Regulatory Compliance: The assumption of future royalty rates aligned with Arkansas regulations.
Technical Feasibility: Continuous operation and optimization of the DLE process, with ongoing development to minimize reagent costs and manage waste.
Resource Sustainability: Long-term viability of lithium concentration and production rates based on well data and geological modeling.
Sensitivity to CAPEX/OPEX Fluctuations: Economic sensitivity analysis indicates the project remains viable even under adverse CAPEX, OPEX, and pricing scenarios.
The PFS confirms the South West Arkansas Project’s investment potential, supporting its transition to further feasibility assessments and regulatory steps for future production if conditions precedent are met.
WHY I WAS AND AM A PASS…
The breakeven price for lithium hydroxide extraction in the South West Arkansas Project can be derived from the operating cost estimates. The all-in operating cost is approximately $5,229 per tonne of lithium hydroxide for the base case production scenario of 30,000 tonnes per year. This cost represents the minimum price at which the project would break even, excluding additional financial considerations like CAPEX recovery, taxes, and any unforeseen royalties not included in this analysis. Thus, the breakeven price is approximately $5,229 per tonne of lithium hydroxide for operational sustainability. As of September 4, 2024, the spot price for lithium hydroxide was $10,550 per metric ton. So it seems to make sense in the current market.
The estimated cost to produce lithium hydroxide per tonne for the South West Arkansas Project, based on the provided figures, is broken down as follows:
All-in Operating Cost: $5,229 per tonne of lithium hydroxide, which includes:
Workforce Costs: $371 per tonne
Electrical Power: $1,291 per tonne
Reagents and Consumables: $1,158 per tonne
Natural Gas: $15 per tonne
Maintenance, Waste Disposal, Miscellaneous Costs: $1,073 per tonne
Indirect Operational Costs: $168 per tonne
Royalties: $741 per tonne
Sustaining Capital: $415 per tonne
This cost structure covers all essential operational expenditures needed to produce one tonne of battery-quality lithium hydroxide.
Looking outside of the US to see the competition. Australia can and does produce lithium hydroxide at approximately $6,600 per ton of LCE (assuming integration with lithium mining), compared with $10,400 per ton of LCE for China. Indeed, South Korea and Canada, the closest countries to Australia from a cost perspective, still have costs approximately 24 to 51 percent higher than Australia’s.
But one has to examine history of the market as a whole and its strength…
In 2023, lithium hydroxide and lithium carbonate prices fell by more than 80% after reaching record highs in 2022. Yikes. That right there scared me off. If all of the sudden China rolls back its overproduction of NEVs and the American market softens on them, then might that be a problem? Will simply producing as much as they outline above crater the price too?
Too risky for my blood. I wish Exxon and the others well. They can take a loss leader every day of the week. I prefer not to.
CONCLUSION
In conclusion, the economic viability of the Smackdown Formation's lithium extraction project, while promising on paper, presents substantial risks that temper its attractiveness as an investment. The formation holds vast lithium resources that, if fully utilized, could supply a significant portion of U.S. lithium demand, with advanced DLE technology offering an efficient and environmentally conscious extraction method. Standard/Equinor's project shows potential advantages in cost savings by repurposing bromide wells, which could reduce initial infrastructure expenditures and further enhance feasibility.
However, the project remains vulnerable to significant market volatility. Historical trends in lithium pricing, including the sharp price drops in recent years, raise concerns about future profitability. If global lithium supply increases due to production from Arkansas alongside other leading regions such as Australia, Argentina, and Chile, a price decline could undermine revenue forecasts. Additionally, while current projections estimate competitive production costs, unforeseen CAPEX or OPEX increases, regulatory changes, or shifts in market demand could also impact profitability.
While major players like ExxonMobil may have the resources to absorb potential market fluctuations, the risks associated with lithium's price instability and uncertain demand growth render this project too speculative for some investors. For those seeking a stable return, the Smackdown Formation’s project may be best approached with caution, given the current state of the lithium market and its sensitivity to global supply-demand dynamics.
My Sources:
https://www.newsweek.com/enormous-reserve-hidden-treasure-found-under-arkansas-1972840
https://www.usgs.gov/news/national-news-release/unlocking-arkansas-hidden-treasure-usgs-uses-machine-learning-show-large#:~:text=The%20USGS%20predictive%20model%20provides,a%20type%20of%20artificial%20intelligence
https://corporate.exxonmobil.com/what-we-do/delivering-industrial-solutions/lithium#Whyitmatters
https://d1io3yog0oux5.cloudfront.net/_eb6382573a303ca3bd820e96a6747e7d/standardlithium/files/pages/standardlithium/db/369/description/South_West_Arkansas_Project_-_Pre-Feasibility_Study_2023.09.18.pdf
https://lithiumharvest.com/knowledge/lithium-extraction/what-is-direct-lithium-extraction/#:~:text=Direct%20Lithium%20Extraction%20(DLE)%20is,environmental%20footprint%20of%20lithium%20extraction
https://news.pontemanalytics.com/p/lay-the-smack-down
https://www.mckinsey.com/industries/metals-and-mining/our-insights/australias-potential-in-the-lithium-market#
https://www.reuters.com/markets/commodities/china-lithium-boom-slows-sagging-prices-batter-high-cost-miners-2024-03-13/
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EP66: China can’t make its own 5nm or 3nm chips under these export restrictions, can it?
7 nov· Geopolitics Unplugged
Summary:
In this episode, we explore China's struggles to independently produce advanced semiconductor chips, specifically 5nm and 3nm chips and the future to get there and lower. Despite claims of reaching 7nm, China primarily relies on outsourcing for this, and its domestic production is limited to 28nm at scale. The analysis highlights that China faces various obstacles, including a lack of access to crucial equipment like EUV lithography machines, underdeveloped silicon wafer production, limited EDA software availability, and insufficiently advanced cleanroom facilities. While China may theoretically achieve 5nm or 3nm production using workarounds like SAQP, this approach brings significant drawbacks, including high costs, low yields, and energy consumption, making it unlikely to be a viable solution. We discuss all of these things and more in this episode.
Questions to consider as you read/listen:
What are the main technological obstacles preventing China from independently producing 5nm and 3nm chips?What are the alternative methods China is employing to produce chips at smaller nodes, and what are their limitations?How does China's current chip production capacity compare to that of other countries, and how are they addressing their weaknesses?
Long format:
China can’t make its own 5nm or 3nm chips under these export restrictions, can it?
The answer is maybe. But it’ll take a lot here is why.
TL;DR:
China is far from making 5nm or 3nm chips at scale domestically due to export restrictions on advanced equipment like EUV lithography. While it can produce limited 7nm chips using inefficient workarounds (like SAQP) and perhaps lower to 5nm or 3nm, yields are low, and costs are extremely high. Core challenges include insufficient silicon wafer production, lack of key EDA design software, and underdeveloped cleanroom facilities. Essentially, without access to advanced tools and technology, China’s chip production is stalled at older nodes (mostly 28nm) and is unlikely to advance soon.
Introduction
The global race for advanced semiconductor technology has placed China at a critical juncture as it contends with strict export restrictions from Western countries. With these limitations, the question arises: can China successfully produce 5nm or even 3nm chips? While some experts and media reports suggest that China is “stuck” at the 7nm node, this narrative oversimplifies the complexities of China’s chip production capabilities. In reality, domestic fabrication is still in its infancy, and challenges across several stages of chip production hinder progress. In this analysis, we delve into China’s technological capabilities, exploring what it has achieved domestically and the significant hurdles it still faces in reaching advanced nodes independently.
CURRENT TALKING POINTS NEED REFINING
Right now, most of the world press and some self-designated subject matter experts say that China is “at 7nm chip [really node size] and is stuck there.”
But that first claim that they are at 7nm is deceptive. China uses other fabricators to get to 7nm. It is not domestic fabrication.
Here’s the real scoop in the charts that follow.
As far as being stuck there, that requires a condition precedent that they are there. The data shows that for AI chips, they aren’t truly at 7nm node size on their own…. well not really as we will see.
In truth and at scale, they are stuck at 28 nm. Shanghai Micro Electronics Equipment (SMEE) claims to have developed a 28 nm lithography machine, the SSA/800-10W. SMEE's current SSA600 series can use 90 nm, 110 nm, and 280 nm processes.
There is an asterisks though. SMIC (a domestic Chinese company) has been able to produce 7 nm chips since 2021, using a technique called "multi-patterning" (more on this latter). But the rejection rate is very very very high and it certainly isn’t at scale. SMIC's 7nm chip production is limited and the yield rate is below 50%, which is well below the industry norm of 90%. SMIC's overall monthly wafer production capacity increased from 714,000 wafers in 2022 to 805,500 wafers in 2023. It is unknown how much of that is 7nm but the best guess in the industry is that due to high rejection rates, it is very low. Otherwise, China would be trumpeting the numbers as they tend to do. SMIC's 7nm chips are very costly, around 10 times the market price of a chip manufactured at TSMC's 7-nm node.
So mostly broken, way undersupplied and way over budget. Not a lot of future there.
For Chinese domestic production of AI chips per the chart above, for GPUs they are at best 28nm, for FPGAs they are at best 40nm, for ASICs they are at best 22nm. To get to 7nm at scale for AI chips they have to outsource and that is predominantly to TSMC. That TMSC door is closed. Taiwan is getting pretty darn aggressive in its written regulations to hurt China.
CAN CHINA GET TO 5nm OR 3nm WITH WHAT IT HAS ON HAND?
Recall getting below 7nm requires ASML EUV or NAEUV lithography systems generally. China has zero EUVs or NAEUVs. They do not even have the high-end older technology DUVs. They have zero of the TWINSCAN NXT:1970i and 1980i DUV immersion lithography systems.
Now back on October 24, 2024, ASML’s CEO Christophe Fouquet stated that China MAY be able to produce 5nm chips or 3nm chips using an older technology DUV equipment. How can this be without EUVs or NAEUVs?
China can potentially make 5nm chips by utilizing workarounds like "self-aligned quadruple patterning (SAQP)" technology on existing Deep Ultraviolet (DUV) lithography machines. Self-aligned quadruple patterning (SAQP) is a lithography technique that increases the density and performance of chips by creating IC patterns from larger pitched patterns on photomasks. SAQP is a spacer-based patterning approach that uses one lithography step and two spacer depositions to reduce lithography resolution by four times. What the heck does that mean? Self-aligned quadruple patterning (SAQP) is a manufacturing technique used to fit more components onto a computer chip, boosting its power and efficiency. Imagine it as a method to create very fine, precise lines needed for chip circuits, starting with a bigger, simpler pattern. In SAQP, only one “printing” step is needed, but the process cleverly adds layers around the initial pattern, almost like building up ridges around a stencil. By adding these layers in just the right way, SAQP divides the original pattern into four, resulting in a much finer design without requiring extra printing steps. This method allows chipmakers to achieve much higher detail than traditional methods, making it possible to produce powerful, compact chips for modern technology. SAQP is also known as a brute-force method because it involves pitch-splitting, which is the division of a pattern into two or three parts. The SAQP process uses repeated plasma deposition and etching steps to pattern fins.
But if the 7nm process using this SAQP process is wasteful with low yields, has high production costs, uses a lot of energy and is not cost competitive compared to using EUV technology, then 5nm or 3nm DUV production using SAQP is going to be perhaps an order of magnitude worse.
But doing the DUV-SAQP route is not easy because it requires technical labor resources (read humans) that China does not currently have.
BUT THERE’S MORE
Recall the lithography is only one part of the ecosystem. Some of the other parts that are worth noting include:
First, there is silicon wafer production. Well-known companies in the production of silicon materials include Shin-Etsu Chemical and SUMCO in Japan, LG Chemical in South Korea, and Global Wafer in Taiwan, China. Although a certain number of companies in mainland China are doing research and development and production of silicon materials, their proportion is still too small. It can be said that the problem of silicon wafer production capacity in the chip manufacturing process is a big mountain on the road of domestic chip development.
Second there is EDA tool software. Electronic Design Automation (EDA) is a specific category of hardware, software, services and processes that use computer-aided design to develop complex electronic systems like printed circuit boards, integrated circuits and microprocessors. The main areas where it can support design work include IC design, electronic circuit design, and PCB design. Currently, the leading EDA software providers globally are Synopsys, Cadence, and Mentor Graphics (now under Siemens), all based in the United States. These three major companies dominate the EDA market, controlling over 90% of the global share. China, however, remains a crucial growth market for these industry giants. Although there are EDA software companies in China, the most prominent one is BGI, which has inherited the early domestic Panda EDA system and has built substantial technological expertise. Despite this, the domestic EDA industry as a whole still faces challenges in achieving a complete process workflow, indicating a significant journey ahead. Without EDA software design, there is no way to design high-end chips.
Third is having the correct environment (clean room). The cleanroom level needed for sub 7nm chips depends on the process, but it's usually ISO 4 (Class 10) or ISO 5 (Class 100). And that is a fascinating discussion for another day.
Conclusion
In summary, China’s path to producing 5nm or 3nm chips domestically is fraught with challenges. While workarounds like self-aligned quadruple patterning (SAQP) theoretically allow for the creation of smaller node sizes, the high costs, low yields, high energy costs, and lack of technical expertise present substantial obstacles. Furthermore, critical components such as silicon wafer production, EDA software, and advanced cleanroom facilities are still underdeveloped in China’s semiconductor ecosystem. Without access to cutting-edge EUV lithography and a robust infrastructure, China’s ambition for advanced chip production remains limited, at least for now.
Sources:
https://itif.org/publications/2024/08/19/how-innovative-is-china-in-semiconductors/#:~:text=Semiconductor%20Manufacturing%20Equipment,-Lithography%20represents%20a&text=Shanghai%20Micro%20Electronics%20Equipment%20(SMEE,the%20SSA/800%2D10W.&text=(By%20comparison%2C%20TSMC%20was%20manufacturing,(See%20figure%208.)
https://swarajyamag.com/tech/how-chinas-state-funded-semiconductor-chipmaker-smic-is-overcoming-us-sanctions-and-developing-a-5-nanometer-chip#:~:text=SMIC%20has%20been%20capable%20of,million%20transistors%20per%20square%20millimeter
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EP65: The South Korean Loophole: Is China’s Access to Advanced Technology Wide Open?
6 nov· Geopolitics Unplugged
Summary:
In this episode, we examine the growing tension between the US and South Korea regarding export controls on semiconductor technology to China. Despite international efforts to restrict China's access to advanced technology, South Korea's dependence on the Chinese market and lack of comprehensive export controls present a significant loophole. This loophole, fueled by South Korea's key role in the global semiconductor industry, weakens the effectiveness of export restrictions, potentially enabling China to obtain restricted technology through indirect channels. We emphasize the urgency of closing this loophole to ensure the efficacy of global efforts to safeguard advanced technology.
Questions to consider as you read/listen:
What are the implications of South Korea's lack of export controls on advanced semiconductor technology for the global effort to curb China's technological advancement?How do the competing priorities of South Korea's economic ties with China and its security alliance with the US impact its stance on semiconductor export controls?What are the potential consequences for South Korean companies and the global semiconductor industry if South Korea adopts stricter export controls on China?
Long format:
The South Korean Loophole: Is China’s Access to Advanced Technology Wide Open?
Introduction
As global powers increase restrictions on semiconductor and technology exports to safeguard critical advancements from unauthorized access, Japan, the Netherlands, the USA and Taiwan have implemented rigorous export controls aligned with U.S. policies aimed at limiting China’s access to cutting-edge semiconductor technology. However, a significant gap in these measures lies in the lack of similar restrictions in South Korea. Given South Korea’s central role in the semiconductor industry and its proximity to China, this absence of export controls represents a critical vulnerability in the broader strategy to curb China’s acquisition of sensitive technology. Without coordinated measures from South Korea, there exists a substantial risk of these technological safeguards being circumvented, potentially undermining the collective efforts of other nations.
INFORMATION
South Korea is considering export controls on semiconductor technology, in response to the US's request to limit the export of certain equipment and technologies to China:
Equipment and technology
The US is asking South Korea to limit the export of equipment and technologies used to make advanced logic chips and DRAM memory chips. This includes logic chips more advanced than 14-nanometer, and DRAM memory chips beyond 18 nanometer.
The South Korean government is concerned that export control measures on China could negatively impact the competitiveness of the South Korean semiconductor industry.
China is South Korea's biggest trading partner, and South Korea relies on China for trade.
But as of right now, there are no laws or regulations preventing export. It is up to the individual companies. The South Korean government says it is in favor of multi county talks aimed towards export curbs but does not seem to be independently committed to act.
This is a very large loophole for China. If the other countries, namely USA, the Netherlands, Japan and Taiwan are looking for their export controls to be effective rather than just hurt their companies bottom line, South Korean involvement isn’t just preferred. It is necessary.
In October 2023, the South Korean government announced that its semiconductor manufacturers, Samsung and SK Hynix, have secured waivers from U.S. export curbs. The waivers do not have a definite end date.
South Korea is a major player in the global semiconductor industry, with companies like Samsung and SK Hynix operating in China. However, China is South Korea's biggest trading partner, accounting for roughly half of South Korean semiconductor sales. South Korea is also a key ally of the US, and their security alliance is a cornerstone of their relations.
CONCLUSION
The absence of stringent export controls in South Korea creates a large and concerning loophole in the international effort to limit China’s access to advanced semiconductor technology. While Japan, the U.S., the Netherlands and Taiwan have tightened restrictions to protect sensitive technology, South Korea’s openness to China weakens this protective stance, potentially allowing restricted technology to enter the Chinese market through indirect channels. For the global strategy against unauthorized technology transfer to succeed, cohesive export controls from key players like South Korea will be essential. Closing this gap is critical to ensuring the effectiveness of semiconductor and technology curbs in an increasingly competitive and security-conscious global landscape.
Sources:
https://koreapro.org/2024/04/us-reportedly-presses-south-korea-to-tighten-chip-export-controls-on-china/#:~:text=for%20sensitive%20products.-,The%20U.S.%20has%20asked%20South%20Korea%20to%20tighten%20export%20controls,export%20controls%20for%20sensitive%20products
https://www.bloomberg.com/news/articles/2024-03-22/south-korea-targets-multi-country-talks-for-chip-export-controls#:~:text=South%20Korea%20is%20tapping%20into,as%20its%20biggest%20trading%20partner
https://www.japantimes.co.jp/business/2024/09/02/tech/south-korea-us-china-chip/#:~:text=%22The%20bigger%20the%20shock%2C%20the,important%20to%20us%2C%20too.%E2%80%9D
https://qz.com/south-korea-china-chip-exports-us-1851380981#:~:text=Bloomberg%2C%20citing%20unnamed%20sources%20familiar,memory%20chips%20beyond%2018%20nanometer
https://koreapro.org/2024/04/us-reportedly-presses-south-korea-to-tighten-chip-export-controls-on-china/#:~:text=South%20Korean%20officials%20are%20reportedly,export%20controls%20for%20sensitive%20products
https://www.bloomberg.com/news/articles/2024-03-22/south-korea-targets-multi-country-talks-for-chip-export-controls#:~:text=South%20Korea%20is%20tapping%20into,as%20its%20biggest%20trading%20partner
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EP64: Balancing Progress and Protection: Japan’s Role in Global Semiconductor Security
6 nov· Geopolitics Unplugged
Summary:
Japan has implemented strict export controls on semiconductor technology, specifically targeting advanced manufacturing equipment, in alignment with U.S. efforts to limit China's access to cutting-edge chip technology. These controls involve licensing requirements, expanded restrictions on specific technologies, and streamlined processes for trusted countries. Japan's approach prioritizes national security and responsible technology export while fostering international cooperation to safeguard crucial technological advancements in the semiconductor industry.
Questions to consider as you read/listen:
How does Japan's semiconductor export control policy impact global technology security?What are the main goals and strategies of Japan's semiconductor export controls?How does Japan's approach to semiconductor export control align with other countries' policies?
Long format:
Balancing Progress and Protection: Japan’s Role in Global Semiconductor Security
Introduction
In response to global concerns over technology security and competitive advantage, Japan has implemented a series of export controls for semiconductor technology. These regulations, particularly aimed at advanced semiconductor manufacturing equipment, reflect Japan’s strategic stance on technology exports, especially in alignment with U.S. efforts to limit China’s access to cutting-edge semiconductor processes. Japan’s approach includes a combination of licensing requirements, expanded restrictions, streamlined processes for trusted countries, and enhanced reporting protocols, all designed to safeguard critical technology from reaching unauthorized markets.
INFORMATION
Japan has implemented several export controls for semiconductor technology, including:
Licensing requirements
Japanese suppliers need a license from the Ministry of Economy, Trade and Industry (METI) to export certain semiconductor manufacturing equipment. As of July 23, 2023, Japan requires a license from the Ministry of Economy, Trade and Industry (METI) to export 23 types of advanced semiconductor manufacturing equipment. These include equipment for: Forming circuit patterns, Testing chips, and EUV (extreme ultraviolet) lithography. Put simply, manufacturing equipment required for advanced semiconductors with range of 10 to 14 nanometers and below are subject to export control restrictions.
Expanded restrictions
Japan has expanded export restrictions on technologies such as scanning electron microscopes, gate-all-around transistors, and cryogenic CMOS circuits.
Simpler application process
A simpler application process is available for exports to 42 countries and territories that are part of the Wassenaar Arrangement, including the United States, South Korea, and Taiwan.
General Comprehensive License
A blanket permit called the “General Comprehensive License” is required for exports to a list of countries, including the Netherlands, the United States, Taiwan, India, and Lithuania.
Increased reporting requirements
Suppliers must increase their reporting requirements to METI.
Public consultation
The government holds public consultations to discuss and exchange information with export companies.
Japan's export controls are in line with the US's efforts to limit China's access to key semiconductor processes.
CONCLUSION
Conclusion
Japan’s semiconductor export controls underscore a growing trend among leading economies to protect advanced technologies and strengthen national security interests. Through licensing requirements, extended restrictions, and ongoing public consultations, Japan is reinforcing its commitment to responsible technology exports while fostering cooperation with allied countries. By aligning its regulations with those of the U.S., Japan’s export policy not only aims to control sensitive technology access but also contributes to a broader international framework of technology security in the semiconductor industry.
Sources:
https://www.csis.org/blogs/perspectives-innovation/key-differences-remain-between-us-and-japanese-advanced-semiconductor#:~:text=Exports%20from%20Japan%20are%20subject,for%20certain%20destination/item%20combinations
https://asia.nikkei.com/Business/Tech/Semiconductors/Japan-s-new-chip-equipment-export-rules-take-effect-Sunday
https://langleyesquire.com/analysis-of-japans-export-control-policy/#:~:text=Strengthen%20Catch%20All%20Regulation%20(2)&text=Rather%20than%20just%20having%20export,clearance%20for%20the%20economic%20sector
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EP63: Protecting Security or Sinking Stocks? The High Stakes of Dutch Export Laws
6 nov· Geopolitics Unplugged
Summary:
The Netherlands has imposed strict export controls on advanced semiconductor manufacturing equipment, particularly those produced by ASML, to protect national security. These controls require companies to obtain licenses before exporting such equipment outside the European Union. The restrictions have impacted ASML's stock valuation and sparked discussions about potential adjustments to the export laws. The Netherlands aims to balance its commitment to national security with the economic well-being of its high-tech industries.
Questions to consider as you read/listen:
How does the Netherlands' export control policy balance economic growth with national security concerns?What are the specific types of advanced semiconductor manufacturing equipment subject to Dutch export controls?What are the potential consequences of the Netherlands' export control policy on the global semiconductor industry?
Long format:
Protecting Security or Sinking Stocks? The High Stakes of Dutch Export Laws
Introduction:
The Netherlands has established stringent export controls on strategic goods and services, particularly in the high-tech sector, as part of its national security and international policy. Among the most closely monitored items are advanced semiconductor manufacturing technologies, critical for producing cutting-edge microchips used worldwide. These controls reflect the Netherlands’ commitment to balancing economic growth with global security responsibilities, an approach increasingly relevant in today’s geopolitical landscape.
DETAILS
The Netherlands has export controls on strategic goods and services, including advanced semiconductor manufacturing equipment, to protect national security:
Advanced semiconductor manufacturing equipment
As of September 1, 2023, Dutch companies need a license from the Central Import and Export Office to export certain advanced semiconductor manufacturing equipment outside of the European Union. This includes equipment for atomic layer deposition, lithography, and epitaxial growth, as well as Extreme Ultraviolet (EUV) pellicles and production equipment for EUV pellicles. EUVs are the only equipment in the world that can produce chips under 7nm. ASML is the only company in the world that makes EUVs. Older technology deep ultra violet lithography systems (DUVs) are made at ASML as well as other countries and companies. But two of the higher end DUVs require export licenses to ship out of the Netherlands. The TWINSCAN NXT:1970i and 1980i DUV immersion lithography systems from ASML require export licenses from the Dutch government.
Strategic goods and services
The Netherlands has export controls on military goods, dual-use goods, and certain types of software and technical advice. The Netherlands does not issue licenses for the export of these goods if they could contribute to human rights violations, international aggression, or instability.
Principles
The Netherlands' export control policy is based on the principles of prioritizing security interests over economic interests, and not contributing to the development of weapons of mass destruction.
The future of Dutch export controls
October 15, 2024 the ASML earning report was released. The stock tumbled and with it a large amount of the valuation of the company. Many analysts point to these restrictions as the reason As a result there have been grumblings to revisit the law so that ASML doesn’t crater.
Conclusion:
The impact of the Netherlands’ export control policies, particularly on semiconductor manufacturing, has drawn considerable attention, especially in light of the recent decline in ASML’s stock valuation. With such significant economic repercussions, discussions are emerging about possible adjustments to these restrictions. As the Netherlands continues to navigate its role in global trade and security, the future of these policies may hinge on balancing the interests of national security with the economic well-being of its high-tech industries.
Sources:
https://sanctionsnews.bakermckenzie.com/the-netherlands-to-introduce-supplemental-export-controls-for-advanced-semiconductor-production-equipment/
https://www.government.nl/topics/export-controls-of-strategic-goods#:~:text=Military%20goods%20(such%20as%20guns,export%20certain%20types%20of%20software
https://www.government.nl/topics/export-controls-of-strategic-goods/export-control-policy-for-strategic-goods
https://www.engage.hoganlovells.com/knowledgeservices/news/new-dutch-export-controls-on-advanced-semiconductor-manufacturing-equipment#:~:text=The%20Netherlands%20made%20use%20of,Associated%20software%20and%20technology
https://globalinvestigationsreview.com/review/the-european-middle-eastern-and-african-investigations-review/2024/article/netherlands-unilateral-export-controls-safeguard-national-security
https://www.twobirds.com/en/insights/2023/netherlands/dutch-national-additional-export-control-measures-for-advanced-semiconductor-manufacturing-equipment#:~:text=Countries&text=From%201%20September%202023%2C%20the,wish%20to%20export%20such%20equipment
https://jordantimes.com/news/business/dutch-match-us-export-curbs-semiconductor-machines#:~:text=%22Thus%2C%20the%20uncontrolled%20export%20of,3%20users%20have%20voted
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EP62: The Silicon Gatekeepers: Taiwan’s Technology Defense and Its Global Ripple Effect
6 nov· Geopolitics Unplugged
Summary:
In this episode we discuss Taiwan’s recent efforts to protect its vital technology sectors, particularly in semiconductors and advanced technologies. Taiwan has implemented stringent export restrictions under its National Security Act, aimed at preventing unauthorized transfer of key technologies, particularly to adversaries like China. We highlight the key role of the National Science and Technology Council (NSTC) and the list of “National Core Key Technologies” (NCKT) in safeguarding crucial innovations. These measures complement similar U.S. initiatives, creating a global defense against potential misuse of these technologies and ensuring a stable global supply chain.
Questions to consider as you read/listen:
1. How does Taiwan’s technology defense strategy impact the global tech landscape?
2. What are the main goals and implications of Taiwan’s “National Core Key Technologies” list?
3. How does the collaboration between Taiwan and the U.S. shape the global tech security landscape?
Long format:
The Silicon Gatekeepers: Taiwan’s Technology Defense and Its Global Ripple Effect
Today, 4 November 2024 it was announced that Taiwan added 10 new technologies to its growing list of National Core Key Technologies that prohibited from being exported.
(One sentence thesis: Taiwan’s stringent technology export restrictions complement U.S. efforts by creating a fortified defense around critical innovations, ensuring that essential technologies remain secure from adversarial exploitation and reinforcing global tech security.)
TL/DR:
This paper examines Taiwan’s recent measures to protect its high-value technology sectors, focusing on its National Security Act, the role of the National Science and Technology Council, and the regulated list of “National Core Key Technologies.” (NCKT) These controls target critical areas such as advanced semiconductors, quantum cryptography, and defense tech, with frequent reviews to adapt to evolving threats. Violations carry severe penalties, underscoring Taiwan’s commitment to prevent unauthorized technology transfers. China, as a primary consumer and competitor in these sectors, is directly impacted, while the U.S. and other global allies benefit from Taiwan’s heightened security measures, which help stabilize the tech supply chain and safeguard international economic and security interests. Together, Taiwan’s and the U.S.’s export restrictions create a robust defense against the potential misuse of crucial innovations. I go into a deep dive on Taiwan’s efforts.
INTRODUCTION
In recent years, the United States has tightened export restrictions on advanced technologies to curb their potential misuse by adversarial nations, particularly through initiatives led by the Department of Commerce. These restrictions, aimed at safeguarding sensitive technology sectors such as semiconductors, AI, and cybersecurity, have set a new precedent for international tech security. However, Taiwan, a global leader in semiconductor production and advanced tech development, has independently implemented its own stringent measures to protect its national interests and core technologies. Taiwan’s complementary efforts—encompassing the National Security Act, export controls, and designated protection for critical sectors—play a vital role in securing a supply chain that supports industries worldwide. Together, U.S. and Taiwanese policies form a layered defense strategy, protecting cutting-edge innovations from potential exploitation and underscoring the importance of collaboration in technology security. This paper explores Taiwan’s unique role in the global tech landscape and examines why its protections are crucial for both regional stability and international economic security.
1. Taiwan’s National Security Act: Enactment and Purpose
The National Security Act (NSA) of Taiwan was enacted and promulgated on July 1, 1987, with subsequent amendments to address evolving security concerns. Its primary purpose is to ensure national security and maintain societal stability by preventing activities that could compromise the nation’s safety, including espionage, unauthorized disclosure of state secrets, and actions that threaten public order.
2. Taiwanese National Science and Technology Council
The National Science and Technology Council (NSTC) is Taiwan’s primary agency responsible for formulating and implementing national science and technology policies. Established in July 2022, the NSTC succeeded the Ministry of Science and Technology, aiming to enhance the nation’s technological development and innovation. It focuses on long-term talent cultivation, research development in critical sectors like semiconductors, and fostering international cooperation to strengthen Taiwan’s position in the global technology landscape.
3. Regulation for the Recognition of National Core Key Technologies
The “Regulation for the Recognition of National Core Key Technologies” is a framework established by the NSTC to identify and protect technologies vital to Taiwan’s national security and industrial competitiveness. Implemented on April 26, 2023, this regulation outlines the criteria and procedures for designating specific technologies as “National Core Key Technologies” (NCKTs), ensuring they receive appropriate protection against unauthorized transfer or exploitation.
4. Covered Technology Sectors
The regulation encompasses several critical technology sectors labelling them as NCKTs, including but not limited to:
Semiconductors: Advanced integrated circuit (IC) manufacturing processes of 14nm and below, along with essential materials and equipment.
Heterogeneous Integration and Packaging: Technologies such as wafer-level packaging and silicon photonics integration.
Information and Communication Security: Chip security, post-quantum cryptography protection, and proactive network defense technologies.
National Defense Technology: Technologies pertinent to national defense applications.
Space Technology: Including satellite launch systems and related technologies.
Agriculture: Advanced agricultural technologies critical to national interests.
5. Review Frequency of the List
The NSTC reexamines the list every three months and considers public comments.
6. Last Revision and Its Outcome
The most recent revision occurred or around 4 November 2024 with adding 10 new key technologies to the list.
7. Penalties for Violating Export Restrictions
Violations involving the unauthorized transfer or exploitation of National Core Key Technologies are subject to stringent penalties under the amended National Security Act. Individuals found guilty of economic espionage related to these technologies may face imprisonment ranging from 5 to 12 years and fines between NT$5 million and NT$100 million.
8. Implications for China
China has a vested interest in Taiwan’s technological advancements, particularly in sectors like semiconductors, where Taiwan holds a significant global market share. The stringent controls and protective measures implemented by Taiwan aim to prevent unauthorized access and transfer of critical technologies to foreign entities, including China. These measures could limit China’s ability to acquire advanced technologies through non-transparent means, thereby affecting its technological development and strategic objectives.
9. Global Significance, Including for the United States
The protection of Taiwan’s critical technologies has broader implications for the global community, especially for countries like the United States. Taiwan plays a pivotal role in global supply chains, particularly in the semiconductor industry. Ensuring the security and integrity of Taiwan’s technological assets is crucial for maintaining global technological leadership, economic stability, and national security. Collaborative efforts to safeguard these technologies align with international interests in preventing the proliferation of advanced technologies to potentially adversarial nations.
CONCLUSION
Taiwan’s proactive measures to safeguard critical technologies are essential in the collective effort to secure global innovation and stability. By reinforcing export controls that align with U.S. Department of Commerce policies, Taiwan is creating a protective barrier against the unauthorized transfer of high-value technologies to adversarial nations. While these restrictions may impose immediate economic costs on Taiwanese companies by limiting exports to China, the long-term benefits—protecting Taiwan’s tech leadership, preserving U.S. security interests, and ensuring a stable global supply chain—far outweigh these losses. To maintain this delicate balance, it is crucial for the U.S. to continue encouraging Taiwan to not only uphold but expand these protections. Through diplomatic support, joint technology initiatives, and potential compensatory measures, the U.S. can help Taiwan navigate these challenges and foster a resilient alliance that upholds both nations’ technological and security interests amid growing global competition.
Sources:
https://www.leetsai.com/trade-secret/geopolitics-and-legal-risks-introduction-to-the-legal-framework-of-the-national-core-key-technologies
https://www.digitimes.com/news/a20241104PD206/technology-taiwan-design-security-nstc.html
https://www.taipeitimes.com/News/taiwan/archives/2024/11/02/2003826264
https://www.bakermckenzie.com.tw/-/media/minisites/taiwan/news-pdf/2023/20231027-terrence-wang.pdf?rev=d838bb64b1d442f78c0fa1e1c67c934c&sc_lang=ja
https://www.trendforce.com/news/2023/12/06/news-taiwan-lists-22-critical-technologies-to-face-strict-controls-included-14nm-processes-and-beyond/
https://focustaiwan.tw/sci-tech/202312050018
https://www.iam-media.com/article/amended-national-security-act-imposes-stricter-punishments-trade-secret-misappropriation-following-new-list-of-crucial-tech
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