Cyber Scene #73 - Cyber Armor Up; Chips Down

Cyber Scene #73 -

Cyber Armor Up; Chips Down

The world seems to struggle more of late than in happier, global-minded days. The Russo-Ukrainian-NATO-supported war continues to play out—a rousing of international support and NATO strength to Ukraine. But short of this armed combat, the rest of the world is withdrawing.

The U.K. has chosen Rishi Sunak as Prime Minister as reported by Bloomberg on 24 October in "Sunak to Be Next UK Prime Minister." Italy’s new leader comes with some leadership issues, and the US is dealing with mid-term elections in early November that could lead the country to turn - more inward.

In the cyber world, this inward focus is even greater. Supply chain issues, political divides and other perturbations have resulted in a recalculation of what needs to be done "at home." In addition to a huge hit to "Big Tech International" and its investors, large and small, two countries particularly are sorting out new approaches to the cyber home front, be they digital, political, domestic, financial and/or many other variations. These counties are China and the U.S. Their domestic cyber strategy, nonetheless, impacts their global clout.

China, according to the Washington Post on 23 October in "China's Communist Party hands Xi an endless rule," has just assured the world that things will not change for the better, from a Western perspective, for at least many years to come. Post reporters Lily Kuo and Christian Shepherd state: "Xi was anointed Sunday as China's uncontested leader for five, if not many more years, as he concentrates power to a degree not seen since the days of Mao Zedong and Deng Xiaoping and positions his country defiantly against the West." Xi had terminated presidential term limits in 2018, so the 69-year-old may be with us for many years and terms. The Post goes on to underscore that Xi is a proponent of "self-revolution" and becoming "all-conquering." This is a hardened and seriously upfront approach from China's 2050 White Paper aspiring quietly, stealthily, to "have an influence."

On the other side of the Pacific, much depends on the mid-term elections as to what may happen on Capitol Hill and its influence on the 2024 Presidential election. But the following 2 years in the White House are set in stone, and although Nixon-Kissinger opened China to the West, it is likely that Xi’s policies will further estrange these two mega-countries.

(N.B. This Cyber Scene will not capture cyber activity on the Hill, as all candidates for representatives and one-third of the senators are running hard for the looming elections.)

The Economist's 15 October issue is laser focused on the Pacific getting wider in its overarching analysis of "A new order." It casts President Biden in tech geopolitics as "No more Mr. Nice Guy." This article states that: "On 7 October President Joe Biden's administration announced the most sweeping set of export controls in decades. The new rules cut off people and firms in China from advanced technologies of American origin, and from products made using them." Included are chips, software to advance them, and tools to make them. Even American techies cannot circumvent these rules. As an example of the impact this may have on China, the U.S. National Security Advisor Jake Sullivan noted that recent U.S. export controls have forced Russia to "use chips from dishwashers in its military equipment, over time degrading its battlefield capabilities." There may be judicial challenges within the U.S., rigid enforcement may lack necessary funding, and other countries may not concur due to economic pain. The pain would be great in the U.S. as well: "China imports $400bn-worth of chips a year" from the U.S. That is real money by any measure.

But there is more. The global market for computer chips, according to the 8 October commentary from the Economist's Schumpeter "The cloud is the fiercest front in the chip wars," is $600bn. This issue is analyzed in the context of the cloud, the data centers where the data is stored, and the impact of growth and complexity of the market for server processors.

In addressing how the new controls will be enforced, the Times' David McCabe 20 October in "US Details How it Plans to Police foreign Firms" provides an answer. The Committee on Foreign Investment in the United States (CFIUS), as was discussed recently in Cyber Scene, is positioned to levy more stringent penalties if foreign companies fail to adhere to the new guidelines. This answers, to some extent, the question of how the Commerce Department would have the clout, manning and funding to do so. Another significant player is the Treasury Department, which oversees CFIUS. The Assistant Secretary for Investment Security underscores compliance with the new regulations is clearly "not optional."

Other Asian chipmakers are impacted by this, but chip and semiconductor champions, such as South Korea's Samsung and Taiwan's TSMC are not equally affected. Filed in Singapore, the Economist's 1 October "Painful memory" distinguishes between "logic" chips processing information, and "memory chips" storing it. South Korea's memory chips have taken a bigger fall than Taiwan's logic chips. Bloomberg's 22 October "TSMC Suspends Work for Chinese Chip Startup Amid US Curbs" reports that TSMC has already had a round with Biren Technology, with halts to ensure that Taiwan does not run amok with new U.S. constraints and push back from the Chinese-based silicon startup.

Post reporters Jeanne Whalen and Aaron Schaffer's "Taiwan …says it will abide by U.S. rules" assert that Taiwan has officially accepted, as of 21 October, the new U.S. rules governing semiconductors and their minions.

It noteworthy that the U.S. strategy backs into using supply chain to "throttle China's chip development," according to Wall Street Journal's Karen Hao and Jemal R. Brinson. The text is even stronger, reporting the U.S. aim "…to strangle China's advanced-chip development." The reporters provide the context of recent years seeing various countries that specialize in chip-making. But the U.S. which leads in some of the most critical parts of the chain, is now stepping back. The Commerce Department--with notably Treasury, State, the National Security team, CFIUS and the President--is especially focused on China's semiconductor sector which has had access to critical inputs for making advanced chips. This is a new approach. Hao and Brinson's WSJ article also includes U.S. early chip supply chain charts, which the U.S. dominates regarding chip design; wafer fabrication; and assembly, packaging and testing. The restrictions also encompass "U.S. persons"—any U.S. citizens, permanent residents or people who live in the U.S., and American companies which must no longer allow "remaining avenues for China to obtain chip-making resources." The WSJ notes that it found that 16 Chinese companies had about four dozen American citizens in positions of senior executives. The Journal queries whether they may have to choose between company or country allegiance.

As alluded to earlier, this change is not restricted to the U.S. and China. The spillover is serious. The Economist's 15 October "Special Report: The world China wants" delves into why both the U.S. and the EU are worried. U.S. Secretary of State Blinken is cited as saying that globalization, which is likely being reversed, has been particularly advantageous to China, but that China is now trying to reshape it. The Biden administration calls this direction "asymmetric decoupling," as China seeks to dominate key technologies from electric-car batteries to quantum computing. Blinken believes that China plans to be "…less dependent on the world and the world more dependent on China." The EU is also concerned. Even during the Cold War, the U.S. and the Soviet Union did not trade with each other. China's accession to the World Trade Organization in 2001 was embraced by the West at that time. The article, in depth, explains how that has all changed.