MM#322--Silicon and Strategy in the Theater of Nations

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Welcome to the Theory to Action podcast, where we examine the timeless treasures of wisdom from the great books in less time, to help you take action immediately and ultimately to create and lead a flourishing life.

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Now here's your host, david Kaiser.

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Hello, I am David and welcome back to another Mojo Minute.

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This week we are talking all about geopolitics, a subject that just warms my heart because I just love this stuff.

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Now, last week, on a long drive to the far reaches of my sales territory for my primary job, I finished a fantastic book I mean a super duper fantastic book, and that book was Ray Dalio's principles for dealing with a changing world order.

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Now, I don't agree with all of Ray's positions offered in the book.

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Now, I don't agree with all of Ray's positions offered in the book, but boy is it refreshing to read a book and have well thought out arguments on various topics, most especially on geopolitical strategy and where things might end up in three to five years and normally.

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Normally we would get that from our leadership, political leadership, business leadership.

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But, as you know, in our 21st century America, we are looking around and we are in a deficit of leadership.

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I believe our country's leadership and, for that matter, the world's leadership, is quite mediocre.

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We're getting the JV team, the Bushleaguers, as they say Certainly not.

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The varsity was just a wonderful exercise, as I listened to, just well-structured and well-thought-out, reasoned arguments for having one position versus another position.

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Now Dalio, in his book dives into the complex world of geopolitics, and he specifically wrote the book because he's a macro investor and he's been doing this for over the last 50 years.

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He's a macro investor and he's been doing this for over the last 50 years, and so he's began studying these things these trends, big cycles, debt cycles, those types of things and the main thesis of the book is that there are large and big cycles within history, especially within economic history, on why nations succeed and fail, especially within economic history, on why nations succeed and fail.

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And he saw a pattern of these big cycles and how nations actually succeeded and rose with certain events, and then there were.

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This led to periods of prosperity for the nation, and then there was an arrogance that sets in for the population, which is followed by a debt crisis and then political polarizations and then wars, and then the nation fails.

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And his research is very, very deep and that is, in fact, what attracted me and what I liked most about the book.

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Again, now, I didn't agree with some of his arguments, but throughout the book he mentions that he knows he doesn't have all the answers, but he wanted to start the conversation with this book, so all of that is in fact pretty cool and I'm sure we are going to do an Academy review for the book.

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In fact, I already started working on it when I was on the business trip.

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But over this weekend, this past weekend, we published another wonderful book review Chip War by Chris Miller.

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Now, this book I read last year and I just got around to writing the Academy review for it.

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This book is equally fascinating because he discusses the US's historical dominance in technology and specifically in chip and semiconductor design and manufacturing.

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And then, within a few short chapters, miller began showing us how many nations are starting to catch up, if not pass the United States in this area, the United States in this area.

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And then he tells us how, specifically, semiconductors, especially in military, economic and geopolitical sense, are becoming super important, I mean uber important.

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In fact, we just talked about this a few weeks ago.

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Be sure to check out Mojo Minutes, numbers 317, 318, and 319.

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So, in fact, let's just grab our first pull quote, because that will kick off our first nugget of wisdom.

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Go on to Chris Miller's book, the Chip War.

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Today, thanks to Moore's Law, semiconductors are embedded in every device that requires computing power.

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In the age of the Internet of Things.

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This means pretty much every device.

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Even hundred-year-old products like automobiles now include a thousand dollars worth.

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Most of the world's GDP is produced with devices that rely on semiconductors.

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For a product that didn't exist 75 years ago, this is an extraordinary ascent.

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Did you catch that Most of the world's GDP is produced with devices that rely on semiconductors?

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Oh boy, holy smokes.

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Yes, holy smokes indeed with devices that rely on semiconductors.

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Oh, boy.

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Holy smokes, yes, holy smokes indeed.

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Okay, so the next legitimate and relevant question is if most of the world's GDP is produced with devices that rely on these semiconductors, where are these semiconductors and chips manufactured at?

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Great question, going back to the book, in August of 2020, the world was just beginning to reckon with our reliance on semiconductors and our dependence on Taiwan, which fabricates the chips that produce a third of the new computing power we use each year.

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A third of the new computing power we use each year.

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Taiwan's TSMC builds almost all the world's most advanced processor chips.

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When COVID slammed into the world in 2020, it disrupted the chip industry too.

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Some factories were temporarily shuttered, purchases of chips for autos slumped, demand for PC and data center chips spiked higher as much of the world prepared to work from home.

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Then, over 2021, a series of accidents A fire at a Japanese semiconductor facility, ice storms in Texas, a center of US chipmaking, and a new round of COVID lockdowns in Malaysia, where many chips are assembled and tested intensified these disruptions.

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Suddenly, many industries far from Silicon Valley faced debilitating chip shortages.

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Big car makers, from Toyota to General Motors, had to shut factories for weeks because they couldn't acquire the semiconductors they needed Shortages of even the simplest chips caused factory closures on the opposite side of the world.

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It seemed like a perfect image of globalization gone wrong.

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Political leaders in the US, europe and Japan hadn't thought much about semiconductors in decades.

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Like the rest of us, they thought, quote oh man.

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Holy smokes.

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Yes, indeed, our political leaders were caught flat-footed all around the world.

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They were not looking forward, so now we are up against it.

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We're relying on East Asia for over 90% of our chips.

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So what about Taiwan?

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How does Taiwan figure into this mess of a situation that we're in?

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And would China be Go to war over Taiwan is the next relevant question.

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Let's go back to the book to answer both of those questions.

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In a 2021 poll, most Taiwanese reported thinking that a war between China and Taiwan was either unlikely 45% or impossible 17%.

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The Russia invasion of Ukraine, however, is a reminder that just because the Taiwan Strait has been mostly peaceful for the past few decades, a war of conquest is far from unthinkable.

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The Russia-Ukraine war also illustrates the extent to which any large conflict will be determined in part by a country's position in the semiconductor supply chain, which will shape its ability to wield military and economic power.

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And later on in that same chapter, we read this the emerging Cold War between the US and China, however, will be a less lopsided match when it comes to semiconductors.

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Given Beijing's investment in the industry and given that much of the chipmaking capacity America relies on is within easy range of PLA missiles, it would be naive to assume that what happened in the Ukraine couldn't happen in East Asia.

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Looking at the role of semiconductors in the Russia-Ukraine war, chinese government analysts have publicly argued that if tensions between the US and China intensify quote we must seize TSMC, and TSMC is Taiwan Semiconductor Manufacturing Company.

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They are the big kahuna within Taiwan.

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They are the ones that are making mostly 90% of the most advanced chips in the world.

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Now, these two quotes that we just read came from chapter 51 from the book, and the name of that chapter is the Taiwan Dilemma, and it's quite a dilemma.

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Now, what would happen if we had another version of the 1950s standoff that happened between Taiwan and the Chinese Communist Party?

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Well, you might remember from your history books that during the Cold War, the Taiwan Strait was the site of significant military confrontations between the People's Republic of China, the PRC, and the Republic of China, which is in Taiwan.

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Now, these confrontations became known as the first and second Taiwan Strait Crisis, and it occurred in the context of the broader conflict between the communist and nationalist forces in China, and it was most especially made us aware in the United States of that geopolitical struggle between the United States and the Soviet Union.

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So what about this first Taiwan Strait crisis?

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What happened between 1954 and 1955?

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In August of 1954, the PRC initiated artillery bombardments on the nationalist-controlled offshore islands of Kuaimoi, which is now called Kimanen and Matsu, which are situated very close to the coast of mainland China, and the crisis was part of an ongoing Chinese civil war, with the Republic of China having retreated to Taiwan after being defeated on the mainland.

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Now the PRC's objective was to seize the strategically close islands which were being used by the Republic of China to launch raids into the mainland and to enforce a blockade against coastal shipping.

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For the PRC, the United States, which had signed a mutual defense treaty with the Republic of China in 1954, responded by deploying the 7th Fleet to the Taiwan Strait, and that was to prevent an invasion of Taiwan and to protect these offshore islands.

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Now the crisis escalated when the PRC captured the Yingsan Islands, and that prompted the United States to consider the use of nuclear weapons against mainland China if this situation continued to deteriorate, declared a ceasefire in 1955.

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And, following diplomatic negotiations and the United States' show of force, the Republic of China agreed to evacuate the Dangshan Islands, which were also under threat, in exchange for American assurances of protection for the remaining offshore islands.

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Now all was well and good.

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That was the first Taiwan Strait Crisis.

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Well, it flared up again in 1958.

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It actually became part of the 1960 presidential campaign between President Kennedy and then Vice President Nixon.

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The second Taiwan Strait Crisis occurred in, like I said, 1958, with the PRC once again targeting those same islands of Koumoui and Matsu.

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On August 23, 1958, the PRC launched a heavy artillery attack against those islands and their intention was capturing them and then ultimately targeting Taiwan itself capturing them and then ultimately targeting Taiwan itself.

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Now the United States, under President Eisenhower, responded by providing military support to the ROC, including naval escorts for resupply convoys to the island of Taiwan, and to those the use of nuclear weapons against the PRC if conventional defenses failed.

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This crisis cooled by September of 58 with the PRC and the ROC reaching an informal agreement to shell each other's positions on alternate days, which, when you read that in the history book, you're like what?

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We're going to have an informal agreement that we're going to shell each other's position on alternate days.

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Now I found this funny in the research.

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Not funny, but I found this ironic in the research.

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This was a practice that continued for two decades until the United States established diplomatic relations with the PRC in 1979.

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Ah, that was fascinating to me.

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So for two decades they would shell each other's islands on alternate days?

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That just seems bizarre.

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So these crises were significant in the Cold War context as they brought the United States and the PRC close to direct military conflict and highlighted the strategic importance of Taiwan and those surrounding small islands, and also demonstrated the United States' commitment to the defense of Taiwan against communist aggression during the Cold War.

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Now we've already talked about data being the new oil, and that's important, so always keep that in the back of your mind.

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But one more nugget of wisdom for you to ponder today Check out this most complex supply chain.

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Going back to the book, a typical chip might be designed with blueprints from the Japanese-owned UK-based company called ARM, by a team of engineers in California and Israel using design software from the United States.

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When a design is complete, it is sent to a facility in Taiwan which buys ultra-pure silicon wafers and specialized gases from Japan.

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The design is carved into silicon using some of the world's most precise machinery, which can etch and deposit and measure layers of materials a few atoms thick.

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These tools are produced primarily by five companies one Dutch, one Japanese, three Californian, without which advanced chips are basically impossible to make.

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Then the chip is packaged and tested, often in Southeast Asia, before being sent to China for assembly into a phone or a computer.

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What that is?

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A crazy and complex supply chain.

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In my primary job I deal with supply chains overseas supply chains almost weekly, especially from the Far East, waiting on container ships to hit LA, the ports of LA or Savannah, to figure out timelines to get to regional distribution centers to then be able to get to actual end users.

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But this supply chain is crazy and complex.

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So in today's Mojo Minute, both Ray Dalio's book and Chris Miller's books provide a comprehensive understanding of the complexities and the strategic significance of the semiconductor industry, especially in the context of global technology and power dynamics, with a particular focus on the critical role of Taiwan and the implications for China and Taiwan relations and the geopolitics of East Asia.

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Now come back later this week and we're going to build on all this knowledge to see how Miller's book Chippewa and Dahlia's book Principles for a Changing World Order make a fascinating combination to understand our 21st century geopolitical world.

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And we're going to attempt to answer these questions.

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Why is China looking at Japanese history, especially around World War II and the lead up to it, to understand how the United States will react to the geopolitics in East Asia.

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Second question we'll attempt to answer how important is the Strait of Malacca to China and what does the next three to five years look like in the realm of Chinese-American foreign relations?

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Little teaser with that answer is the Hong Kong history doesn't help the whole situation.

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So we live in a fascinating world which is getting smaller and smaller, yet it's getting richer and richer with complexities and challenges that are not for the faint of heart.

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To pray to have real, genuine leaders in this world who will step up and step up in a very big way to help out all world populations.

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And both of these books will help you to understand that we're living in that much, much smaller world.

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But for now let's keep let's all keep fighting the good fight and keep working hard where we have everything we discussed in this podcast, as well as other great resources.

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Until next time, keep getting your mojo on.

MM#322--Silicon and Strategy in the Theater of Nations

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