Semiconductors & Advanced Manufacturing
The question haunting chip policy right now isn't technical — it's philosophical: does it matter more who makes the chips, or who profits from them?
Production vs. Profit: The Debate That Will Shape Chip Policy for a Decade
Chris Miller — the Tufts professor and author of Chip War, the definitive account of how semiconductors became the oil of the 21st century — spent this spring at a workshop wrestling with a deceptively simple question: what does economic power actually mean when your adversary has decided to be the world's factory floor?
The traditional answer, dating back centuries, is that productive capacity wins wars. Historian Paul Kennedy's famous thesis holds that in prolonged great-power conflicts, victory goes to whoever has the deeper industrial base — "him who has the last escudo," as Spanish commanders put it. By that logic, manufacturing output is power. And by that logic, China is winning. Miller's data is stark: China's share of global manufacturing value added is approaching 40% — nearly triple America's share. That is an extraordinary concentration of physical production in one country.
But a competing school of thought — and it's gaining ground in Washington policy circles — says profit is the better measure of power. The US and its allies dominate the high-margin end of the chip supply chain: chip design (think Nvidia, Qualcomm), the software that runs on those chips, and critically the equipment used to make them. ASML, the Dutch company that makes the extreme ultraviolet lithography machines (the machines that project circuit patterns onto silicon at nanometer scales — nothing else can do this) — it holds a global monopoly and generates enormous margins. That profit, the argument goes, translates into R&D investment, talent attraction, and ultimately the next generation of capability. China builds; the West earns.
Miller's honest conclusion is that neither side has this settled. The Ukraine war threw the debate into sharp relief: Ukraine deployed impressive AI-driven software to coordinate its drone operations (profit-side capability) — but those drones were stuffed with Chinese components (production-side capability). Both mattered. Meanwhile, China has shown it's willing to weaponize its manufacturing position directly, restricting exports of critical minerals, rare earth magnets, and key components to specific companies and countries when it wants to apply pressure.
The uncomfortable truth Miller is circling: the correlation between knowledge-economy dominance and military-industrial power has simply never been tested at scale. Palantir's targeting software versus China's drone assembly lines — we don't actually know which wins.
Why does this matter for semiconductors specifically? Because it's the central justification for the entire US industrial policy apparatus of the last four years: the CHIPS Act subsidies (the ~$52 billion in federal funding to rebuild US chip manufacturing), the export controls on advanced chips and chipmaking equipment to China, the pressure on Taiwan and South Korea to diversify production. All of it rests on the premise that where chips are made matters as much as — or more than — who designs them. If the profit-over-production crowd is right, that rationale gets significantly weaker. If production is what matters, the US is still dangerously behind.
The Takeaway
The semiconductor industry's geopolitical story is entering a more conceptually honest phase. For years, the US framing was clean: we design the best chips, we control the chokepoints (equipment, software), China can't catch up. That story is getting harder to tell as China's manufacturing scale grows and its drone-and-hardware production proves battlefield-relevant in proxy conflicts. Miller isn't saying the US is losing — he's saying the framework for deciding what "winning" even means needs rethinking. Watch for this production-vs-profit debate to surface more explicitly in the next round of export control policy and CHIPS Act implementation reviews.
TL;DR - China makes ~40% of the world's manufactured goods — nearly triple America's share — and is using that position as active geopolitical leverage, not just economic advantage - The US bet on "profit beats production": we design the chips, control the tools, reap the margins. That bet has never been stress-tested in a real conflict - Ukraine revealed the ambiguity: software-coordinated drones (a Western strength) filled with Chinese components (a manufacturing strength) — both mattered, and no one has a clean answer about which matters more - This philosophical debate has real policy stakes: it will shape the next generation of chip export controls and manufacturing subsidies, so it's worth understanding now
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- Chris Miller (1)