High-risk play in the US-China high-tech war

When Nancy Pelosi traveled to Taiwan in August, it made front-page news around the world and raised the specter of an all-out war between the United States and China.

Early in October, the Biden administration made a far more decisive move against Beijing – but it barely made the news across vast parts of the world. Biden decided to unequivocally sever China’s access to high-end computer chips or semiconductors.

Don’t be deceived by the technical-sounding subject as this measure is intended to tilt the global balance of power in favor of the US in a move not seen since the end of the Cold War.

Semiconductors are small, ubiquitous, and underappreciated. They are the brains of every modern device.

Without them, your phone, TV, and microwave would be transformed into bricks. Your car wouldn’t drive and planes wouldn’t fly. Weapon systems, the stock exchange, and telecommunications all depend upon chips.

In 2021, China had 7% of the world’s market share in semiconductors, according to the US Semiconductor Industry Association. For comparison, the US had 46%, South Korea 21%, Japan 9%, the European Union 9%, and Taiwan 8%.

Even though China’s global market share is growing rapidly, not all semiconductors are equal. That is why the new US controls are finely calibrated – they apply only to cutting-edge chips that China cannot manufacture itself.

Export bans

Research from the US Centre for Security and Emerging Technology shows the world’s second-largest economy “depends on companies headquartered in the US and its allies for the leading-edge computer chips that power smartphones, supercomputers, and AI systems.”

Further, every advanced semiconductor manufacturing facility on the planet is “critically dependent on US technology.” This makes the new controls devastatingly comprehensive, especially when viewed in their multifaceted entirety.

First, they prohibit the export of leading-edge chips to China. Second, they limit the export of the software, equipment, and components China would need to establish a sovereign advanced semiconductor manufacturing capability.

Third, they restrict Americans with specialist skills from working with Chinese entities, limiting knowledge transfer. Fourth, the US controls extend extraterritoriality to all advanced chip manufacturers outside the US.

These include manufacturers of American allies, and if they do not comply with the controls they will lose access to essential US equipment.

In August, Washington passed the CHIPS and Science Act which included a US$50 billion investment in America’s domestic semiconductor industry.

Combined with the new controls, this amounts to what has been described as “a new US policy of actively strangling large segments of the Chinese technology industry – strangling with an intent to kill.” The implications of this are far-reaching.

The stated objective of the new Washington controls is to limit China’s ability “to both purchase and manufacture certain high-end chips used in military applications.”

However, high-end chips are used for both military and civilian purposes. These controls will also curtail all Chinese research that depends on advanced computing.

As American international affairs scholar Jon Bateman writes:

This will hamstring the development and deployment of artificial intelligence (AI) throughout the country – hindering Chinese progress in e-commerce, autonomous vehicles, cybersecurity, medical imaging, drug discovery, climate modelling, and much else.

This policy is not just about maintaining US tech supremacy. It has the potential to degrade Chinese research across every discipline.

New controls

It is unclear how immediate an impact the new controls will have. There has long been speculation that China has been stockpiling chips and equipment, and Beijing will no doubt try to work around the controls.

The new measures will inject fresh momentum into existing Chinese efforts to achieve semiconductor self-sufficiency, but this is no easy task.

Manufacturing chips is incomprehensibly complex. It requires facilities so clean they make an operating theater look dirty and equipment so precise its calibration is impacted by the rotation of the Earth. The more high-end the chip, the more intricate the manufacturing process.

Some semiconductor manufacturers argue China will not be able to produce advanced chips without American equipment and expertise. I’ll leave that debate to the technical experts, but China’s ability to innovate should not be underestimated.

To date, the direct official response from Beijing has been muted. There have been rebukes from the official Chinese Foreign Ministry spokesperson that the US seeks only to “maintain its sci-tech hegemony” and “wantonly block and hobble Chinese enterprises.”

More importantly, and aside from steps to address supply, the question of China’s broader response demands close consideration.

The world is already experiencing a global chip shortage, particularly of the kind of less sophisticated ones produced in China. The country also dominates 80% of the global supply chain of the rare earth elements that are essential to most high-tech components.

China could seek to interrupt the supply of either or both of these, but that would be an uncharacteristically symmetrical response. It would also damage China as much as the US.

In a speech to the Communist Party Congress last week, President Xi Jinping reaffirmed, twice, his country’s goal to “join the ranks of the world’s most innovative countries, with great self-reliance and strength in science and technology” within five years.

The controls announced by the Biden administration directly undermine Xi’s ambition. They seek to maintain American tech supremacy, while simultaneously eroding China’s ability to conduct fundamental research.

Given this, a significant escalatory response from Beijing should not be unexpected.

In an age when militaries, economies, and our daily lives depend on high-tech, it is astounding how many people continue to tune out when technology – and the policies that shape it – are discussed. If there ever was a time to tune in, it is now.

Chinese technology

For several years, leaders and commentators the world over have speculated about the possibility of the US “decoupling” from China – reducing economic and technological entanglement with the rising Asian power.

Debates on the feasibility of economic decoupling will continue. But historians will pinpoint Biden’s decision on October 7, 2022, as the moment at which US and Chinese technology decoupling became inevitable.

Washington has now played its hand. The most consequential question remains: what will Beijing do next?

Professor Johanna Weaver is the director of the Tech Policy Design Center at the Australian National University.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy of China Factor.