America is losing the semiconductor battle to China
Beijing's Micron ban shows that other countries want no part of the US trade war
The trade war continues to heat up, and now the boundaries are starting to be defined. On Sunday, the Chinese government announced that semiconductors from the American company Micron would be banned among operators of “critical infrastructure” in China. The ban could arguably have been worse — Beijing could have banned imports of the chips altogether — but the American company will still feel the pinch, given that it derives around 16% of its revenue from China and Hong Kong.
Shortly after the announcement, South Korea signalled that it would not do anything to prevent the Chinese buying chips from their companies as a substitute. Last month, the White House asked Seoul to prevent the American chips from being substituted, but South Korea shrugged it off, insisting that it was a matter for their companies to decide. Even if they wanted to, imposing such a ban would be difficult, with one industry leader pointing out to the Financial Times that “even if we increase our supply to Chinese customers, how can they examine all these deals individually and judge that the increased volume comes from us, replacing Micron’s?”
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South Korea’s refusal to damage its companies to fulfil the desires of the D.C. foreign policy establishment shows that there are hard limits to Washington’s trade war. American strategists seem to assume that the products over which they are picking fights are not easily replaceable; that, in economics-speak, they are “non-fungible”. But, as with Russian crude oil, we are seeing the global market work its magic and arbitrage away any attempts at preventing trade.
The only way America can make its trade war work is to convince a substantial slice of the world economy to put in place similar restrictions to those being imposed by Washington. But as the Micron example shows, these restrictions bring with them counter-restrictions — and this grim cycle can quickly escalate, destroying the companies caught in its wake. Countries like South Korea are simply not interested in getting involved.
Meanwhile, the United States is still trying to revive diplomatic relations with the Chinese following Secretary of State Antony Blinken’s announcement that he was cancelling his trip to Beijing after the Americans shot down a Chinese balloon earlier this year. At the G7 meeting over the weekend, President Joe Biden referred to the incident as a row over a “silly balloon” and said that he expected diplomatic relations to thaw very soon. Washington has clearly realised that the Chinese are not willing to play ball with any attempt at a “hardline” diplomatic strategy.
This last year has produced a series of lessons for the US and its allies that, in a rapidly changing world, there are limits to their power, both hard and soft. China is not Iran, or even Russia. Trying to isolate the country economically and diplomatically is near-impossible, and may well end up isolating the country attempting to impose the measure. In the coming months, it seems increasingly likely that America will have to revise its China policy.
You would like to think that the revision of US strategy towards China would be a good thing and may even lead to a revision of their self-defeating strategy world wide.
Recent actions have revealed the US and it’s European satraps to be nothing more than global warmongers and trouble makers.
Most of the world has seen this and are very reluctant to be caught up in their shenanigans. They have no appetite to throw their lot in with the US for another fight the US will lose, leaving themselves seriously damaged and abandoned in the process.
Only the Anglos and Europeans are stupid enough to take on this role.
The author has zero understanding of what’s going on here. I’ve spent decades in this industry, including some time in Korea. The relationships are far more complex than he imagines. Korean chip companies are so concerned about Chinese theft of their IP that they have airport style security scanners to get into their offices. At the same time, the Koreans have chip fabs in China and sell a lot of their chips there. It’s complex.
He also clearly has no understanding of how the sanctions are designed and what effect they will have. China has effectively been cut off from advanced chip technologies and will find it impossible to catch up – even if they can continue to steal IP, that still won’t be enough. Cut off from the semiconductor ecosystem which is complex and global. And far too complex anmd difficult to rebuild in one country. Not even the US has all the parts these days.
China will of course engage in gestures like this and there will be some collateral damage. But be in no doubt here – the big loser is China.
And frankly, South Korea has no choice whether it is involved. Longstanding US ally. With nearly 30000 US troops in the country.
I cannot find a single redeeming point to justify publishing this article.
I am not in your industry but will assume you are correct in your analysis.
I have been with UnHerd for two years now and am getting bored with the same attitudes: you are either Right or Left, pro-USA or anti-USA, pro-science or anti-science, pro-women or anti-women, etc. The idea of discussion is missed completely in the rush to state a personal belief. To answer your question – the writers of the articles know this and write accordingly.
I am a scientist and proud of it. I know a lot about batteries and electricity distribution. But that is ignored because of the rush to state the same old beliefs. Your post is great but will be ignored.
I would love to hear your thoughts on batteries and electricity distribution.
The article is putting forward a point of view. Isn’t that what Unherd is all about?
No one should be silenced in this forum unless they are personally abusive..
Indeed, no one should be silenced. Nor am I asking for that.
But it is disappointing that there seems to be so little editorial or quality control on some of the material being published. I do think UnHerd should try to raise its standards.
I’m in this industry too, and deeply annoyed with these sorts of “hot take” pieces that seem to just want to be the first to state an opinion on something in the headlines, rather than do actual research into complex world-spanning supply chains. ChatGPT could have written the same piece with minimal prompting. Freddie should tap some folks out there with real expertise in logistics (just as a general rule), and then maybe seek out some experts in particular industries like the semiconductor business.
Do you really think China has no capacity to innovate in theirs field? China has consistently surprised the West by its ability to innovate. They don’t just steal.
No. That is not what I said. I never said they do not innovate (though I wouldn’t consider them to be great at that).
My point is that they are so far behind that it is practically impossible to catch up. This would apply to any country.
In any case, the technologies here are developed and owned by large companies which dominate the industry and not by countries. The industry is a complex worldwide network. But the US – and the US alone – still has the power to gate access.
Sanctions and restricted access to the most advanced technologies only makes that harder. As does being a country where free thinking can be dangerous – not something which encourages experimentation and innovation. Innovation is dangerous and risky – it necessarily involves upsetting the status quo and challenging existing practices and authority. That’s a key reason the US is so good at it and places like Russia are not. As is the culture of a nation.
I am not sure that South Korea’s refusal to assist the USA was good idea. It may well turn out to be a strategic error given that South Korea is dependent upon US global dominance for its liberal westernised economy etc.
First Hong Kong, next Taiwan, then South Korea. It’s not a progression that any nation wants to be part of. It is understandable of course if places like South Korea doubt the present US leadership – it is a disaster that is merely embarrassing for the USA but is deadly serious for the USA’s allies – but what is the alternative?
Anyway, the article’s central argument may be suspect as a consequence of using the tactical behaviour of a single US ally as evidence of a changing pattern of global strategic interests. The latter are not changing in any way that makes liberal economies and democracies anticipate Chinese hegemony warmly, so I predict that this article may not age well.
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