October 18, 2022 - 7:00am
The United States recently moved to severely restrict the export of advanced semi-conductors to China. At first it may appear odd that America would engage in export bans of this type. For one, China is America’s second largest export market for semiconductors, making up almost 15% of total exports. But the ban also seems to fly in the face of America’s self-identity as a nation that promotes and benefits from global commerce.
When explaining the policy to the world, the United States did not ask the Secretary of Commerce to speak. Rather, National Security Adviser Jake Sullivan stepped into the breach. Economic considerations did not appear to be at the top of his agenda. Indeed, Sullivan instead pivoted to rhetoric that harkens back to the old Cold War.
“The Peoples’ Republic of China’s assertiveness at home and abroad is advancing an illiberal vision across economic, political, security, and technological realms in competition with the West,” Sullivan said. “It is the only competitor with both the intent to reshape the international order and the growing capacity to do it.”
America fears China. There is no other way to read Sullivan’s statement. Not simply does it fear China, but it is willing to tear up the playbook to fend off what it sees as the threat from China. Unlike Russia, China has not invaded another country. Yet the Biden Administration is imposing what are effectively sanctions on China. This is erratic behaviour — and no doubt the rest of the world is watching and wondering what might provoke the United States to sanction them.
The ban itself is both highly punitive and likely to be counterproductive. Not only does it ban the export of American-made semiconductors to China, it also places licensing requirements on foreign-made chips that use American tools and software in the design and manufacturing process. The incentive this creates for other countries is obvious: for a broad, unrestricted market for one country’s chips, it needs to switch from American tools and software to alternatives.
The legislation also places restrictions on American citizens from working with Chinese chip manufacturers. This means that Americans will be less incentivised to go into the semiconductor business. After all, why put the time and effort in to build a career if it can be demolished with a stroke of the President’s pen? Foreign talent, meanwhile, will be at a premium.
The legislation will also negatively impact American R&D in chip development. Economist David Goldman estimates that the damage to capital investment in the industry caused by the ban will be five times the size of the modest subsidies. The industry itself is already a laggard. Recent legislative attempts to shore up the industry, like the CHIPS Act, have been stymied by lobbying pressures in DC. “Taking the long view, CHIPS might have been a great policy solution twenty-five years ago,” writes Julius Krein, “but amid the current American postindustrial landscape, it is probably too little, too late, on its own.”
America increasingly looks like it is waking up to the new multipolar world and reacting fearfully. Rather than assessing this new world and trying to find a place in it, the country appears to be trying to wish it away with aggressive but ultimately futile legislative interventions. “Our goal is not to force our partners to fall in line with us on every issue,” Jake Sullivan said in his speech, “and we will not carve the world into rigid blocs”. In fact, America appears to be trying to do both. But it is vastly overestimating its power to achieve either.
A few days after the legislation was announced, German Chancellor Olaf Scholz announced that decoupling from China is the “wrong answer” and locked in a trip to Beijing in November. This is the sensible path, and one that America should follow too.
Philip Pilkington is a macroeconomist and investment professional, and the author of The Reformation in Economics
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SubscribeWhy is it erratic behaviour? Why would America send semi conductors to its major rival who has a history of stealing intellectual property and is becoming more assertive both at home and abroad?
Surely outsourcing thousands of manufacturing jobs in the hope it would liberalise the CCP 20 years ago was the erratic short sighted behaviour?
China has no history of stealing intellectual property. Not a single IP court (or WTO’s TRIPS) records a single significant Chinese theft of IP.
As far as becoming more assertive both at home and abroad, that’s because it’s tired of US kicking it around. (Russia feels the same way, but is more demonstrative).
The Chinese, by swamping universities, are stealing Western IP before the West can get it into the IPOs. Many years ago the Chinese government bought 50 jet engines, state of the art for passenger aircraft, from one of the big UK companies. We just want to try them in our own airframes, they said, and if we like them we will probably order 500. They obviously didn’t like them because they didn’t order any more but their passenger jets seem to have been fitted with cloned UK engines.
And you probably know there are major WTO cases in process alleging theft of IP by the Chinese. But don’t mention these, eh?
How much is China paying you to say this? Stop insulting the intelligence of people who know what the aspirations of China’s One Belt, One Road policy are. China is a copycat/aggressor nation. All of their innovations in modern history have been stolen from various other countries namely from the US. Chinese citizens aka Chinese spies have infiltrated all strata of American government and industry from consumer, commercial, industrial, medical and military to universities. They embed themselves into these positions and conduct espionage operationsto send critical IP information back to CCP. This is a known fact and there are various chinese nationals in the US that have been arrested and tried in criminal court for this very thing. Even US non-chinese nationals have been caught sending state, research, and industrial IP to China.
Using the excuse that China is tired of being kicked around by the US is a lame one. China has been aggressive going into poorer nations and continents like South America and Africa, making vast infrastructure promises and improvements and holding these various countries hostage with debt. China is scrambling to secure mineral rights all over the globe. This is called comepetion and their ridiculous saber rattling notwithstanding is as transparent as their intentions. So stop apologizing for them and frankly stop lying about what they do or don’t do. They wouldn’t be where they are today if it wasn’t for their blatant theft of IP.
Fearing China is a rational reaction. After all, China and its ‘Wolf Warrior’ diplomacy has gone to considerable trouble to ensure that it should be feared, resented, and hated by other countries. The hard question is how best to deal with the situation.
I think the country which is most hated in the world is the one which has invaded four sovereign states this century leaving chaos behind.
Tibet was a sovereign state too, Iris.
Germany thought it could ‘civilise’ Russia through
sucking up to themconstructive engagement. The same policy is now being tried with the Chinese. It’s almost as if the Germans can’t learn from history. The USA was right then and are right now.Perhaps this article was written before China became a major threat to western interests in the 1990s and accidentally published at the wrong time?
“Taking the long view”
These are the words which are both instructive about America’s policies and foreign to anyone who has actually helped drive American policy for what, about 30 years?
Unrelated to the chip story slightly but what about some coverage related to Saudi Arabia in all this crazy geopolitical business , there seems to be no mainstream coverage of this really, I have read on oilprice.com that they are no longer us ally in opec so the us is very upset and is now pulling its arms sales to them and then yesterday I read Saudi are donating 400m dollars to ukraine and the Americans about hit the ceiling, what’s going on with that?
Excellent article, a bit more like it than the last one about china’s ‘inward turn’
The writer asserts: “Unlike Russia, China has not invaded another country.” Remember Tibet? Remember the border clashes with India? I guess not. Or how about China’s takeover of Hong Kong, when it promised to respect that former British colony’s liberties? And what about the South China Sea, which it declared entirely Chinese, on obviously ludicrous grounds — and then militarized?
China has accumulated a very bad record of bullying and deceit and theft of technology. But fortunately, it does not have the capacity to produce high-quality chips, and the US (along with, I suppose, quite a few other countries) would like to keep it that way, because these chips are essential to the manufacture of precision weaponry. I see no real reason to object — except maybe by people on China’s payroll.
American policies toward China are nearing Cold War status because that is precisely what the American people want, and it’s one of the few issues that America’s military industrial complex, the deep state, and the American people themselves actually agree on. The opposition from big business and neoliberals is largely of the quiet, non-political sort because being associated with China is a political loser here, and why shouldn’t it be? We’re talking about a nation that is putting its citizens in concentration camps and using them for slave labor. Americans who follow such things are properly horrified that the products that they buy might have come from workers in concentration camps. America is waking up to the reality that it can’t be a global hegemon forever, and we’re behaving exactly appropriately, but acting in our interests. Sucks for everybody else who was enjoying playing both sides for economic benefit, but that’s life. When Hitler came to power in Germany, the whole world had to deal with the consequences. China took a similar bad turn when Xi Jinping came to power. He now looks like he’s made himself dictator for life. We have to deal with the China we have, not the China we wish we had or the China of fifteen years ago. Xi should be treated as Putin is and Hitler was, as a threat to freedom and human rights everywhere. On that note, if you want to throw in your lot with a totalitarian government where free speech doesn’t exist and concentration camps are OK, do that. We’ll see how it turns out.