The United States Began a Technological Blockade of China. Where It Leads
Before the 20th Congress of the Communist Party of China, which is important for China, the US authorities announced a ban on the export of semiconductor technologies to China, which should slow down the development of advanced industries in the country. It is the struggle in the technological arena that will reveal the world leader of the future.
Competition between the world’s two largest economies, the United States and China, is intensifying on the technology front. Before the landmark 20th Congress of the Communist Party of China, the Joe Biden administration announced serious new restrictions on the sale of semiconductor technologies to China.
The new measures from the US Department of Commerce are largely aimed at slowing down the development of Chinese military programs. In their technology, they use supercomputers to simulate nuclear explosions, control hypersonic weapons and create advanced networks to monitor political dissenters and minorities, writes The New York Times.
The agency is working to prevent China’s military and intelligence services from acquiring US classified technology, according to Alan Esteves, deputy secretary of commerce for industry and security (head of the ministerial agency for industry and security).
Industry experts say the new restrictions are the toughest U.S. export controls in a decade. While similar to the Trump administration’s trade restrictions on Huawei, the bans now affect dozens of Chinese companies.
Trump’s approach was seen as aggressive but piecemeal, and the new rules are more comprehensive - such a policy would stop the export of advanced technologies to a number of Chinese technology companies and deprive the PRC of the ability to completely independently produce advanced chips.
A senior Biden administration official told reporters that U.S. companies would not be able to supply China with advanced computing chips, processing equipment, and other products without obtaining a special license. At the same time, in most cases, licenses will be denied, and only if it comes to deliveries to facilities operated by US companies or US allies, applications will be considered on an individual basis.
Even more important, pundits say, is that the Biden administration has also imposed international restrictions. They mean that any company is prohibited from selling in China the chips necessary for the operation of artificial intelligence and the production of supercomputers if they are made using American technologies, software or equipment.
At the same time, administration officials explained to reporters that the ban would only apply to the most advanced chip options and would not have a strong negative impact on private Chinese businesses.
The new restrictions on technology sales are expected to impact Chinese chipmakers, including Semiconductor Manufacturing International, Yangtze Memory Technologies and ChangXin Memory Technologies.
Some of China’s most advanced supercomputers rely on chips made by Intel or Taiwan’s TSMC, which use American technology, and would therefore be subject to the new ban, University of Tennessee scientist Jack Dongarra said.
Why are Americans imposing such measures now?
The Biden administration announced the new measures at a particularly sensitive moment for Beijing, The New York Times notes. On October 16, the meeting of the 20th Congress of the Communist Party began, at which the country’s leader Xi Jinping is expected to be re-elected for a third five-year term. This will be the longest single-man rule in the country since Mao Zedong.
The rivalry between the US and China unfolds on many fronts and lasts for many years, but right now it has become clear that the main struggle will unfold in the technological direction, and especially in the sector of complex chip technologies that will become the basis for the industry of the future. Industry experts note that many Chinese companies that create products based on artificial intelligence are strengthening their competitive advantages with the help of American GPUs. For example, these are businesses that develop autonomous driving and genome sequencing. In particular, this applies to the artificial intelligence company SenseTime and even China’s ByteDance, which owns TikTok.
Doing business with China has become much more dangerous for American companies over the past few years as tensions between the United States and China have escalated into a violent confrontation. According to the American media, the Chinese government often attracts private business to its defense goals: the authorities are strengthening the country’s military potential through advanced artificial intelligence technologies, big data, aerospace technologies and quantum computing.
In addition, Chinese actions such as military exercises aimed at intimidating Taiwan and strengthening relations with Russia after the start of a special operation in Ukraine played in favor of the new ban.
“Given the fundamental nature of some technologies, including chips, we need to maintain as much of an advantage as possible,” National Security Adviser Jake Sullivan said.
America wants to regain leadership in the chip market
The struggle for semiconductors has now unfolded between the US and China, but initially it was America that was the first in this market, and therefore now the country wants to regain its lost leadership.
The sector is designed in such a way that it is completely dependent on just a few companies. The Taiwanese TSMC produces almost all the most advanced microprocessors, the Dutch company ASML has a monopoly in the field of lithographic equipment necessary for the production of the most complex circuits. The memory chip market is dominated by two South Korean giants, while three US firms control the semiconductor software segment.
After World War II, technology companies such as Fairchild Semiconductor, Intel, and others in Silicon Valley were market leaders and enhanced America’s technological dominance.
Then came the period when the Americans began to transfer their production to Asia for outsourcing, which strengthened the country’s trade and investment ties with Japan and other countries. The use of cheap labor has allowed companies to lower their costs, and Asian leaders have promised their fellow citizens jobs and economic growth. By the late 1970s, companies like Intel and Texas Instruments were already hiring tens of thousands of workers in Taiwan, South Korea, and Southeast Asia.
However, over time, some Asian manufacturers have gained enough experience to challenge American dominance in this market. Japan overtook the United States in the production of memory chips in the 1980s, but was inferior to South Korea in this. Taiwan has become not only the world’s largest contract chip manufacturer, but also a leading provider of chip assembly, testing, and packaging services.
Now, former industry leader Intel is struggling to keep up with Taiwan’s TSMC and South Korea’s Samsung Electronics. Americans are investing in the construction of factories in the country and launching state programs to help the chip manufacturing industry for many years to come.
The Washington Post journalists note that the technological rivalry between the US and China has not yet singled out a leader: in industries such as software and semiconductors, America is still winning, but in the production of smartphones, drones and electric vehicles, Chinese companies are actively gaining strength or are already far ahead, they believe.
The specificity of China lies in the fact that the authorities do not spare money from the state budget for important sectors and support them, even if they do not pay off. In the US, government participation is less, and private business invests only in potentially profitable projects.
This intensifying rivalry between the US and China is also jeopardizing the economic prospects of Taiwan, South Korea and Japan, as these countries depend on China as their biggest trading partner. If the United States succeeds in regaining ground in chip manufacturing, the market shares of one or all of its allies should shrink.
China prepares for further fight with the US
A new US ban could prompt Beijing to impose restrictions on US companies or firms from other countries that comply with US sanctions, said Samm Sacks, a Yale Law School senior fellow who studies China’s technology policy.
During his ten-year rule, Xi Jinping has done a lot to develop China’s technology sector. Those close to him say that the main goal of the current head of China is to return the country, as he believes, to its rightful place as a global player equal to the United States, writes The Wall Street Journal.
Xi has diverted billions of dollars to develop Chinese technology, including cutting-edge semiconductors. He took control of private business and stimulated the development of giant state-owned companies that could compete on the world stage.
At the new congress, President Xi Jinping even more focused on the importance of the country’s technological self-sufficiency, the development of innovation and education, as China’s competition with the United States only intensifies.
“Education, technology, and talent provide fundamental and strategic support for China’s modernization,” Xi said on the first day of the convention, speaking to the Communist Party’s elite.
“[China] must take the course that technology is the main productive force, talent is the main resource, and innovation is the main driver,” Xi said in the report. “Innovation will remain at the center of China’s modernization,” the Chinese authorities say.
Despite the rapid development of China and its intention to increase the technological advantage at the expense of its own forces, there are aspects that can prevent this, experts say. There is an external threat, such as continued trade wars and the current US export ban, but there are also internal problems, such as severe restrictions and lockdowns due to COVID, as well as regulatory pressure on technology companies from the authorities.
Who will win and who will lose in the technological struggle
At the same time, China, with its vast ecosystem of factories, continues to be a huge and lucrative market for U.S. chip exports. They are used in the production of smartphones, laptops, coffee makers, cars and other goods that Chinese factories produce for domestic consumption and export.
Many American companies say that trade with China is an important source of their income. They reinvest these funds in research and development and thus maintain their competitive advantage.
Some industry experts and analysts argue that isolating China from foreign chips will increase Beijing’s self-development efforts and cause American companies to lose unless other countries also impose similar restrictions.
Akin Gump partner Kevin Wolf, who worked on export controls during the Obama administration, said the new restrictions were “a fundamental shift in the use of export controls” to address US national security concerns. Since the Cold War, most countries have applied export controls more narrowly, focusing on regulating specific goods needed to manufacture weapons.
He believes that the new measures are likely to prove very effective in the short to medium term. “How effective they will be in the long run will depend on whether [US] allies agree to implement similar controls,” he added.