The Biden administration’s decision to halt exports of advanced computer chips to China is indicative of a new phase in relations between the world’s two largest economies — one in which trade is less important than the intensifying competition to be the world’s foremost technological and military power.
The forceful effort, announced last month, will help set the tone for Monday’s meeting between President Joe Biden and Chinese President Xi Jinping on the sidelines of the Group of 20 summit in Asia. It demonstrates Biden’s will to “manage” the U.S. competition with China, whose officials condemned the export ban swiftly.
As the global economy suffers with rising inflation and the likelihood of recessions, both nations are publicly emphasizing their national interests after more than two decades of focusing on expansion of trade and global growth. Both the United States and China have regarded the research and production of computer chips as crucial to their respective economic growth and national security.
Gina Raimondo, the secretary of commerce, stated in an interview, “We will do everything it takes to safeguard Americans from the menace of China.” “China is transparent. This technology will be used for surveillance. This technology will be used for cyberattacks. They will utilize this technology in a variety of ways to hurt us, our friends, and our capacity to defend ourselves.”
Xi responded to the export prohibition in his speech at the Chinese Communist Party’s congress last month, where he gained a third term as the nation’s leader. China will work more vigorously to become self-sufficient in the production of semiconductors and other technology, he promised.
Xi stated, “To boost China’s innovation capacity, we will accelerate the launch of a number of large national projects with strategic, global, and long-term significance.”
The Chinese government has identified the creation of sophisticated computer processors capable of handling artificial intelligence and hypersonic weapons as one of its key goals. China has relied on imports of modern chips and manufacturing equipment from the U.S., which enacted a series of export bans last month that prevent the shipment to China of the world’s most advanced semiconductors, industrial equipment, and American industry experts.
After the February invasion of Ukraine, the United States and its allies infamously implemented export limits against Russia, making it more difficult for Russian forces to be resupplied with weapons, ammunition, tanks, and planes. Due to these restrictions, Russia has relied on Iranian drones, and the United States has accused North Korea of supplying them with artillery.
Until recently, the United States operated on the assumption that strong trade relationships would bring countries closer together in ways that would make the world safer and wealthier; this was a post-Cold War order. It was expected that global supply chains would reduce costs, increase profits, and allow democratic values to permeate the terrain of oligarchies, dictatorships, and autocracies.
However, following a global epidemic, the war in Ukraine, and China’s own ambitions, the Biden administration and many of its European and Asian partners have prioritized national security and industrial strategy. Both the United States and the European Union have granted incentives totaling tens of billions of dollars to increase domestic production of computer chips.
Biden stated in a speech last month at IBM that China specifically lobbied against a law that provides $52 billion to produce and develop advanced semiconductors in the United States, an incentive package that has been followed by a string of announcements by Intel, Micron, Wolfspeed, and others regarding the construction of computer chip plants in the United States.
He stated that some of the Republican members who rejected the proposal had accepted China’s arguments.
Biden stated, “The Chinese Communist Party lobbied the United States Congress against the passage of this measure.” Unfortunately, some of our friends on the opposing team purchased it.
During his presidency, Donald Trump engaged in harsh rhetoric against China and imposed tariffs that the Biden administration has yet to lift. According to Gregory Allen, a senior scholar in the strategic technologies program at the Center for Strategic and International Studies, the export limits on computer chips are significantly more stringent than anything imposed by President Trump.
Allen stated that the Trump administration’s tariffs were substantial in terms of cash but had almost little impact on the trade balance. The import taxes were also not strategic. The export restrictions enforced by the Biden administration would be detrimental to China’s already decades-behind technology.
“We have effectively committed to stating that China will not achieve its primary objective,” Allen added.
China, Russia, and other competitors’ relatively unrestricted access to U.S. and European markets appears to be coming to an end, according to Christopher Miller, professor at Tufts University and author of the book “Chip Wars.”
Miller stated, “The hazards posed by these countries have increased, therefore Western governments have questioned the prudence of granting unfettered access to their markets to foes.”
Instead of attempting to work as a one global economy, new alliances like the Quad (Australia, India, Japan, and the United States) and established partnerships like NATO are being expanded. Economic interdependence among these partners has grown important, as U.S. export limits on advanced chips require backing from Japanese and Dutch firms.
Miller stated, “All the great nations are reorganizing international economic connections in an effort to strengthen their geopolitical position.” Semiconductors are only one of several areas where trade, technology, and capital flows are being repoliticized as a result of great power competition.