America’s latest curbs on US hi-tech investments in Chinese companies, in the name of national security, are really a part of a continuing techno-nationalist strategy to contain and halt China’s rapid rise to the upper echelons of technologically advanced nations.
On August 9, US President Joe Biden signed an executive order banning new US investment in Chinese companies in the key areas of advanced semiconductor chips, quantum computing and artificial intelligence (AI), which could potentially be used to enhance China’s military capabilities. This restricts US-based venture capital and private equity firms from investing in Chinese corporations operating in these sectors.
The irony is apparent: the United States is often characterised as a defender of the free market, an integral part of the Western liberal order. Yet the new executive order, along with similar policies like the Chips and Science Act, chip export controls and ban on electronic equipment from Huawei Technologies Co and ZTE Corp, reek of protectionism.
It’s important to note that China remains by far the world’s largest importer of chips. Therefore, restricting US investments in China’s technological industry will significantly reduce the competitiveness of US tech companies.
On the other hand, China’s rapid rise in technological leadership is the result of decades of effort by the Communist Party. A grand example is the Made in China 2025 industrial policy, which aims to reduce China’s dependency on foreign technology imports while enhancing the capacity of domestic companies.
The US-China tech war began during former president Donald Trump’s administration, an expansion of what began as a call for trade sanctions against China. America, in associating Chinese leadership in technology with the promotion of digital authoritarianism, was antagonised. Biden’s victory in the 2020 presidential election did little to reduce the tension.
On August 9 that year, exactly one year before the latest executive order, Biden signed the Chips and Science Act. This restricted the recipients of US semiconductor funding (worth over US$52 billion) from investing in chip manufacturing in “foreign countries of concern” – China and Russia are at the top of that list.
Then on October 7, the US Department of Commerce’s Bureau of Industry and Security announced export controls to restrict China from buying and making certain high-end chips that could be used in military applications. Clearly, the Biden administration is following the path of the techno-nationalism laid out by the Trump administration.
In response, China turned to the World Trade Organization, filing a lawsuit with the dispute settlement body. China believes the US restrictions on semiconductors and other hi-tech exports to Chinese companies are inconsistent with internationally agreed trade rules – including, as it stated in its case, in the WTO’s General Agreement on Tariffs and Trade 1994, the Agreement on Trade-Related Investment Measures, the Agreement on Trade-Related Intellectual Property Rights, and the General Agreement on Trade in Services.
01:57
China condemns new US law aimed at boosting domestic semiconductor manufacturing
China condemns new US law aimed at boosting domestic semiconductor manufacturing
The US strategy specifically targets the advanced semiconductor chips that are used to power supercomputers, military hardware and AI. According to Alan Estevez, undersecretary at the US Commerce Department, the US was doing everything in its power to prevent China from acquiring these technologies.
It is well known that core technology is the Achilles’ heel of China’s manufacturing capacity. China’s largest chip foundry, Semiconductor Manufacturing International Corporation (SMIC), for example, is not capable of producing advanced chips without certain equipment produced by US semiconductor companies.
So far, responses from American semiconductor firms do not precisely align with the government’s vision. Semiconductor CEOs and lobby groups have expressed concern and urged restraint.
Back in 2020, Semiconductor Equipment and Materials International (SEMI) had expressed concern that the export controls would “ultimately undermine US national security interests by harming the semiconductor industry in the US”, particularly its tech leadership.
Last month, the Washington-based trade association and lobbying group Semiconductor Industry Association also urged caution, lobbying for no further restrictions on China so the industry has continued access to the world’s largest commercial market for semiconductors.
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An unwinnable conflict? The US-China trade war, 5 years on
An unwinnable conflict? The US-China trade war, 5 years on
Three key takeaways can be drawn from this situation. First, the US is prioritising the halting of China’s rapid rise over the safeguarding of its identity as the defender of the free market system. Beijing is suffering immediate harm from America’s protectionist policy, though it is still too early to assess if this approach will prove successful for the US in the long term.
Second, America’s protectionist policy comes at the expense of US tech firms. These companies are hindered by their incapacity to tap into the world’s largest chip market. Unsurprisingly, the private sector has urged the government to review its policy towards China. Unfortunately, that does not seem to be happening.
Third, this techno-nationalist strategy is not confined to a single administration; it has survived the transition to the new administration. Regardless of the outcome of next year’s presidential election, Washington can be expected to keep the pressure on crippling China’s technological industry.
Patrick Kurniawan is a master’s student in the International Master’s Programme on International Studies at National Chengchi University, Taipei
