Why the US Can't Be Strong in the Technology War with China

The United States does not have the manufacturing bases to replace Chinese imports to support defense contractors and basic infrastructure, making the world's largest economy vulnerable to a full-blown trade war with China, government officials and businesses say.

This is also the reason why officials in the administration of President Joe Biden were forced to "ignore" calls to completely cut off technology supplies to China's semiconductor industry.

America's failure

A group of 10 House Republicans on September 14 wrote to the US Department of Commerce asking to stop exporting US chip technology to China, citing the ineffectiveness of export controls imposed in October 2022.

The Republican letter cites recent reports that a smartphone prototype has been developed that includes a 5G-capable 7-nanometer chip made by China's state-owned Semiconductor Manufacturing International Corporation (SMIC).

“We are deeply concerned and troubled by the failure of the Bureau of Industry and Security (BIS) to effectively develop and enforce export control rules against violators, particularly China,” the letter said.

World - Why the US cannot be strong in the technology war with China — Huawei's launch of the Mate 60 Pro phone equipped with an advanced 5G chip is considered a failure of the US in preventing China's technological development. Photo: WSJ

“For over two years, our committees and many members of Congress have written about loopholes in the rules that restrict technology from Huawei, SMIC, and others. Despite this, and pressure from Congress to adopt stricter policies, the Bureau of Industry and Security (BIS) has continued to issue hundreds of billions of dollars in licenses to Chinese-controlled companies,” the Republicans said.

U.S. officials have yet to confirm whether they have evidence that SMIC violated U.S. export controls. The Commerce Department said it is still seeking more information about the 7nm chip’s specifications and components.

According to semianalysis.com, a popular website about the semiconductor industry, the US sanctions have failed. Huawei's 7nm chip is a remarkable technical step forward and is designed with similar capabilities to the best AI processors from Nvidia and Qualcomm.

Half-measures won't work, but a complete export ban on all categories of semiconductor equipment would stifle China's growth, the website said.

“It is clear that the West can still stop China's rise if it acts more decisively,” the website concluded.

Interdependence

In fact, the US cannot stop China from producing high-end chips like the new Kiri 9000 processor unless it shuts down all semiconductor manufacturing in China. That would cause major disruption not only to the semiconductor industry, but also to dozens of industries that depend on it, with serious economic consequences.

America's weakness is that the country has to import thousands of important equipment from China for use in its basic infrastructure and defense industry.

“The United States and its allies have allowed themselves to become hostages to Chinese corporations that manufacture electronic components, high-power magnets, printed circuit boards, computers, drones, rare earth metals, wind turbines, solar panels, cell phones and lithium batteries,” said Brien Sheahan, a former top US official for energy regulation.

Nearly every element of the U.S.-technology-based digital smart grid relies on Chinese-made components, according to Mr. Sheahan. In 2022, the U.S. imported $33 billion worth of goods from China to produce and distribute electricity.

World - Why the US cannot be strong in the technology war with China (Figure 2). — China is said to have retaliated against US semiconductor export restrictions by banning government officials from using iPhones at work. However, the Chinese Foreign Ministry has denied this information. Photo: Telegraph

Replacing these items with domestic products would be time-consuming and costly, industry officials say. In the event of a full-blown trade war, a Chinese ban on critical components could cripple America’s basic infrastructure.

US defense contractors are also heavily dependent on China. Greg Hayes, CEO of Raytheon, which makes the Tomahawk and other missiles, said his company has several thousand suppliers in China and that cutting them out is impossible.

“We can de-risk but not decouple,” said Mr. Hayes, adding that this is also an option for US manufacturing in general.

It is true that China still depends on the West for many types of chipmaking equipment, but the US has to import a large amount of input materials from China. Both have the potential to hurt each other.

The question is whether they will. Even with full mobilization, it would take the US several years to build enough flexible manufacturing capacity to replace key Chinese components .

Nguyen Tuyet (According to Asia Times, Al Jazeera)

Source