The America-China Chip War: Origin, Causes, Impacts, and Remedies

THE AMERICA-CHINA CHIP WAR: ORIGIN, CAUSES, IMPACTS, AND REMEDIES
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The America-China Chip War: Origin, Causes, Impacts, and Remedies
Introduction
The Chip War between America and China is a recent manifestation of the trade war between the two countries that broke out in 2018 with the imposition of massive tariffs on Chinese products by the Trump Administration. Despite a decades-long trade partnership between the two countries, this radical shift in American trade policy ignited a series of chain reactions characterized by banning and imposing taxes on imports by both countries, leading to a full-fledged trade war. Ultimately, after continuous imposition of trade bans and tariffs, the Chinese government resorted to thrusting the semiconductor industry into the war by announcing a ban on the export of minerals required for the production of computer chips to the United States. Similarly, the U.S. Commerce Department also altered the famous trade regulation, called the Entry List, by imposing stricter limits on the transfer of U.S. technology abroad, especially to China. This limit was further extended to include the export of computer chips to China. Finally, the imposition of restrictions on the sales of Huawei products for security and trade concerns brought the focus of the trade war between the two countries to the silicon and semiconductor industry.[Singh, Gunjan. "China-US Trade War: An Overview." Manag Econ Res J 5, no. 2019 2019.] [Miller, Chris. "Chip War: The Fight for the World's most critical technology." 2022.]
The geopolitical, social, economic, and even environmental implication of this version of the trade war between the two countries is worth paying attention to avoid any long-lasting impact on global economic and political stability. Despite efforts and negotiations to curtail the extent of this war, new and sweeping restrictions announced by the Biden administration to limit China’s access to the American semiconductor industry, even from American allies, is a case in point. Therefore, it is crucial to understand the history, nature, dynamics, and stimulants of this chip war between America and China to come up with some resolution. The following discussion offers a detailed analysis of this trade war based on facts and figures that would help estimate the possibility of a radical solution.[Jin, Keyu. "How China Is Fighting the Chip War With America." The New York Times - Breaking News, U.S. News, World News, and Videos. Last modified October 28, 2022. /2022/10/27/opinion/china-america-chip-tech-war.html.]
U.S. China Chip War: Historical Context
Careful estimates of the timeline of the chip war reveal that Trump Administration’s successive and massive trade impositions on China since 2018 forced China to retaliate in kind, and this retaliation finally and naturally dragged the semiconductor industry onto the battlefield. Donald Trump initiated a trade war with China to avoid the monopoly of Chinese products in the American market by imposing a 30% tariff on Chinese solar panels in 2018. Later, a 20% tariff was imposed on the import of Chinese washing machines, and taxes and tariffs were increased by 50% on other Chinese products. By July 2018, American Commerce Department had imposed approximately 34 billion dollars in tariffs on Chinese products, which saw a further increase of 200 billion dollars by December 2018. Needless to point out, China also responded to these economic sanctions in kind and imposed similar trade tariffs on different American products. For instance, Chinese authorities imposed a 110-billion-dollar tariff on American goods and high tariffs on American soybean oil.[Singh, Gunjan, “China-US Trade War”] [Ibid]
As these aspects of a trade war between China and America indicate, the fear of economic dominance by China’s growing economy and technological advancement spurred a swift response from America in the form of acute trade bans. However, this trade war holds more than just the fear of economic insecurity. According to a renowned economist, the core principle behind America’s sweeping ban on Chinese products is to induce a significant change in China’s Communist Party’s economic domestic and international aggressive economic policy. Moreover, the track record of America’s foreign and economic policy for the last few years indicates that America has been insisting on China to make substantial efforts to protect America’s intellectual property rights, especially preventing cyber theft of America’s cyber technology and trade secrets. The threat of cyber technology theft propelled America to impose sweeping bans on China’s high-tech companies in America.[Singh, Gunjan, “China-US Trade War”]
Nevertheless, the turning point of the trade war that radically altered the course and direction of the war by shifting it towards cyber or chip war was China’s decision to ban the export of rare earth metals to America. This trade restriction served as the bugle for the initiation of the chip war between America and China, as these rare earth metals are an integral part of semiconductors, the main components of computer chips. Moreover, according to one estimate, the American silicon industry heavily relies on Chinese earth metals to produce semiconductors. Therefore, a limited supply of these metals to the American silicon industry would significantly impair America’s technological advantage over China. Thus, this ban was one of the critical factors that contributed to increasing the intensity of the technological war between China and the United States.[Ibid]
Nevertheless, this ban on the export of rare earth metals was not the only reason behind America’s concerns over China’s technological dominance. As indicated earlier, the new changes made in the Entry List by U.S. Commerce Department restricted the transfer of American technology to China; this step indicates America’s growing concern over the misuse and stealing of American technology by Chines technology companies working in America. For the same reason, America initiated a systematic retaliation against Chinese high-tech companies, especially Huawei. This company is the leading Chinese technology enterprise dealing with smartphones, instruments of telecommunication, and cloud computing services. On account of the low prices of its products, as heavy subsidies by the Chinese government supplement this company, America’s domestic trade faced severe challenges. Additionally, Huawei’s technological dominance would compromise America’s global technological advantage.
Moreover, this company’s activities in America aroused severe suspicions among America’s national security circles as this company was allegedly involved in spying and technological theft. Therefore, American authorities imposed a strict ban on the sales of this company’s products; additionally, this company was disallowed to buy American chips and other technological innovations to avoid technology theft. This step by the American government was the crucial factor that intensified the trade war between America and China by lending it the color of technological war. To fuel the fire, even the Biden administration contributed to this chip war by imposing a further sweeping ban on American chips and semiconductors sales to all Chinese companies, such as Fortune Global 500 companies. Moreover, this ban includes Americans working in the silicon industry in China. This recent step indicates that the chip was in no way near to subsiding, and these are just initial preemptive strikes by America to avert China’s technological dominance.[Ibid] [Herman, Arthur. "The Chip War With China Is Just Getting Started." Forbes. Last modified 2022. /sites/arthurherman/2022/10/17/the-chip-war-with-china-is-just-getting-started/?sh=416940eb6a08.]
On the other hand, China is not showing any signs of retreat in this war as, most recently, Chinese leader Xi Jinping underscored the significance of winning the battle in core technologies while addressing the Communist Party’s Congress. In the same way, the American government has approved a 52-billion-dollar subsidy to the domestic semiconductor industry to discourage the influx of Chinese technological equipment and spur innovation. In this regard, the mention of China’s economic and political aggression against Taiwan is noteworthy as this would jeopardize the semiconductor industry of Taiwan, which accounts for approximately 90% of advanced I.C.s of the world. It is easy to understand that the chip war between America and China is the most unique and economically devastating war of the twenty-first century, whose impact is yet to be estimated. Thus, a better understanding of China’s chip industry is crucial to understand the nature and motives behind this war.[Anstey, Chris. "America’s Chip War With China May Already Be Lost." Bloomberg. Last modified 2022. /news/newsletters/2022-10-22/us-chip-war-with-china-may-already-be-lost-new-economy-saturday.] [Herman, Arthur, “The Chip War With China”]
China’s Growing Technological Advancement: A Critical Review
The traces of China’s global endeavors to gain technological dominance all over the world go back to the announcement of Made in China 2025 plan introduced by the Chinese government in 2015. This program, labeled MC-25, was intended to develop China’s industrial and technological productivity in various areas to make it a “manufacturing powerhouse.”. This plan is particularly about China’s economic growth in the latest technologies, including artificial intelligence, robotics, advanced microchips, and autonomous vehicles. This ambitious plan threatens America’s technological dominance; therefore, it has drawn an apt retaliatory response from America. Based on this plan, the first step of technological advancement is to achieve self-sufficiency in producing high-tech equipment, materials, and skills. Thus, by 2025, China aims to gain 70 per cent high-tech self-sufficiency industry.[Liu, Tao, and Wing Thye Woo. "Understanding the US-China trade war." China Economic Journal 11, no. 3 (2018): 319–340.] [De Gurung, Ananta Swarup Bijendra. "China, Vietnam, and the South China Sea." Indian Journal of Asian Affairs 31, no. 1/2 (2018): 1-20.]
Based on past experiences in which China violated international trade rules to grow industry and technology, a scholar argues that America’s response to the MC-25 project has been cautious and suspicious. Thus, America’s apprehensions that China would use illegal means to obtain this technological advancement and self-sufficiency are the driving force behind America’s rigorous campaign against China’s technological advancement. Based on credible facts and figures, China has been improving its technological capacity by increasing its investment in research and development since 2000. For instance, between 2000 and 2016, China increased its spending on research and development from 1% to 2%; likewise, by the end of 2017, China had produced more than 1.36 million patents, most of which were related to the electronic equipment and computer industry. This remarkable technological advancement rang an alarm bell for the global technological powers, especially America. Thus, this ambitious Chinese plan has been one of the stimuli that triggered this technological battle between America and China.[Ibid] [Ibid]
Furthermore, in retaliation for the ban imposed by the Trump administration on the export of American materials to be used in the chip industry, the Chinese government has allocated 50 billion dollars to establish the domestic chip industry. In doing so, China could grow its domestic electronic chip industry based on homegrown researchers and technology. The historical record of China’s trade policies indicates that China’s dedication to developing home-based technologies has consistently produced positive results. Thus, this Chinese commitment to developing indigenous technological advancement also rings an alarm bell to American intentions that aim to curtail China’s sweeping global technological advancement.[Ibid]
The U.S.-China chip war has several other positive implications for China. Thus, a scholar argues that the Chinese government tackles America’s technological war using the “realpolitik philosophy.” Based on this philosophical proposition, America’s use of a ban on chips and other technologies as a stick to deter China’s technological advancement will have the opposite impact. They believe that such bans instigate China to focus on developing indigenous Chinese technologies; thereby, a trade war aiming to reduce China’s technological advancement is bound to fail. Thus, it is easy to understand that the chip war between America and China may prove advantageous for China in terms of its economic shift from dependency to self-sufficiency. Nevertheless, it is also a fact that such bans have produced palpable economic downturns in the Chinese economy and hindered its technological advancement substantially.[Liu, Tao, and Wing Thye Woo. "Understanding the US-China trade war]
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