Playing for Chips
The Biden administration’s new trade restrictions will have far-reaching effects in U.S.-China competition.
Sometimes you do, in fact, have to hand it to them. Last week the Biden administration imposed aggressive trade restrictions designed to prevent sharing next-generation microchip technology with China. The Department of Commerce announced the new export controls and de facto potential sanctions for China’s advanced semiconductor industry on October 7. The consequences for the global industry since these restrictions went into effect have been immediate and dramatic.
The ban on U.S. persons assisting Chinese chip manufacturers is particularly notable, as American citizens and Green Card holders have had to resign from positions at Chinese companies or recuse themselves from working with Chinese clients. While there is some debate about how much, the move is widely believed to seriously set back development of Chinese high technology, especially artificial intelligence research and applications.
If Commerce’s restrictions successfully hamper Chinese microchip production over the long term, and encourage an industry focus on U.S. manufacturing and markets, they will demonstrate the kind of steering-into-the-skid policy approach likely to define the next decade. The United States finds itself in a chimeric position of remaining the major hegemon in a globalized but deglobalizing world: many of the tools of the liberal international order America built after the Second World War remain at our disposal but the sustainability of the free movement of money and people managed by institutions of global governance is in clear question, the answer leaning negative. Supply chains have been shown over the last few years to be fragile and populist political movements demand greater self-sufficiency and security around the world.
Full-on autarky in a Fortress America is improbable and perhaps even undesirable, but a time of multipolarity and regional turning inward here and abroad appears unavoidable. As globalism crashes and burns, this kind of internationalist protectionism can be part of doing it on purpose, on our own terms.
The near backdrop to all this is, of course, Taiwan. American foreign policy thinkers of both a military and economic focus remain divided among themselves about what exactly the United States should do to prevent an invasion of the island by the Chinese Communist Party. Where they can unite, though generally more in rhetoric than in practice, is bemoaning U.S. reliance on Taiwanese semiconductor manufacturing, which is a large part of what makes the island's independence a strategic priority to many. While there are naval geography reasons one might consider defending Taiwan, for most China hawks, when you get past the ideological sermons about democracy, this is a game of poker: played for chips.
The Biden administration’s restrictions now raise the stakes. By cutting China off from the international semiconductor market U.S. policymakers have made clear they are committed to hindering China’s path to technological preeminence and self-sufficiency. They have also made Taiwan’s high-tech industrial base that much more attractive.
China rose to international prominence by undercutting Western labor, of course, but also by copying Western technology. In this regard, its semiconductor industry is no different from any other. These new restrictions are effective because China remains enormously dependent on American scientific knowledge and research. “Foreign-born designers and engineers, along with Chinese people with foreign passports or residency, have long played an instrumental role in the nation’s technological development,” according to Bloomberg. “Six of the seven key research and development executives of China’s leading semiconductor equipment maker Piotech Inc. are American citizens, per its Star Markets filing in early 2022. Many of Piotech’s top management, including its chairman and general manager, are also Americans.”
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And as Wired reports, the leading Chinese chipmaker, SMIC, lags several generations behind Taiwanese, Korean, and U.S. companies. SMIC manufactures at 14-nanometers versus the more advanced 5- or even 3-nanometer chips, with the Dutch maker of machines needed for the latest generation now blocked from exporting to China. Xi Jinping talks big talk about producing a legion of domestic talent to make China a technological leader; now he’ll have to see if they can pull it off.
Like Russian economic resilience under sanctions, success sooner than otherwise could be a real cost of forcing Xi’s hand like this. But Russia’s economy is built on its abundant natural resources. China aspires to be a twenty-first century economy, and if it has been dependent on buying foreign researchers and stealing foreign research to make its scientific and technological strides, then the mind turns back to Taiwan. Unable to make what it needs and now no longer able to buy what it needs to continue its transition from low-wage manufacturing to high-tech industries, in the midst of the Communist Party’s national congress, surely there are Chinese planners eyeing the island just 100 miles offshore with a little more intent. Indeed, as if on cue, Secretary of State Antony Blinken said that Beijing is “determined to pursue reunification on a much faster timeline” in remarks at Stanford University on Monday.
We’ll find out if the CCP has been bluffing sooner or later. The U.S. has played a strong hand. The troubling reality, though, is that American policymakers are all-in on Europe at the moment, and nothing in the recent record suggests they are any good at playing two high-stakes games at once.