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Allies turn on America’s Chinese semiconductor strategy

A storm awaits Joe Biden. Credit: Getty

August 7, 2023 - 7:00am

A leading South Korean lawmaker and former Samsung executive is the latest public figure to criticise the United States’ effort to hobble the Chinese economy by cutting off its access to semiconductors. Yang Hyang-ja pointed out in an interview with the Financial Times on Sunday that these efforts are counterproductive because “the more the US sanctions China, the harder China will try to make rapid technological progress.”

Yang, who is obviously familiar with the semiconductor business, points out that if America tries to stop China from importing chips, the Beijing government will expend enormous resources to produce their own. Once this happens, it is likely that these will be cheaper than chips manufactured in other countries, including South Korea. “China will provide more national support for the goal,” said Yang, “Then it will pose a crisis to South Korea, given China’s abundant talent and raw materials.”

News reports since the imposition of sanctions have tended to confirm what the South Korean politician is saying. In 2020, for example, the United States placed sanctions on the Chinese mobile phone company Huawei. The idea behind the measure was to stop the company from competing in the market for 5G. Initially this worked and Huawei’s revenue fell, but recent stories suggest that now — only three years later — the company has found ways of producing the 5G chips domestically.

This suggests a very poor economic trade-off. By imposing sanctions on Huawei, the United States slowed its business model for a mere three years. Now the company is developing the capacity to produce these chips itself, and will likely soon sell them on the international markets at a cheaper price than the current Western equivalents. These attempts to sanction Chinese technology are extremely short-termist, and are only leading to the country’s economy becoming stronger and more capable of competing with the West.

The latest round of semiconductor sanctions against China is set to produce the same result. Industry insiders like Yang are fully aware of this, and have been warning the American government for weeks. Yet, so far, they are being ignored. What’s more, the Chinese have already started to deploy counter-sanctions against the United States: in May of this year, they placed restrictions on buying from the American semiconductor producer Micron. Losing the Chinese market would significantly impact Micron’s revenues, leaving it with little money to invest and remain competitive.

The recent restrictions which China imposed on the export of germanium and gallium are even more problematic. These two elements are vital to produce many electronic products, including chips themselves, and cannot be easily replaced with domestic manufacturing in the US. They tend to be made as a byproduct of large-scale industrial production of aluminium and zinc, and domestic production would require the United States to revive its entire heavy industry, something that could take decades.

Recently Greg Hayes — the CEO of Raytheon, one of America’s biggest weapons producers — emphasised how important Chinese trade was for components critical for American manufacturing. Hayes said that Chinese trade was “too big, too important and too necessary to the US economy”. When even its main armaments supplier is articulating  these realities, at some point the American government would do well to listen. Whether Washington likes it or not, thirty years of open trade with China have created dependencies that cannot simply be wound down overnight.


Philip Pilkington is a macroeconomist and investment professional, and the author of The Reformation in Economics

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Samir Iker
SI
Samir Iker
8 months ago

The time to try and block China’s technological progress was 20 years back.
Thankfully for China and those of it’s people have benefited, the elites in the US and it’s European allies were too greedy and short sighted.
Now the West is in a position where a) they are more reliant on China than vice versa and b) China has enough resources and tech capabilities to bypass any sanctions.

The latter, incidentally, is to a large part due to how Chinese nationals are allowed free, unfettered access to American universities and R&D centres or Chinese agents allowed to steal tech with impunity.
Amazing, when you consider allowing or even suggesting the same access for the Soviets pre 1992 would have being considered ridiculous and even treasonous, and which shows that Westerners don’t get it – China is as bent on domination as the old USSR, and much more capable and stronger.

Samir Iker
SI
Samir Iker
8 months ago

The time to try and block China’s technological progress was 20 years back.
Thankfully for China and those of it’s people have benefited, the elites in the US and it’s European allies were too greedy and short sighted.
Now the West is in a position where a) they are more reliant on China than vice versa and b) China has enough resources and tech capabilities to bypass any sanctions.

The latter, incidentally, is to a large part due to how Chinese nationals are allowed free, unfettered access to American universities and R&D centres or Chinese agents allowed to steal tech with impunity.
Amazing, when you consider allowing or even suggesting the same access for the Soviets pre 1992 would have being considered ridiculous and even treasonous, and which shows that Westerners don’t get it – China is as bent on domination as the old USSR, and much more capable and stronger.

Martin Layfield
ML
Martin Layfield
8 months ago

It was politicians of Biden’s generation who said back in the 90s/00s that there was no alternative to globalisation and therefore no alternative to bringing China into the WTO and pandering to capitalist interests in the west looking to profit from it. They called critics of this like Trump, Pat Buchanan, etc as wicked for dissenting. Curious now it is Biden and co trying to move away from this end of history liberalism. They’ve screwed up big time potentially. So much of the high-tech of the US military and what Biden and co want for their green racket is reliant on Chinese resources and it will take years, maybe even decades to change that.

Martin Layfield
ML
Martin Layfield
8 months ago

It was politicians of Biden’s generation who said back in the 90s/00s that there was no alternative to globalisation and therefore no alternative to bringing China into the WTO and pandering to capitalist interests in the west looking to profit from it. They called critics of this like Trump, Pat Buchanan, etc as wicked for dissenting. Curious now it is Biden and co trying to move away from this end of history liberalism. They’ve screwed up big time potentially. So much of the high-tech of the US military and what Biden and co want for their green racket is reliant on Chinese resources and it will take years, maybe even decades to change that.

Will K
WK
Will K
8 months ago

Mr Biden grew up in the time when the USA dominated the world, and he still has not realised that is no longer the case.

Will K
WK
Will K
8 months ago

Mr Biden grew up in the time when the USA dominated the world, and he still has not realised that is no longer the case.

Ailsa Roddie
AR
Ailsa Roddie
8 months ago

I feel like it’s time we move onto the next question, because we missed the boat on this one decades ago. At some point China will probably gain the dominant position. So how is this going to affect our way of life and what is it vital that we protect? We need to look AHEAD to this NOW. Because they’ve been looking ahead this whole time. I have specific fears about what things will look like for us. I don’t hear anyone talking about it.

Ailsa Roddie
AR
Ailsa Roddie
8 months ago

I feel like it’s time we move onto the next question, because we missed the boat on this one decades ago. At some point China will probably gain the dominant position. So how is this going to affect our way of life and what is it vital that we protect? We need to look AHEAD to this NOW. Because they’ve been looking ahead this whole time. I have specific fears about what things will look like for us. I don’t hear anyone talking about it.

J Bryant
JB
J Bryant
8 months ago

If Mr. Pilkington is correct then I’d ask him for an article on how we now control China’s expansionist agenda? I certainly agree with another commenter who said the time to moderate China’s behavior was twenty or thirty years ago.

J Bryant
JB
J Bryant
8 months ago

If Mr. Pilkington is correct then I’d ask him for an article on how we now control China’s expansionist agenda? I certainly agree with another commenter who said the time to moderate China’s behavior was twenty or thirty years ago.

Billy Bob
BB
Billy Bob
8 months ago

One CEO complains that it may be harder for his company to source semi conductors, and according to Pilkington the west is falling apart and allies are turning against the States. Fairly standard for this writer, I’m just surprised he didn’t shoehorn in his usual rant about Russian sanctions.

Billy Bob
BB
Billy Bob
8 months ago

One CEO complains that it may be harder for his company to source semi conductors, and according to Pilkington the west is falling apart and allies are turning against the States. Fairly standard for this writer, I’m just surprised he didn’t shoehorn in his usual rant about Russian sanctions.

Mike Doyle
MD
Mike Doyle
8 months ago

An article telling me that the West has already lost. How original!

Samir Iker
SI
Samir Iker
8 months ago
Reply to  Mike Doyle

As a non Westerner, I would still day the West is still in the winning position. Just. Mainly due to a culture of openness, straightforward legal systems, and risk taking.

The window is closing fast, mainly because those strengths are being subverted in the West – whether legal and social systems being distorted by “equity” concepts, shutdown of free speech or increasing share of low risk appetite, govt dependent people who would trade liberty for “safety”

Mike Doyle
MD
Mike Doyle
8 months ago
Reply to  Samir Iker

I hope you are right, we certainly have a fight on our hands.

Mike Doyle
MD
Mike Doyle
8 months ago
Reply to  Samir Iker

I hope you are right, we certainly have a fight on our hands.

Samir Iker
SI
Samir Iker
8 months ago
Reply to  Mike Doyle

As a non Westerner, I would still day the West is still in the winning position. Just. Mainly due to a culture of openness, straightforward legal systems, and risk taking.

The window is closing fast, mainly because those strengths are being subverted in the West – whether legal and social systems being distorted by “equity” concepts, shutdown of free speech or increasing share of low risk appetite, govt dependent people who would trade liberty for “safety”

Mike Doyle
MD
Mike Doyle
8 months ago

An article telling me that the West has already lost. How original!