Status: 01.10.2023, 12:26 p.m.
By: Foreign Policy
A professional inspects a semiconductor at a factory in Guiyang, China. © CFOTO/NurPhoto/Imago
The U.S. apparently wants to slow down China's growth. But there are smarter approaches that would better serve Americans – and the rest of the world.
- Among other things, the U.S. government wants to increase pressure on China with chip bans
- However, the measures could even harm American chipmakers
- For cooperation with China, there are more effective alternatives to sanctions
- This article is available in German for the first time – it was first published by Foreign Policy magazine on September 19, 2023.
There is little doubt that the American government has decided to slow down China's economic rise, especially in the field of technological development. However, the Biden administration denies that these are its goals. Janet Yellen said on April 20: "China's economic growth does not have to be incompatible with the economic leadership of the United States. The United States remains the most dynamic and prosperous economy in the world. We have no reason to fear healthy economic competition with any country."
And Jake Sullivan said on April 27: "Our export controls will continue to focus narrowly on technologies that could tip the military balance. We're just making sure that the technology of the U.S. and its allies isn't used against us."
Biden administration wants to increase pressure on China
In its actions, however, the Biden administration has shown that its vision goes beyond these modest goals. It has not reversed the trade tariffs imposed on China by Donald Trump in 2018, although presidential candidate Joe Biden criticized it in July 2019, saying, "President Trump may think he is tough on China. All he's delivered as a result is that American farmers, manufacturers, and consumers are losing and paying more."
Instead, the Biden administration has sought to increase pressure on China by banning the export of chips, semiconductor equipment, and select software. It has also persuaded its allies, such as the Netherlands and Japan, to follow suit.
Recently, on Aug. 9, the Biden administration issued an executive order prohibiting American investments in China involving "sensitive technologies and products in the fields of semiconductors and microelectronics, quantum information technologies, and artificial intelligence" that "pose a particularly acute threat to national security because they have the potential to significantly enhance China's military, intelligence, surveillance, or cyber capabilities." improve".
All these measures confirm that the American government is trying to stop China's growth. The big question, however, is whether America can succeed with this campaign – and the answer is probably no. Fortunately, it is not too late for the United States to realign its China policy and adopt an approach that would better serve Americans – and the rest of the world.
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China's technological development can hardly be stopped
America's decision to slow China's technological development is akin to the folly revealed by the old cliché: closing the barn door when the horse has already run away. Modern China has repeatedly proven that its technological development cannot be stopped.
Since the founding of the People's Republic of China in 1949, several attempts have been made to restrict or halt China's access to various critical technologies such as nuclear weapons, space, satellite communications, GPS, semiconductors, supercomputers, and artificial intelligence. The United States has also sought to curb China's market dominance in 5G, commercial drones, and electric vehicles (EVs).
Throughout history, unilateral or extraterritorial enforcement attempts to curb China's technological rise have repeatedly failed and, in the current context, are causing irreparable damage to long-standing US geopolitical partnerships. In 1993, the Clinton administration attempted to restrict China's access to satellite technology. Today, China has about 540 satellites in space and is launching a competitor to Starlink.
The same principle applied to GPS. In 1999, when America restricted China's access to its geospatial system, China simply built its own parallel global navigation satellite (GNSS) system BeiDou – one of the first major waves of technological decoupling. In some respects, BeiDou is better than GPS today. It is the largest GNSS in the world, with 45 satellites compared to the GPS's 31, and can therefore provide more signals in most of the world's capitals. It is supported by 120 ground stations, resulting in higher accuracy, and has more advanced signaling capabilities, such as two-way messaging. Other countries have also tried to block China's technological rise and have failed. In the 1950s and 1960s, when the USSR withheld nuclear weapons technology from China, China launched its own "Manhattan Project" in the early 1960s and was able to test its first nuclear weapon in 1964. On this day, Russia's nuclear influence on China ended.
China has the ability to retaliate
Many of the actions taken by the Biden administration against China have also been carried out without taking into account China's ability to retaliate. While China does not produce many truly irreplaceable components of American technology, it is aware of the importance of its raw material supplies (rare earths) and demand (income generation) to the American innovation ecosystem and is now using them as leverage. In the current "tit-for-tat" dynamic, China will begin to curtail these two critical ends of the value chain in response to American technology and capital export restrictions.
China's ban on the export of gallium and germanium in July was merely a first shot across the bow to remind America (and its allies) of China's dominance in rare earths and critical metals. The country has almost a monopoly position in the processing of magnesium, bismuth, tungsten, graphite, silicon, vanadium, fluorspar, tellurium, indium, antimony, barite, zinc and tin. China also dominates in the processing of materials that are important to most of America's current and future technological endeavors, such as lithium, cobalt, nickel, and copper, which are critical to the rapidly developing electric car industry worldwide.
While America and other neutral countries have mineral reserves of many of these materials, it would be naïve to think that you can simply flip the switch for mining and production. The development of the necessary production and processing infrastructure alone will take at least three to five years. Not to mention recruiting and training skilled workers or obtaining the necessary operating and environmental permits for these activities. Both could prove impossible. The processing of rare earths is a highly toxic and environmentally destructive undertaking. Such permits are unlikely to be issued. If Arizona struggles to find skilled workers for its TSMC manufacturing facility and overcome domestic union resistance to importing foreign skilled workers, it is unlikely that America will be able to develop similar materials processing capabilities.
Incidentally, China also plays the role of ruler when it comes to how it distributes access to its processed materials, which is likely to limit the supply of American technology and defense companies. The failure to take into account China's retaliatory capabilities shows that the United States does not have a well-thought-out and comprehensive approach to dealing with China.
U.S. measures could even hurt chipmakers
American measures aimed at denying China access to the most advanced chips could hurt the major American chipmakers even more than they hurt China. China is the largest consumer of semiconductors in the world. Over the past decade, China has imported large quantities of chips from American companies. According to the U.S. Chamber of Commerce, Chinese companies imported $2019.70 billion worth of semiconductors from American companies in 5, accounting for about 37 percent of these companies' global sales. Some American companies, such as Qorvo, Texas Instruments, and Broadcom, generate about half of their sales in China. 60 percent of Qualcomm's revenue, a quarter of Intel's revenue, and one-fifth of Nvidia's revenue come from the Chinese market.
No wonder the CEOs of these three companies recently traveled to Washington to warn that export controls could affect the leading role of U.S. industry. American companies are also harmed by retaliatory measures by China, such as the Chinese ban on chips from the US company Micron Technology in May. China accounts for over 25 percent of Micron's sales.
The massive revenue surpluses generated by these sales to China went into research and development, which in turn gave American chip companies a head start. The Chamber of Commerce estimates that if U.S. companies were to be completely banned from selling semiconductors to China, they would lose $83 billion in annual revenue and cut 124,000 jobs. They would also have to cut their annual R&D budgets by at least $12 billion and their capital expenditures by $13 billion. This would make it even more difficult for them to remain competitive on the world market in the long term.
"Risk of affecting the competitiveness of the U.S. semiconductor industry"
American semiconductor companies are painfully aware that U.S. action against China in the field of chips will hurt their interests more than Chinese interests. The U.S. Semiconductor Industry Association released a statement on July 17 stating that Washington's repeated moves "to impose excessively broad, ambiguous, and sometimes unilateral restrictions risk affecting the competitiveness of the U.S. semiconductor industry, disrupting supply chains, causing significant market uncertainty, and triggering ongoing escalating retaliation by China," and called for the Biden administration not to implement any further restrictions without a broader involvement of representatives and experts of the semiconductor industry.
The Chips Act cannot subsidize the American semiconductor industry indefinitely, and there is no other global demand base to replace China. Other countries that produce chips will inevitably step out of line and sell to China (as they have done in the past), and the American measures will be in vain. By banning the export of chips and other important intermediate products to China, America handed over its war plan to China years before the battle. China is being pushed to become self-sufficient much sooner than it would otherwise have been.
Before the ban on ZTE and Huawei components, China was content to continue buying American chips and focusing on front-end hardware. Peter Wennink, the CEO of ASML, stated that China is already leading the way in key applications and demand for semiconductors. Wennink wrote: "The expansion of telecommunications infrastructure, battery technology, this is the sweet spot for medium-critical and mature semiconductors, and China is invariably the leader in this."
The U.S. has awakened a sleeping giant with its protectionism
A sleeping giant has been awakened by the short-sighted American policy of protectionism. In the short term, America now faces the loss of key revenue that drove the research and development that made it an innovation leader, and in the long term, it is inevitable that China will build its own comprehensive semiconductor ecosystem. The fact that Huawei was able to launch the Mate 60 Pro, a new smartphone with a domestically made 5G chip and operating system, despite the strict American sanctions against the company, shows how unwise American policy has been in trying to stop China's technological growth and development.
Since America is unlikely to be able to stop China's technological growth and development (and indeed, it is unlikely to be able to stop China's rise to become an equal world power), there is a more enlightened approach to engagement. It is best exemplified by Aesop's fable "The North Wind and the Sun." In this story, the north wind blows strongly and does not manage to remove the traveler's coat. Rather, it is the warm rays of the sun that make the traveler take off his coat.
There is a widespread opinion among American politicians that America's five-decade policy of engagement with China has failed. As Kurt Campbell and Ely Ratner candidly state in their recent article in Foreign Affairs: "Nearly half a century after Nixon's first steps toward rapprochement, it is becoming increasingly clear that Washington has once again relied too much on its power to influence China's path. Instead, China has pursued its own course, disappointing a number of American expectations in the process."
"Can make progress through negotiations"
If the policy of engagement was aimed at changing China's internal system of government, it certainly failed. However, if this was the goal, it was an act of remarkable hubris for a 250-year-old republic (with a quarter of China's population) to believe it could change a 4000-year-old civilization to its liking. However, if the goal of American policy was to make China a "responsible player" (in the words of Robert Zoellick), then this policy may well have been successful.
A comprehensive study by the National Committee on American Foreign Policy (NCAFP), the American Friends Service Committee, and four independent researchers has documented that China's behavior has been altered by various measures of engagement, particularly in terms of climate change mitigation, improving public health, and global financial stability.
Former State Department official Susan Thornton, who oversaw the study as director of the Asia-Pacific Security Forum at NCAFP, said, "This review of U.S.-China diplomacy shows that we can make progress through negotiations, and that China is honoring its commitments. The claim that engagement with China has not benefited the US is simply not true." Indeed, the balance sheet shows that there is a certain wisdom in the moral of Aesop's "The North Wind and the Sun": "Meekness and friendly persuasion prevail where violence and noise fail."
A fundamental problem of U.S. domestic politics
A fundamental problem is that American domestic policy is forcing American policymakers to take a tough stance on China rather than taking pragmatic positions. For example, sanctions that prevent Chinese Defense Minister Li Shangfu from traveling to the United States stand in the way of a U.S.-China defense dialogue to prevent military accidents. However, the U.S. government's hands are tied. It cannot lift the sanctions, even if they have proven ineffective in achieving American political goals.
That is why it is time for America to thoroughly reconsider its methods of achieving foreign policy goals. The tactics of imposing sanctions have not stopped China's technological development, nor have it significantly affected China's behavior, and most countries believe that it is not in their interests to join these sanctions. Are there more effective alternatives to sanctions?
In a statement on the Biden administration's approach to China in May 2022, Anthony Blinken said, "We will compete with confidence; We will cooperate wherever we can; We will argue where we have to." We agree with this approach. Instead of undermining its own interests and bolstering a geopolitical and economic competitor, America should pursue a more enlightened technology policy. The focus must be on initiatives that sustainably support and expand America's innovation leadership while surgically eliminating specific national security threats.
Better a sustainable structure instead of a zero-sum game
Instead of a zero-sum game in the technological competition between the US and China, a sustainable structure of cooperation is beneficial for both countries and humanity. Most Western emission reduction targets cannot be achieved without the involvement of China, which owns many of the patents and core components for solar, wind and battery energy. Joint research programs, clinical trials, and datasets are critical to solving chronic global health problems such as cancer. Decoupled technology ecosystems not only hinder progress, but also create other endemic risks resulting from parallel development and unilateral regulation. The uncontrolled growth of potential doomsday technologies such as artificial intelligence or nuclear power immediately comes to mind.
The continued intake of scientific talents from China to study, work and settle in the United States is also beneficial for the scientific progress of both countries. These scientists can serve as a bridge for scientific cooperation between the United States and China.
The U.S. government should also consider fully resuming all high-level dialogues initiated by the Bush administration, continued by the Obama administration, and terminated by the Trump administration. A resumption of high-level dialogues, as well as the establishment of a high-level science and technology dialogue that brings together the top scientists of both countries, could well lead to more positive outcomes for America's long-term national interests.
Initially, this cooperation between the great powers could focus on areas where both sides have common long-term interests (such as climate change, pandemic preparedness, global economic stability, education). Once a basic basis of trust has been established, dialogue and cooperation can be progressively expanded. None of these steps will lead to a reduction in American power and prestige in the world. On the contrary, America's prestige and prestige may well rise if the rest of the world sees that America is pursuing sensible policies that serve both American and global interests. America will remain the most admired country in the world if it takes a wiser course towards China.
This paper is published in collaboration with the Asian Peace Programme at the Asia Research Institute of the National University of Singapore.
About the authors
Tony Chan is the president of King Abdullah University of Science and Technology.
Ben Harburg is a managing partner of the global investment firm MSA Capital and a member of the board of directors of the National Committee on United States-China Relations.
Kishore Mahbubani, a distinguished fellow at the Asia Research Institute of the National University of Singapore, is the author of Has China Won? The Chinese challenge to American supremacy. Twitter (X): @mahbubani_k
We are currently testing machine translations. This article has been automatically translated from English into German.
This article was first published in English in the magazine "ForeignPolicy.com" on September 19, 2023 - in the course of a cooperation, it is now also available in translation to the readers of IPPEN. MEDIA portals.
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