Although the US president, Joe Biden, is doing all he can to undermine China’s economy, he appears oblivious to the collateral damage.
In October, the US stepped up export controls on China’s semiconductor companies. It announced measures to prevent Chinese companies from buying advanced chips made in the US. Also prohibited was the export of equipment that Chinese foundries needed to design their own chips. By these measures, the US hopes, for example, to thwart China’s ability to develop artificial intelligence (AI), thereby forestalling advancement of its technological capabilities, and American hostility is ongoing.
In August, Biden, citing national security concerns, signed an executive order to ban a range of US high-tech investments in China. Once implemented in 2024, this ban will restrict American investment in semiconductors and microelectronics, quantum information technology and (some) AI systems.
Under Biden’s plan, moreover, his government will also have to be notified when investments are made in other technology sectors. It focuses on private equity, venture capital, joint ventures and “greenfield investments” (foreign investment by a company through a subsidiary in another country). Although Republicans claim Biden’s measures do not go far enough, the Senate majority leader, Chuck Schumer, a Democrat, was ecstatic, declaring: “The United States is taking a strategic first step to ensure American investment does not go to fund Chinese military advancement.”
What, however, Biden has overlooked is that his executive order is damaging the US and its partners. While he eagerly burnishes his McCarthyite credentials, with an eye on next year’s presidential election, he is undermining the interests of the West’s companies and investors. The disruption of global technology and supply chains benefits nobody, and Biden is violating what China’s Commerce Ministry calls “the market economy and fair competition principles the US has always promoted.”
The business world is appalled by Biden’s belligerence. As Jensen Huang, the Taiwan-born American billionaire who is president and chief executive officer of Nvidia Corp, the US chipmaker, told The Financial Times, Biden’s ongoing chip war with China could cause “enormous damage” to US technology companies.
Huang emphasized that the Chinese market is crucial to Silicon Valley, which had no “contingency” for being “deprived of the Chinese market”. He said that prohibiting American companies from accessing the Chinese market would cut off the ($52 billion) US CHIPS and Science Act (which finances domestic research and the manufacturing of semiconductors in the US) “at the knee”. He concluded, “The China market cannot be replaced”, but Biden is not listening.
Huang’s warnings, moreover, are being echoed elsewhere. In the UK, Arm (Advanced RISC Machines) is a British semiconductor and software company. Its chip designs are used by technology companies in billions of smartphones and similar devices. Since 2016, Arm has been owned by Softbank Group, a Japanese conglomerate. Although based in Cambridge, England, with an estimated 5,700 employees, its American CEO, Rene Haas, leads the company from his Californian base.
On Aug 21, Arm unveiled its plans for a $70 billion listing in New York. It announced that almost a quarter of its sales come from China, which meant the business was “particularly susceptible to economic and political risks” that affect Beijing. Arm warned that its revenues are being hit by Biden’s trade war on China, and this situation would be aggravated by the West’s increasing restrictions on investment in AI and other high-tech products.
In December, moreover, the Chinese technology company Alibaba was prevented from buying Arm’s Neoverse chips, and the UK and the US (which was calling the shots) claimed the technology might be used for military purposes against the West.
This type of paranoia inevitably affects businesses like Arm. It says the “trade protection and national security policies” from the US that affected China’s “semiconductor suppliers and customers” wiped out $28 million in sales in the three months to June, about 4 percent of revenues. There is, moreover, the extra risk for Arm that its Chinese customers will look for alternative chip designs, particularly if Biden’s antics result in Chinese companies becoming more self-sufficient.
On Sept 1, moreover, the Netherlands, as the US demanded, started enforcing new export control restrictions on microchip technology to China, citing “public security”. The targeted company this time is the Dutch semiconductor pioneer ASML, Europe’s highest-valued tech company, and it fears the latest restrictions will threaten its unique position in a global supply chain. Its executive vice-president, Christophe Fouquet, has warned that decoupling between the West and China will be “extremely difficult and extremely expensive”, while its CEO, Peter Wennink, says placing “locks” on the global chips ecosystem would have “far-reaching consequences”. It could also boost China’s own production of advanced chips, something Biden has been unable to get his head around.
Although Japan has shamefully followed the US lead by restricting the export of high-end chips to China, this is self-defeating. In 2022, Japan reportedly earned $5.7 billion from the export of semiconductor equipment to China, accounting for 30 percent of its total chip-making equipment exports. If deprived of access to the Chinese market, Japanese chipmakers, like Nikon Corp and Tokyo Electron, will inevitably suffer. It will, moreover, be wholly legitimate if China responds by, for example, banning the export of raw materials used in manufacturing chips, or even banning the import of Japan’s electric cars, which is no less than a craven US proxy deserves.
What the US needs to understand is that, despite its curbs and those of its confederates, China is capable of developing its own advanced chips. According to Reuters, Beijing is investing over 1 trillion yuan ($138 billion) in its chip industry, and domestic chip makers are benefiting from government subsidies and State-backed research projects. Nvidia’s Jensen Huang says the resources China is investing in its own chip industry are “quite massive, so you can’t underestimate them”.
According to The Wall Street Journal, Chinese companies like Huawei and Alibaba are studying how to develop cutting-edge AI technology with fewer or less-powerful semiconductors, or combining different chips to reduce dependence on a single architecture. And David Newman, the CEO and principal analyst at The Futurum Group, a research firm, says, “I don’t underestimate China’s ability and resolve to build next-generation technologies and to also utilize some lagging technologies to still build really important products.”
Given Biden’s efforts to deny China chip technology access, nobody should be surprised that Beijing is responding in kind. In May, it decided, for example, to ban key infrastructure operators in China from buying products from Micron Technology, the US chipmaker. Micron derives over 10 percent of its revenue from China, and it said it hoped to “engage in discussions with Chinese authorities”. In a bizarre twist, the US Commerce Department, notwithstanding Biden’s provocations, had the temerity to remonstrate, claiming China’s restrictions “have no basis in fact”.
By its actions, the US is encouraging China to expedite the development of its chip industry, which may be no bad thing. The big losers, however, are the West’s technology companies. Whereas Chinese chip imports fell 17 percent by volume in the first seven months of 2023, it is the likes of Nvidia, Arm, Micron and Nikon that are being damaged.
Biden’s ideological hang-ups, therefore, are not only endangering global trade and the harmony of nations, but also the viability of Western technology itself. It is a sign of their subservience that ostensibly independent countries like the Netherlands, Japan and the UK allow him to get away with this, and are afraid of speaking truth to power. If Biden does not wake up before it is too late, he will deserve to lose next year’s race for the White House.
The author is a senior counsel and law professor, and was previously the director of public prosecutions of the Hong Kong Special Administrative Region.
The views do not necessarily reflect those of China Daily.
