Semiconductor, the backbone of high technology used to produce integrated circuits (IC) or chips, for computers and smartphones is China’s biggest single import by value. China, for years, has been trying to steer away from its dependence on the US and other countries through innovation-driven development and a plethora of state-led policy measures.
Hence when the US hawks added the world’s second-largest smartphone maker Huawei to the US entity list and barred it acquiring essential chips from Taiwan Semiconductor Manufacturing Company (TMSC), the technology fired up Chinese hankering to mitigate reliance on foreign suppliers and step up pace toward technological independence .
Preempting formidable challenges to the tech industry, Chinese Communist Party in its fifth plenum placed innovation as a key driver for China’s long-term modernization program to make headway in core technologies, which likely included production of top-of-the-line semiconductors with a focus on science and technology to provide a strategic support for national development.
Years before, innovation had become an integral part of China’s national core strategy. The 14th Five Year Plan (FYP) reaffirmed the commitment to become a global leader in innovation and chalk up success in new industrialization, informatization, urbanization and agricultural transformation – via “dual circulation,” a term coined by President Xi Jinping last spring and pledged to fuel domestic cycle (production and consumption) by 2035.
After Goldman Sachs predicted China can produce 7 nanometer (nm) chips by 2023 and The New York Times columnist Thomas Friedman said Beijing attempts to build an entire microchip supply, ending its dependence on US technology through the latest FYP – Chinese largest chip foundry, SMIC, last month turned a new leaf in country’s chip-making history by getting closer to introduce much advanced N+1 7nm node.
On Friday, the US Department of Commerce sanctioned dozens of Chinese companies including SMIC. The move claimed to limit the company's ability to produce semiconductors at advanced technology levels (10nm or below). But with China nearing the milestone, the US action apparently mourned China’s step-forward for attaining technological self-reliance and SMIC rise despite American blockade.
In the long term, American sanctions could further strengthen Chinese chip-making champion since it reportedly completed the development of process nodes from 28nm to 7nm in a record time and might rush for volume production of leading-edge 7nm nodes ahead of the schedule.
Across those lines, the only conclusion that can be drawn from the aggressive move is that the US thinks China, if not stopped, might catch up America soon in technology and potentially end American global technological dominance.
Once Trump announced to consider imposing exports restrictions on SMIC in September, an industry group in the US with 2,400 worldwide members warned him blacklisting the company would jeopardize the US technological edge, make the delivery of US goods unreliable and hit the US market share across the world in addition to posing detrimental impacts to the US industry, economy and national security.
Noting the US high-tech products such as semiconductors and chip-making equipment had managed to withstand the pandemic and anti-China rhetoric amid US presidential election – senior fellow at Peterson Institute Chad Bown also cautioned the restrictions on major semiconductor manufacturers in Taiwan and South Korea, to use US tools for making anything for Huawei, would threaten the US allies’ national sovereignty and set a dangerous precedence of unilateralism.
In a highly entwined and globalized world, the semiconductor industry is a global affair as the components for a chip could travel more than 25,000 miles and cross borders over 70 times before it is installed into a device or delivered to a customer. The US is using its leverage to disrupt this trend of globalization and global supply chains, which to experts, won’t be practically feasible at least in a foreseeable future.
Trump’s White House is impetuously taxing itself in an effort to cut off technology exports to China. Although unlike Huawei, the new order didn’t add SMIC to the list that would completely prevent SMIC from buying US supplies and technology – the company remains concerned the US export restrictions could be an innate threat.
Just weeks before his departure and in order to hurt China to the maximum extent possible, the outgoing president is not only inflicting aches and twinges to the US exports but also infringing international trade rules by causing harm to free market and fair competition and national interest of the US allies as well as ripping off remnant of US international credibility.
While the President-elect Joe Biden additionally inherits a technology chaos from his predecessor, he is got to make a hard choice – carry on his predecessor’s anti-China legacy to stave off political hogwash in the country or shield semiconductor global supply chains from disruption to regain the trust of US manufacturers and allies on American leadership. Whatever path Biden chooses would define the course of China-US “chip war.”
*This is one of my opinion pieces (unedited) that first appeared in "New Straits Times":