The battle for crucial 21st-century technology fuels hostility between global superpowers
As US Treasury secretary Janet Yellen prepares for her visit to Beijing to stabilize economic relations, a key focus will be navigating the escalating chip war between China and the US.
Despite diplomatic gestures from both sides, the competition in cutting-edge technology between these superpowers remains relentless.
On Monday, Beijing intensified tensions by imposing export restrictions on two minerals crucial for semiconductor production and other advanced technologies, a move disputed by the US. In response, the Chinese state media outlet, the Global Times, stated on Wednesday: “China should not deplete its own mineral resources while facing restrictions on technological advancement.
As per reports, the Biden administration is said to be readying an expansion of its restrictions on the sale of advanced microchips to China, coinciding with the aforementioned measures.
What concerns the United States?
Washington has two primary concerns. Firstly, there is apprehension that China’s People’s Liberation Army (PLA) may surpass the overall power of the US military. Secondly, there is a worry that China could leverage US technology to achieve this goal.
President Xi Jinping has issued a directive to the People’s Liberation Army (PLA) to achieve a “world-class” military status by 2049, coinciding with the centenary of the Chinese Communist Party’s (CCP) rule. This objective includes the development of autonomous weaponry, such as hypersonic missiles, and the utilization of artificial intelligence (AI) in various applications, including electronic warfare.
The extent to which China has progressed towards this goal remains uncertain. The US Department of Defense’s annual report on China’s military power states that the PLA is actively pursuing next-generation combat capabilities through the widespread integration of AI and advanced technologies across all levels of warfare.
Although China leads in certain AI applications, like facial recognition, its domestic industry is not yet capable of producing the most advanced semiconductors required to power these technologies. Consequently, Chinese businesses and the military heavily rely on imports to obtain advanced chips.
The United States aims to disrupt this supply chain.
What actions has the United States implemented thus far?
In October, the Biden administration implemented comprehensive export controls, specifically focusing on restricting China’s access to semiconductors and related products of US origin. As a result, businesses and individuals in China are now unable to purchase advanced chips and chipmaking technology from US suppliers unless the seller obtains a specific license from the US government.
In January, the US strengthened these controls by successfully urging the Netherlands and Japan to limit the export of technology essential to chip production. The targeted countries, known for hosting the most advanced chip manufacturing technologies, include the Dutch company ASML. ASML is the sole provider of cutting-edge photolithography scanner equipment, which is crucial for etching intricate circuits onto silicon wafers.
On June 30, the Netherlands confirmed that their export controls would come into effect starting from September 1.
According to Jake Sullivan, Biden’s national security adviser, these restrictions aim to safeguard foundational technologies with a metaphorical “small yard and high fence.” On the other hand, President Xi and other senior officials within the Chinese Communist Party accuse the US of adopting a cold war-style strategy of “containment.”
What has been the effect or consequence of these measures?
The CEO of Nvidia, Jensen Huang, expressed concern that the restrictions posed a significant threat to the technology industry, potentially resulting in “tremendous damage.” Over a 12-month period leading up to February, Nvidia experienced a nearly 20% year-on-year decline in revenues from China and Hong Kong.
Nvidia has recently begun providing a lower-tier chip, the A800, to Chinese purchasers as an alternative. However, the potential new restrictions under consideration by Washington would even limit the availability of these products. Furthermore, Chinese companies have also experienced the impact. Data from China’s General Administration of Customs reveals that chip imports decreased by nearly 30% in the first five months of this year compared to the same period in 2022.
What has been China’s response to these developments?
China’s response has been one of clear anger and frustration. The official newspaper of the Chinese Communist Party, People’s Daily, accused the US of engaging in “containment and suppression.” In May, Wang Wentao, the commerce minister, expressed strong opposition to Japan’s export controls, urging them to be dropped. As a retaliatory measure against US restrictions, Beijing has implemented a ban on the use of chips produced by the American company Micron in critical infrastructure projects. Despite the restrictions, Chinese businesses remain determined to acquire high-end chips and have resorted to inventive methods to circumvent the export controls. Some are renting chips or procuring them through intermediaries, as reported by the Financial Times. Additionally, there is an emerging black market for smuggled semiconductors.
What can we anticipate in the future?
The US government aims to address these loopholes and expand the reach of the existing restrictions. In addition to limiting the sale of Nvidia’s A800 chips, the Biden administration is reportedly contemplating restrictions on leasing cloud services, which some companies have utilized as a means to bypass the regulations. It is anticipated that the Dutch government will also extend the scope of its export restrictions.
Although Beijing and Washington assert their efforts towards diplomatic reconciliation, they are growing further apart when it comes to the most crucial technology of the 21st century.
