Computer chip ban signals new era as Biden and Xi meet

The Biden administration’s move to block exports of advanced computer chips to China signals a new phase in relations between the world’s two largest economies — a phase in which trade counts less than increasingly heated competition for the leading technological and military power in the world.

The aggressive move, announced last month, will help set the tone for President Joe Biden upcoming meeting with Chinese President Xi Jinping on Monday on the sidelines of the G20 summit in Asia. It’s a testament to Biden’s determination to “manage” US competition with China, whose officials were quick to condemn the export ban.

After more than two decades of focused trade expansion and global growth, both countries are openly putting their national interests first as the global economy grapples with high inflation and risks of recession. Both the US and China have identified computer chip development and production as crucial to economic growth and their own security interests.

“We will do everything we can to protect Americans from the threat posed by China,” Secretary of Commerce Gina Raimondo said in an interview. “China is crystal clear. They will use this technology for surveillance. They will use this technology for cyber attacks. They will use this technology to damage us and our allies or our ability to protect ourselves in a variety of ways.”

Xi responded to the export ban in his statement at the Chinese Communist Party Congress last month, where he secured a third term as the country’s leader. He promised that China would be more aggressive to become self-sufficient in manufacturing semiconductors and other technologies.

“In order to improve China’s innovation capability, we will move faster to launch a series of large-scale national projects that are of strategic, comprehensive and long-term importance,” Xi said.

The Chinese government has made developing advanced computer chips capable of handling everything from artificial intelligence to hypersonic missiles one of its top priorities. To bridge the gap until then, China is relying on imports of advanced chips and manufacturing equipment from the US, which last month imposed a raft of export controls blocking shipments of the world’s most advanced chips, manufacturing equipment and industry to China, experts associated with America are connected.

The US and its allies famously imposed export controls against Russia after February’s invasion of Ukraine, making it difficult for Russian forces to be supplied with arms, ammunition, tanks and aircraft. As a result of these restrictions, Russia has relied on drones from Iran, and the US has accused North Korea of ​​supplying them with artillery.

The US, until recently, believed that strong trade ties would bring countries closer together, making the world a safer and more prosperous, post-Cold War order. Global supply chains should reduce costs, increase profits and infuse democratic values ​​into the terrain of oligarchies, dictatorships and autocracies.

But after a global pandemic, the war in Ukraine, and China’s own ambitions, the Biden administration and many European and Asian allies have chosen to prioritize national security and industrial strategies. Both the US and the European Union have provided tens of billions of dollars in stimulus to boost domestic production of computer chips.

In a speech at IBM last month, Biden said China had specifically opposed a law that would allocate $52 billion to US production and development of advanced semiconductors, a stimulus package followed by a series of announcements by Intel, Micron , Wolfspeed and others followed on building computer chip factories in the United States.

He said some of the GOP lawmakers who opposed the measure agreed with China’s arguments.

“The Chinese Communist Party has lobbied the United States Congress against the passage of this law,” Biden said. “And unfortunately some of our friends on the other team bought it.”

Donald Trump has had fiery rhetoric against China throughout his presidency, imposing tariffs that the Biden administration has yet to lift. But qualitatively speaking, the computer chip export bans are much stricter than anything imposed by Trump, said Gregory Allen, a senior fellow in the Strategic Technologies program at the Center for Strategic and International Studies.

Allen said Trump-era tariffs are high in dollar terms but have almost no impact on the trade balance. Import taxes were not strategic either. The export controls imposed by the Biden administration would be a setback for Chinese technology, which is already decades behind the US

“We essentially committed to saying, China, you’re not going to achieve your ultimate goal,” Allen said.

The era when China, Russia and other competitors enjoyed relatively unhindered access to the U.S. and European markets appears to be ending, said Christopher Miller, a Tufts University professor and author of the book “Chip Wars.”

“The risks posed by these countries have grown, so Western leaders have reconsidered the wisdom of allowing opponents open access to their markets,” Miller said.

Instead of trying to work together as a single world economy, new alliances like the Quad (Australia, India, Japan and the US) are being formed and existing partnerships like NATO are expanding. Economic integration between these partners has become essential as US export controls for advanced chips require support from other manufacturers in Japan and the Netherlands.

“All major powers are restructuring international economic relations in ways they hope will improve their geopolitical position,” Miller said. “Semiconductors are just one of many arenas where trade, technology and capital flows are being repoliticized due to great power rivalry.”

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