The US escalates chips war With China

This paper has been authored by Rajeswari Pillai Rajagopalan.

Global geopolitics is in a state of intense flux. China’s rise has led to greater competition in the international system, with the United States and the post-War global order coming under increasing challenge. China’s high economic growth rate in the past several decades has meant bigger military budgets. In turn, its military rise threatens security in the Indo-Pacific region where China seeks to dominate, from the Himalayas to South China Sea and East China Sea. This paper argues that China’s massive military power, accompanied by its threat or use of force and aggressive actions against its neighbours has heightened insecurity across the Indo-Pacific. Yet, the China challenge is multifaceted and not just in the domain of the military. This paper focuses on the area of technology.

US China relations

The US-China technology and trade war is reaching new heights, as the United States imposed a new round of technology controls on China in October 2022. These controls will affect “the flow of high-end semiconductors and semiconductor-manufacturing equipment to Beijing.” The wave of United States (US) sanctions began in 2019 as a nascent effort by the Trump Administration to limit the Chinese telecommunications giant Huawei’s growing footprint in multiple regions across the globe. With the competition picking up momentum across various technologies, including military and security utilities, efforts to restrict China’s access to technologies including semiconductors (or chips) and other components will likely become widespread. The US has in recent months also said that it will take “extraterritorial measures” if its allies and partners do not follow its lead in the imposition of the new measures.

The European Commission, in an effort to strengthen the continent’s competitiveness in the area of semiconductors, introduced the Chips Act in 2022 that primarily seeks to double Europe’s market share from the current 10% to at least 20% by 2030. The Act includes a number of different steps to secure Europe from semiconductor supply vulnerabilities: beefing up investments in next-generation technologies; giving access across Europe for designing tools and pilot lines for the prototyping, testing and experimentation of cutting-edge chips; ensuring a more investor-friendly structure that would aid in establishing manufacturing facilities in Europe; and instituting certification procedures for energy-efficient and trusted chips to guarantee quality and security for critical applications.

The law also seeks to assure start-ups and SMEs better access to equity finance; further skills, talent and innovation in microelectronics; build capabilities to predict and respond to possible semiconductor shortages and crises to remove supply vulnerabilities; and develop semiconductor partnerships with like-minded countries across the globe. According to media reports, the Chips Act will allow for a spending of 15 billion euros (approx. US$17.11 billion) in both public and private investments until 2030.

This paper describes the intensifying US-China tech war; examines the logic of this tech war; and explains the new US export control measures that have been instituted in recent months with the goal of restricting the technology flow to China. It also looks into China’s domestic efforts in recent years to mitigate the repercussions of US restrictions.

The paper can be accessed by clicking here

https://www.orfonline.org/research/the-u-s-escalates-chips-war-with-china/

This paper has been authored by Rajeswari Pillai Rajagopalan.