The World Divided: The Sino-US Chip Rivalry

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Rendering of the inside of a microchip (Image Credit: The Medium)

When Biden proudly proclaimed that China would never become the most powerful, wealthiest nation “on [his] watch,” the world’s often unpredictable future crystallized into two eventualities. America could revitalize its long-failing domestic industries, defeating the China threat with the ingenuity, innovation, and hard work that are the pillars of the American dream. Or America could subdue China, abandoning her steadfast commitment towards free trade and fair competition in a bid to preserve her sole superpower status. On October the 7th, 2022, America made her choice.

In an unprecedented and historic move, the Biden administration announced a sweeping and expansive set of sanctions upon the Chinese computer chip industry. Designed to cripple, Biden’s sanctions employed four prongs of attack. First, China would be completely banned from purchasing any advanced GPUs, logic, and memory chips manufactured or designed by American firms. Second, China would be banned from purchasing any equipment that could potentially be used for manufacturing advanced computer chips from any American firm, unless the American firm obtained a special license. Third, all US citizens and green card holders would be restricted from working for certain Chinese computer chip companies. Fourth and most crucially, any company which works with American firms would be banned from working with the Chinese computer chip industry – forcing every corporation to choose between the Chinese or American economy.

The end goal of such a destructive set of sanctions is simple – weaken China to strengthen America. Without access to the American computer chip industry, and by extension a large portion of the global computer chip industry, China will surely suffer. Accounting for only 15% of global chip production yet consuming over 75% of global semiconductor sales, China is asymmetrically dependent upon trade to sustain its nascent technological sector. Without access to the American and her associated allies’ markets, the Chinese technology industry would be devastated. Cutting-edge Chinese industries currently competing against their American counterparts, industries like Quantum computing, supercomputers, artificial intelligence, self-driving cars, etc. are all reliant upon computer chips; without them, these Chinese industries will be wiped out overnight, eradicating any possible attempt at Chinese technological hegemon, and weaken China’s domestic technological capabilities.

Ripple effects are also expected to be felt across the Chinese economy. Boston Consulting Group estimates a staggering cost of 1 trillion dollars if China were to develop a self-sufficient chip supply, spread over 10 years. Such a massive cost would place a considerable burden upon China and push them far behind America in terms of technological leadership, losing Chinese firms’ lucrative investments and contracts to their American counterparts.

China’s rapidly modernizing military will also endure a substantial hit. Lacking both a strong domestic AI and quantum computing program, China’s military will inevitably lag behind the American military in technological advancements. Furthermore, current Chinese military capacities, for example, 5th generation Chinese jets or hypersonic missiles, all include American chips in their manufactory process: Without access to American computer chips necessary for production, China’s current deployed military equipment would become both unbuildable and unrepairable.

Although this aggressive demonstration of American strength will devastate China today, in the long run, this move places America, and the world at large, in a precarious situation. Control over computer chips determines who rules the future. As the research director of Global Data explains, control over computer chips will determine “AI dominance,” and ultimately, “global economic leadership [over] the next few decades.” Such a blatant attempt to steal the future on America’s part will be met with fierce Chinese resistance – tearing the world in half.

Xi Jinping has already stated China will face America with “a fighting spirit and a firm determination to never yield to coercive power.” Although investment into developing a self-sufficient Chinese computer chip industry would be unfathomably challenging, as the Biden administration’s self-servingly assured, the Chinese Communist Party will likely pay the price. China has already proven willing to undertake massive national projects, devoting tens of billions into programs like the Belt and Road Initiative every year, and hundreds of billions annually into their military development. One trillion dollars over 10 years may include an extra zero at the end, but with an annual government budget of 3.4 trillion dollars and growing, China is both able and willing to pay the price. America’s sanctions may well end up inadvertently speeding up China’s computer chip industry development and prowess, creating a powerful foreign rival for America’s computer chip industry to face 10 years down the line.

Furthermore, in the short term, China is likely to retaliate against America with its own sanctions. Chinese manufacturing provides 434 billion dollars to America and supports 800,000 jobs. If China were to sanction American firms, it could induce mass unemployment and product shortages all across America, weakening their economy and upending local economic and political stability. Aside from trade, China also holds in its arsenal one more potent weapon. Controlling over 70% of the global supply of rare earth metals and supplying nearly 80% of America’s domestic rare earth metal consumption, if China were to restrict access to these metals, America would crippled. American industries reliant upon these Chinese rare earth metals, essentially all modern industries, from electronics to green energy to aerospace, would be wiped out, undermining American technological leadership and economic strength. A nation of 1.4 billion people, China won’t just roll over and surrender; they will fight back against America, and it is the world that will be caught in the crossfire.

If Biden truly wishes for “China [to] play by the international rules,” he must first ensure America does the same. His sweeping and expansive set of sanctions is a blatant violation of the neoliberal world order America themselves set, and although they may weaken China today; such success comes at a steep price. Is America ready to abandon her principles, her domestic industries, and potentially the world’s future for the myopic goal of temporarily subjugating China?

Written by Si Kai Feng

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