In a not-so-silent conflict, but one that has so far remained very diplomatic, the United States relies on the notion of national security, while China appeals to the highest instances of international trade. The so-called chip war, between the Asian giant and the land of Uncle Sam, seems to be about to begin, and perhaps it will be a turning point, which will mark who will be the superpower of the XXI century in the matter of microprocessors.
Why is the US afraid of China?
On October 07 of this year, the Biden administration unveiled some measures with which they seek to impose restrictions on Chinese companies, regarding the acquisition of chips without a license, as well as equipment and knowledge for the manufacture of microprocessors.
These measures are extended to US citizens and companies, also trying to prevent them from supporting the production of such devices in the industrial plants of the Asian giant. The entry of high-end components and GPUs is also restricted. There is even an entity list of Chinese companies.
With such measures, the control of chip exports is sought, forcing Chinese companies to show permits in order to carry out commercial operations, which will be evaluated on a case-by-case basis, by the Washington-based government, since this issue is considered of primary “interest for the national security of the country.”
Thus, it goes a little beyond the restriction that was imposed in September of this same year to Nvidia and AMD, in connection with the sale of chips to China. Although the central idea remains: to prevent the Asian giant from benefiting from any development with the label “made in the USA.”
But why? Apparently what is hidden behind is the classic business is business. This would seek to avoid excessive growth of the Chinese industry, i.e., to prevent it from reaching self-sufficiency. It is appropriate to remember that in these issues the Asian giant still depends on the United States and other countries, closer ideologically to the West, such as Japan and South Korea.
In the intricate global chip market, China depends, for its domestic industry, on a significant flow of components that come from several of the mentioned countries i.e. South Korea, Japan, even Taiwan as well as the USA.
For the Asian giant, this is a disadvantage in the event of a possible conflict; therefore, they are looking for ways to develop advanced components on their own. Proof of this: SMIC, the country’s largest manufacturer, announced that they had succeeded in building 7nm chips, demonstrating that despite Washington’s strategies, China is taking firm steps towards their independence in this regard.
China strikes back
In response to Washington’s activity, the Beijing-based government has not stood idly by and decided not only to continue with their activity, in order to develop their microprocessor industry, but they have decided to fight back, in a good way. For now, this points to two main lines of action.
First of all, a strong investment is being prepared, with a very high figure in subsidies: one trillion yuan, or what is the same to almost 150,000 million euros; all of this will be to give a boost to a sector that they already consider key. In this way, the Asian giant is not only seeking to ensure their independence in technology production but to get out of the quagmire that American protectionism wants to get it into.
This plan, which could begin to be implemented at the beginning of 2023, in addition to subsidies, includes tax policies that benefit companies in the sector of chip manufacturing, although the State Council has not yet given more details about it.
On the other hand, China has recently appealed to the World Trade Organization (WTO), the most authoritative body on the matter, to challenge the restrictions imposed by the United States.
As an argument, Beijing alleged that Washington is violating the rules of free trade. Therefore, China hopes that the WTO will take action in the matter, to annul the controls imposed by the United States. In a statement, the Asian giant assures that with this demand they only want to defend their legitimate rights and interests and are therefore seeking to resolve the conflict through legal means.
They also add that the government of the United States has generalized and abused the idea of national security, to impose control measures that they consider arbitrary, putting obstacles to international trade.
And what will happen now?
The legal battle in the chip wars is just getting started. The World Trade Organization is yet to issue an opinion. But, in the event that it is ruled in favor of China, it will not necessarily mean that the US will change the course of their policies and lift the restrictions.
There is even a precedent of a condemnation by this organization of tariff measures imposed during the Trump administration. However, the Biden administration rejected the WTO ruling, for the umpteenth time using the everlasting argument of the protection of national security, over which neither this international organization nor any other, has the power to decide.
In turn, Washington is strengthening their commitment to this sector, which they consider strategic. In fact, in August of this year, Joe Biden signed a law according to which more than 50,000 million dollars are going to be allocated for research and subsidy of chip production in the country of Uncle Sam, while there is talk of a generous credit for the companies that manufacture it.
For now, more than a war, this chip issue reminds us a bit of the space race of the former USSR against the USA, won by the latter. But the competition is different; and so is the contender. We shall see.