U.S. ban of exports of computer chips to China signals new era

The Biden administration’s move to block exports of advanced computer chips to China is signaling a new phase in relations between the globe’s two largest economies — one in which trade matters less than an increasingly heated competition to be the world’s leading technological and military power.

The aggressive move, announced last month, will help set the tone for President Joe Biden’s upcoming meeting with Chinese President Xi Jinping on Nov. 14 on the sidelines of the Group of 20 summit in Asia. It’s evidence of Biden’s determination to “manage” the U.S. competition with China, whose officials were quick to condemn the export ban.

After more than two decades in which the focus was on expansion of trade and global growth, both countries are openly prioritizing their national interests as the world economy struggles with high inflation and the risk of recessions. The U.S. and China have each identified the development and production of computer chips as vital for economic growth and their own security interests.

“We’re going to do whatever it takes to protect Americans from the threat of China,” Commerce Secretary 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, in any number of ways, harm us and our allies, or our ability to protect ourselves.”

Xi responded to the export ban in his statement at last month’s congress of the Chinese Communist Party, where he secured a third term as the country’s leader. He pledged that China would move more aggressively to become self-reliant in producing semiconductors and other technologies.

“In order to enhance China’s innovation capacity, we will move faster to launch a number of major national projects that are of strategic, big-picture and long-term importance,” Xi said.

The Chinese government has named the development of advanced computer chips that could handle everything from artificial intelligence to hypersonic missiles as one of its top priorities. To bridge the gap until it can get there, China has been relying on imports of advanced chips and manufacturing equipment from the U.S., which imposed a series of export controls last month that block sending to China the world’s most advanced chips, factory equipment and industry experts tied to America.

In a speech last month at IBM, Biden said China specifically lobbied against a law that provides $52 billion to produce and develop advanced semiconductors in the U.S., an incentive package that has been followed by a string of announcements by Intel, Micron, Wolfspeed and others about the construction of computer chip plants in the U.S..

The era of China, Russia and other competitors having relatively unfettered access to 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 has grown, so Western leaders have reconsidered the wisdom of giving adversaries open access to their markets,” Miller said.

Instead of trying to work together as a single global economy, new alliances are being formed such as the Quad (Australia, India, Japan and the U.S.) and existing partnerships such as NATO are being expanded. Economic integration among these partners has become essential, as the U.S. export controls on advanced chips need support from other producers in Japan and the Netherlands.