Opinion | Biden's anti-China supply chain strategy is taking shape

By Tom Fowdy

The United States Congress is on the brink of passing the "Uyghur Forced Labour Prevention Act"- The bill accuses China of engaging in forced labor practices in the Xinjiang autonomous region, and pushes a legalized priori "assumption" that all goods manufactured in this region are of such an origin, a "guilty until proven innocent" position and subsequently bans them from being imported. In making a statement on the bill, the White House stated that it supports the legislation with the goal of both "onshoring" and "third shoring" what it describes as "key supply chains", including "renewable energy" and "semiconductors". In order words, to shift these supply chains from China to back home, or into third countries.

The statement gives insight into how the Biden administration has articulated a strategy in order to try and gain control of certain supply chains with the view to containing China's rise by either aiming to undercut its dominance in certain areas: such as solar panels, or otherwise attempting to isolate China from the global supply chain altogether, such as in semiconductors. In both instances, the US has infused opportunistic sanctions with protectionist policies and coordinated tactical investments, a situation China must be mindful of when responding to in the long run.

Semiconductors

Since 2018, the United States has identified semiconductors as one the single most strategic technology in attempting to offset the rise of China, primarily because they are essential to empowering all electronic devices and pose enormous consequences for the balance of power, as well as the fact that China relies on an ever-growing demand for them to fuel its own development. Since that time, the US has sought to fulfill three objectives: 1) Capture and dominate the Semiconductor supply chain 2) Block China's advance in Semiconductor technologies, and 3) Use supply chain dominance and export controls to hobble strategically critical technologies.

To do this, the United States has first added hundreds of Chinese companies to an investment blacklist known as "the entity list" preventing American companies from selling them critical technologies. This has since been coupled with "Investment bans" preventing Americans from buying their shares. Secondly, the United States has targeted Chinese Semiconductor manufacturing firms such as SMIC with similar measures, but also, in turn, has sought to limit their access to overseas semiconductor manufacturing equipment, such as the prized "Extreme Ultraviolet Lithography Machine" required to produce the most high-end chips. In 2018, the Netherlands firm ASML was barred from sending one to China.

In conjunction with this, the US has taken a position of opposing every single major semiconductor investment into China by third parties, and incentivized them to invest in allied countries instead. Intel was blocked from building a new plant in China, and chose Malaysia instead and the US voiced opposition to South Korea's Hynix when it planned a huge new factory in China. In conjunction with this, the US has strongarmed TSMC to invest in new plants in Arizona, in Japan and in Germany, aiming to build up the global supply chain on "allied territory". Similarly, the US has likewise initiated a policy of getting allies to block China from acquiring overseas chip firms. For example, it recently blocked the sale of South Korean company MagnaChip to a Chinese investor.

Solar Panels

A big priority of the Biden administration has to been to accelerate America's proficiency in Clean Energy, of which China currently dominates. To do this, the Biden administration has weaponized allegations pertaining to the Xinjiang autonomous region as a means to an end in advancing protectionist goals, by groundlessly accusing Solar Panels of being "Made with forced labour" in order to undercut China's market share and boost US production. In conjunction with the US, the "US international development finance corporation" subsequently pledged $800 million to invest in Solar Panel Capacity in India. The political intent of these are clear as day, to "On shore" and "third shore" the supply chain to America's advantage.

What can China do about this?

China must be conscious that it there is a coordinated strategic effort by the US and allies to rewire certain supply chains with the goal of advancing strategic containment against the country. Whilst as it is Beijing has placed all guns blazing on advancing semiconductor capacity, research and expertise, it should be prepared to work with others too and acquire strategic partners in countries who are also interested in boosting their own technological development. For example, it should aim to undercut the US by helping articulate semiconductor industries in Pakistan and Russia, and likewise aim to increase Solar Panel production in those countries too. It should also in conjunction, close the door on trade talks with Washington for a significant period of time in retaliation to the Xinjiang ban and leverage any further market access on annulling this legislation.

The author is a well-seasoned writer and analyst with a large portfolio related to China topics, especially in the field of politics, international relations and more. He graduated with an Msc. in Chinese Studies from Oxford University in 2018.

The views do not necessarily reflect those of DotDotNews.

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