Opinion | US chip firms are the biggest losers of US chip policies
By Tom Fowdy
It was recently reported in Reuters that the CEOs of leading US chip firms, including Intel Qualcomm and Nvidia, met with US officials in the White House, including national security advisor Jake Sullivan, to discuss their concerns regarding growing restrictions on the export of semiconductors to China. The firms fear that owing to growing US embargos and export controls, they will risk losing access to the lucrative Chinese semiconductor market, which according to the article is valued at $180 million, comprising one-third of the world's total.
The United States has, over the course of the past few years, embargoed thousands of Chinese technology companies via its commerce department entity list, which prohibits the target from purchasing advanced goods from the US without a license to do so. In line with this, the US also placed sweeping controls on the export of critical semiconductor manufacturing equipment to China late last year, and strongarmed third-party countries, including the Netherlands and Japan, to do so.
US officials have barely concealed that the goal of such policies is to attempt to hobble China's technological development in order to gain a critical advantage over the country strategically and militarily. China has responded to such efforts by aggressively investing in the expansion of its own domestic semiconductor industry, aiming for a path of technological self-sufficiency amidst US attempts to stifle its rise. This has triggered a global semiconductor supply chain war, with Washington aiming to tear up the existing chain in order to build one completely dominated by itself, utilizing massive subsidies to push companies to invest in capacity in the United States.
However, it remains true that US chip-making firms will be the biggest losers of this protectionist, politicized and cold war-laden semiconductor strategy which is attempting to tear up globalization as we know it, and the leaders of these firms are not wrong. First of all, the allure of building semiconductor capacity in the United States is neither productive, cost-effective or desirable. While the Biden administration relays repeated misinformation regarding claims that jobs are being brought back to America, it has long been made clear by industry insiders that these plants are scarcely profitable, even with massive government subsidies. It is more expensive across the board to manufacture in the United States, especially given the US has orientated its entire economic system on outsourcing materials to low-cost manufacturers, which enabled China's rise in the first place.
Secondly, the value of the Chinese market is indispensable to US chip firms, and seemingly officials are acting in hubris about this. A global company must be in China, the world's largest market, in order to be feasibly competitive. The small-scale retaliatory actions which China placed on the US Chip firm Micron, of which was decried as so-called "economic coercion", is a reminder of how damaging a loss of Chinese sales can be to a US company, and more to the point, as China develops its own semiconductor industry with determination, this geopolitical conflict creates a self-fulfilling prophecy that American firms will lose their market share as China advances in capabilities.
This means that US semiconductor strategy is both short-sighted and self-defeating. If the goal is to try and cripple China's technological advances now via export controls, what is plan B if that fails? And not least if China does become a globally competitive semiconductor player? The US has seemingly already come to the conclusion it cannot compete with Chinese companies on a "normal footing" which is why it appeals to buzzphrases such as "unfair economic practices" and "economic coercion", but this silly posturing isn't a substitute for serious strategy. Should the worst-case scenario occur for the US, its overpriced and forced semiconductor capacity will be grossly inefficient.
It is likely of course that the US will find some excuse or means to exclude advanced Chinese semiconductors from their, as well as allies, markets should that happen, but of course who is going to have the upper hand and be more competitive? It won't be Washington. That's because it's decided to cut its nose off to spite its face, to attempt to exclude itself from the world's largest semiconductor market, hoping it can cripple that country, but without any guarantee it can actually do so. It's a multifaceted threat to US companies, exports and competitiveness, all in the name of a very misguided anti-China fanaticism. A small yard with a high fence they say? It's just a pity they forgot to build a gate on it and will wall themselves in.
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.
Read more articles by Tom Fowdy:
Opinion | The Pacific Competition rolls on
Opinion | If the US wants economic engagement with China, it has to prove it
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