For semiconductor giants, China represents a massive market: the world’s largest country and an industrial giant, but far behind in manufacturing its own semiconductors.
For the Trump administration and many allies in Congress, China’s strategic goal of becoming the world leader in semiconductor technology represents a pressing threat. They fear advanced U.S. technology will be stolen or surpassed and that China will develop a stranglehold on the chips that power every modern technology. Beijing, in turn, feels it must de-Americanize its economy and develop technological independence so as not to be at the mercy of Washington’s whims.
That conundrum is at the heart of “techno-nationalism,” or the move to link innovation in the tech sector to economic prosperity, social stability and national security.
In a briefing for the National Press Foundation, Alex Capri of the National University of Singapore, Yukon Huang of the Carnegie Endowment for International Peace and Martijn Rasser of the Center for a New American Security defined and detailed the move toward techno-nationalism – a trend that was accelerating before COVID-19 and is now being amplified by it. Decoupling and restructuring supply chains away from China are the likely result.
Capri, a Hinrich Foundation research fellow and a visiting senior fellow at the National University of Singapore Business School, said that the U.S. and China are in the early stages of a historic tech war. Semiconductors are at the heart of it. All the technologies of the future – data analytics, robotics, AI, surveillance, 5G networks – rely on semiconductors.
The U.S. and other nations design them but manufacture them mostly abroad, especially in Taiwan, and reimport them. Only about 16% of the semiconductors used in China are made in China, and only half of those are made by Chinese companies. China’s own semiconductors are significantly inferior, yet its companies — notably the blacklisted Huawei — depend on them.
China, in fact, is the world’s largest importer of semiconductors; semiconductor-related technologies are China’s largest import, exceeding even its imports of oil, Capri wrote in a comprehensive review of the sector’s role in ongoing trade wars.
“China is way, way behind when it comes to semiconductors,” Capri said in the briefing. It’s plan to beef up its semiconductor sector, he said, is “not really a plan to dominate. It’s more a plan to catch up.”
The Trump administration seeks to limit U.S. exports of those tech products to China, saying that putting that technology in the hands of Chinese companies controlled by Beijing poses a national security threat to the United States. That move has caused companies to scramble to reconfigure their supply chains.
Huang, a former World Bank country director for China and a senior fellow in the Asia Program at the Carnegie Endowment for International Peace, listed top U.S. companies that get anywhere from a quarter to two-thirds of their revenue from China: Qualcomm, Micron Technology, Broadcom, Marvell Technology, Advanced Micro Devices, Intel, Corning. U.S. export restrictions will hit their bottom lines.
In the short term, U.S. export bans will hurt China more, but in the long term, they will hurt the U.S. more, because American growth is tightly tied to technological innovation, Huang said.
Huang also said that while China does dominate some sectors, its industrial prowess is limited.
“We overestimate Chinese superiority,” he said. “China cannot make a globally competitive car. It can make a high-speed train, but not a car. It’s too sophisticated.”
Rasser (bio, Twitter), a senior fellow in the Technology and National Security Program at the Center for a New American Security, argued that China is at parity – or ahead of the U.S. – in genomics, quantum science and AI. He said that China is poised to overtake the U.S. as the world’s biggest spender on research and development and argued that the U.S. should boost spending on R&D to 4%. Federal spending of about 1.2% of GDP annually in the 1970s drove such innovations as the GPS, the microchip and the internet, and laid the foundations for current American prosperity, he said. It’s now fallen to about 0.7% of GDP.
Rasser also suggested numerous reforms to U.S. industrial policy, including increased STEM education and skills training, and immigration reform. And he argued for a robust international cooperative regime among democracies to maintain their competitive edge and promote rights-respecting norms around the use of emerging technologies.
Rasser suggested several sources reporters should track to can keep abreast of developments in high-tech trade. Concerning the Chinese telecom company Huawei and U.S. efforts to curtail its growth, Robert L. Strayer of the U.S. State Department is deeply involved in setting U.S. policy and communicating with allies. In Congress, U.S. Sens. Josh Hawley (R, Mo.) and Mark Warner (D, Va.) are policy leaders, Rasser said.
The Bureau of Industry and Security in the Department of Commerce is the entity that oversees export controls, such as the move in 2020 to restrict Huawei’s ability to use U.S. technology. (Data resources here.)
Capri also suggested reporters regularly follow the Federal Register, which publishes all proposed changes to trade regulations.
This program is funded by the Hinrich Foundation. NPF is solely responsible for the content.