Blinken’s China Vision - Whither US-China Trade, In Whose Interest?

And since AI requires fifth-generation (5G) platforms that Chinese technology giants, particularly Huawei, have pioneered in and for commercial markets, the State Department seeks to contain Huawei and China’s technology progress, especially its nascent semiconductor industry. 

How policymakers endanger US semiconductor futures

In the 1980s, US technology giants pressed the Reagan administration to battle Japanese competition. Today, the Trump-Biden administrations are pushing the reluctant US semiconductor giants to fight China. 

As demand for semiconductors has shifted to Asia and industry activities have dispersed, production has globalized. That has boosted the fortunes of US semiconductors, while providing new opportunities to new producers in advanced Asia (Taiwan, South Korea) and emerging Asia (China).

In contrast, the Pompeo-Blinken vision would like to reverse the course of history by forcing re-centralized production in the US. Instead of economic efficiency, the de facto new criteria of success would be geopolitical loyalty to US unipolar supremacy, at the expense of normal business rivalry and consumer welfare. That’s why the Trump-Biden administrations are whipping US semiconductor leaders into a trade war against their wishes.

The policy debacle started in July 2018, when the US imposed 25% tariffs on semiconductors imported from China, causing significant damage in the US industry. Moreover, the tariffs failed as companies like Huawei bypassed US suppliers buying semiconductors from Taiwan and South Korea. Trampling over established business practices, Trump’s policymakers next enacted US export controls targeting the global semiconductor ecosystem. while threatening to cut off niche equipment and software inputs by US firms to Taiwanese and South Korean firms. 

As blackmail replaced business strategy; bullying substituted for business practices setting a warped precedent. Worse, the controversial weaponization turned out to be "legally complex and accompanied by considerable unintended consequences,” as analyst Chad P. Bown has argued. Hence, the new effort to use a US-China semiconductor working group to ease tension in industry. 

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Disclosure: A version of the commentary was published by China-US Focus on March 22, 2021

Dr. Dan Steinbock is an internationally recognized strategist of the ...

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