As if the stakes in the ongoing US–China geopolitical competition weren’t high enough already, on 7 October the United States banned the transfer of key microchip technologies to Chinese entities.
With the chip ban the United States has signalled — despite the Biden administration’s denials — that it is committed to a strategy of containment not only in military, but now also in economic terms. This begins with thwarting China’s ambitions to dominate the development and production of high-end computing chips that will be central to strategically important industries like AI.
The chip ban may well achieve its intended effects in the short run: China’s chip manufacturing industry is still very dependent on US-developed hardware and software, and the local chip industry is in crisis as firms are cut off from key materials and personnel.
The longer-term effects of the policy are much less certain. China will continue to specialise where it can. Cutting China off from US technology gives Beijing extra incentive to keep throwing money at its own chip R&D, with a view to building an isolated tech supply chain that is even more geared towards state — and especially military — goals. What’s certain is that the chip ban will be disruptive far beyond the semiconductor industry, as global tech supply chains come to be driven less by the economics of comparative advantage than by the geopolitics of the world’s two biggest economies.
US National Security Advisor Jake Sullivan has described these strategies as surrounding a small yard with a high fence. Extraterritorial unilateral sanctions that hurt American tech firms, allies and partner economies are locking others into a larger American yard that may not look so attractive.
In tech just as in other industries, it’s pointless to try and build supply chains delinked from China — most of the region’s critical production chains geared for manufactured exports destined for outside the region run through China, driven by the enduring competitive advantage China has as a manufacturing base, despite rising costs and the recent COVID-zero policy.
Indeed, the Asia Pacific economy is not bound by a distinction between the United States and China — it’s an interdependent system in which China is an integral part.