Diplomatic relations between the U.S. and China are deteriorating. The U.S. has also stated that China’s rising technological competition is a top security threat. Despite those views, however, the U.S. has just approved almost all tech sales to China.
On the other side, the U.S. imports numerous consumer electronics sold over the Pacific. These are the numbers that are currently known:
- The U.S. exported $125Bn in total, requiring a license for less than 0.5% of these exports
- China exported $135Bn in consumer electronics to the U.S. in 2021
- For exports requiring a license, the U.S. approved 94% of the 2,652 instances
The biggest point of contention is the sale of semiconductors, including semiconductor manufacturing equipment. The list also includes A.I. technology and aerospace components, which can advance the unallied country’s military sector.
Most experts agree that this move may eventually harm U.S. interests. Officials are, however, not willing to stifle exports in the sector, at least not for the time being.
The Threat Does Not Prevent Business
This antagonistic policy towards China aims to prevent military hardware sales, the committee inside the U.S. Department of Commerce (USDoC) said. The committee has cited that all decisions related to controlling exports to the Communist country are made in conjunction with the Department of Defense, the Energy Department, and the State Department.
Some critics of the committee, though, claim the USDoC visibly prioritizes short-term commercial interest over national security. Many experts, including Steve Coonen, the former top China expert at the Pentagon, believe an urgent regulatory update will be necessary.
The issue currently extends beyond the potential damage to U.S. economic interests. Rather, it encompasses growing demands for consumer electronics, which is first in line to bear the brunt of China’s reciprocal measures.
Tighter Restrictions May Not Work
Chinese imports of semiconductors from the United States grew from slightly over $2.5Bn in 2017 to almost $7Bn in 2021, showing a significant increase in demand over the last several years.
Many frown upon these growing sales, claiming they send potential military hardware to the United States’ biggest contender. Others, however, do not share these views and believe tighter restrictions would not inflict much damage.
Commenting on the subject, former U.S. Assistant Secretary of Commerce under the Obama administration, Kevin Wolf, pointed out that the restrictions the U.S. place won’t have a serious impact if other countries do not follow suit.
If the U.S. decided against selling semiconductors and aerospace equipment to China, Germany, Japan, and South Korea should do the same. The People’s Republic would otherwise still be able to source the materials.
New U.S. Technology Can Have Military Purposes
One of the issues debated both within the tech and hardware industry and on Wall Street and Capitol Hill, is the new 7nm chips.
Compared to the former generation, 7nm chips currently being produced by Intel and AMD have a much lower peak operating temperature, use less power, and can be clocked at a much higher frequency if necessary.
Many politicians, including Republican House representative from Texas, Michael McCaul, pointed out that this technology could go beyond civilian scenarios. New chips could also find their way into military operations.
For instance, McCaul noted that the USDoC added the Semiconductor Manufacturing International Corporation (SMIC) to its blacklist of companies in response to the SMIC’s ties to military customers.
Chip manufacturer, Intel, has protested tighter restrictions on exports to the PRC, taking a hands-on approach to the proposed CHIPS Act still in negotiation. The tech giant believes tougher legislation will only hurt U.S. manufacturers; it will not significantly harm the Chinese military capacity.
Consumer Electronics and Products
The U.S. Department of Commerce and stakeholders on Capitol Hill are looking beyond the $100Bn losses from restricting tech sales to China, considering the potential dramatic increases in domestic consumer electronics prices.
Most semiconductors sold from the U.S. to China frequently return to the United States as consumer electronics. Even large U.S. tech companies, such as Apple, produce their products in China. Restricting semiconductor exports will undoubtedly spike electronics prices for U.S. residents.
Considering the pricing jump caused by the effects of the war in Eastern Europe, the Biden Administration is not looking to worsen the situation with new legislation.
For over two decades, over-reliance on Chinese manufacturing has received significant backlash. This principle was even the basis for former President Donald Trump’s triumph in the 2016 Presidential Elections. But the U.S. does not have many solutions better than China.
China boasts the best manufacturing capabilities to labor and shipping costs ratio, making it the best option for imports.
While countries in Eastern Europe and Asia have excellent manufacturing capabilities, they offer significantly higher shipping costs. Conversely, nations on the African continent cannot offer the manufacturing quality required by the U.S., despite their advantageous geographical position.
Domestic manufacturing and imports from Europe, Japan, and South Korea would significantly increase end product prices.
A Long-Lasting Sino-American Love-Hate Relationship
Given the current tensions between the U.S. and China over the Republic of China (Taiwan), and the invasion by Russia of Ukraine, many would conclude that the two countries have a long-standing rivalry.
Despite the stark political and cultural differences between the two world powers, economic relations are still flourishing. And both countries realize the economic interdependence they have developed over the years.
At the moment, it is impossible to predict if the conflict will escalate to a tragic degree. If the worst happens, both economies will suffer greatly.