Unexpected Level of Chinese Technology... No Wonder the US Is Struggling to Contain It [Global Focus]

American protectionism, competing with China for global economic dominance, is intensifying day by day. As the encirclement of China regarding advanced technology becomes increasingly tight, the rise of Chinese companies like ‘Jiugi’ within the United States is becoming more blatant. Many view sectors such as information technology (IT), green energy, and shipbuilding as potential frontlines in the second US-China trade war. The goal is to reduce the trade deficit with China.

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Cutting-edge semiconductors, a core field for AI supremacy, are the top strategic technology that the US must block China from accessing. The Biden administration began controlling exports of semiconductors and manufacturing equipment to China from US companies in October 2022, while encouraging participation from allies such as South Korea, Japan, and the Netherlands. The US government is providing astronomical semiconductor subsidies indiscriminately to domestic and foreign companies like Intel, Micron, Samsung Electronics, and TSMC, signaling its intention to reorganize the global semiconductor industry around the US.

Nevertheless, the US believes China is attempting to access advanced semiconductors through indirect routes. A representative example is Huawei’s August last year unveiling of the ‘Mate 60 Pro’ smartphone equipped with a 7nm (nanometer, one billionth of a meter) chip made in China. It is analyzed that the world’s only extreme ultraviolet (EUV) lithography equipment manufacturer, ASML, based in the Netherlands, began controlling exports of deep ultraviolet (DUV) equipment to China from September last year under US pressure. EUV, which can etch the thinnest circuits on wafers, is key equipment for advanced chip production, and it is presumed that Huawei’s 7nm chip was produced using DUV, a previous technology compared to EUV.

The US is even courting Southeast Asian countries, where backend semiconductor factories are concentrated. The US Department of Commerce recently promised over $1 billion in new investments in the Philippines, pledging to double manufacturing capacity. Commerce Secretary Gina Raimondo visited Bangkok, Thailand, on the 13th and urged cooperation, saying, “Countries like Thailand can benefit from semiconductor supply chain diversification centered on the Indo-Pacific Economic Framework (IPEF).”

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The frontline of the US-China trade war, once centered on semiconductors and supply chains, is rapidly expanding into the security domain. The US is targeting China’s IT, bio, and heavy industries, claiming that “in emergencies, data of US citizens could be misused by the Chinese Communist Party.” On the 13th, the US House of Representatives passed the TikTok ban bill, which deems the distribution of the app illegal in the US if ByteDance, TikTok’s parent company, does not sell TikTok within 165 days. If the bill passes, Chinese-origin e-commerce companies rapidly gaining ground in the US, such as Temu and Ali, could also be expelled for similar reasons.

Chinese corporate purges in the US under the pretext of security issues have begun. The US administration prepared a plan last month to replace Chinese-made cranes lining US ports, citing concerns that advanced software installed on cranes could act as a ‘Trojan horse.’ On the 28th of the same month, President Biden signed an executive order to regulate the transfer of US citizens’ bio-information, such as genomic and health data, to countries of concern like China. It is analyzed that this targets Chinese companies operating in the US such as Wuxi AppTec and Complete Genomics.

Major foreign media predict that “shipbuilding and solar power industries will become potential frontlines in the US-China trade war.” Five unions, including the United Steelworkers, recently petitioned the US Trade Representative (USTR) to investigate unfair practices in shipbuilding, where Chinese companies have grown with government tax breaks and other benefits. China surpassed South Korea in 2021 to become the world’s largest ship producer. Meanwhile, the US holds about a 1% share of ship production.

The US solar power industry is also demanding government regulation, blaming the collapse in solar panel prices on Chinese products. According to the International Energy Agency, global solar panel prices have dropped about 50% compared to a year ago, trading around 10 cents per watt. This is due to China doubling its solar panel production (1 trillion watts) last year. Mark Widmar, CEO of the US’s largest solar company First Solar, appealed at a Senate Finance Committee hearing on the 12th, saying, “If this continues, the US will become an extension of China’s Belt and Road Initiative.”

Additionally, the US is closely scrutinizing China’s ‘dumping practices’ by industry. The New York Times (NYT) reported on the 12th that “China’s rapidly increasing exports could threaten jobs worldwide.” It points out that China, trapped in domestic recession, is seeking a way out through dumping exports subsidized by the government.

The reason the US is strengthening protectionism across all industrial sectors is the trade deficit with China. The US ran a $279.4 billion trade deficit with China last year. Although this was a 27% decrease from the previous year, which had the largest trade deficit in history, many analysts believe the actual deficit has not significantly decreased due to China’s indirect exports.

[Image source=Yonhap News]

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China protests, saying it “undermines fair trade competition.” However, since China still runs a trade surplus despite the US Inflation Reduction Act (IRA) and high tariff barriers, it is also true that China finds it difficult to give up the US market. Some view that Mexico overtaking China as the US’s largest trading partner last year was due to China’s nearshoring (relocation of production bases to specific countries). Direct investment inflows from China to countries like Malaysia and Indonesia are also increasing.

This is why there are calls in US political circles for additional restrictions on overseas production bases related to China. Former President Trump’s threat on the 15th at a rally in Dayton, Ohio, to impose a 100% tariff on Mexican-made Chinese cars reflects concerns about China’s indirect exports.

With the US presidential election in November, it is widely expected that fierce Chinese containment will be strengthened across sectors. Although President Joe Biden and Chinese President Xi Jinping agreed to restore bilateral relations at their summit last November after a year, the overwhelmingly negative US public opinion toward China makes ‘hitting China’ an unavoidable election issue. A Gallup poll revealed that 4 out of 10 Americans view China as an adversary.

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