America’s economic war against China

US President Joe Biden has imposed restrictions on American technology companies making semi-conductors and advanced computer chips from exporting them to China, and even countries using American components in their chips to sell them to China. The aim is to prevent China from using America’s advanced chip technology to build its military arsenal. The rules came into effect late last week, specifically on Friday. The new rules have been communicated to chip-making companies KLA Corp, Lam Research Corp, and Applied Materials Inc., asking them not to sell equipment to Chinese factories who are making semiconductor chips.

China criticised the latest US decision to tighten export controls, calling it a violation of international economic and trade rules that will “isolate and backfire” on the US.

The rivalry between the largest, America, and the second largest, China, economies in the world has been out in the open for quite some time, but it has never taken the direct confrontation that it has become now following the decision of the Biden Administration. The restrictions on countries using American imports to re-sell them or re-export them is well known.

The general perception is that the rapid Chinese economic growth across sectors had been largely due to import and adaptation of Western technologies, especially the American ones. The thinking behind the latest American decision seems to be that China is strengthening its military through imported American technology, and that this affects the balance of power in the Indo-Pacific, especially in the South China Sea and the Taiwan Straits. America is bound to militarily defend, tacitly if not directly, Taiwan if China were to use force against Taiwan. The American stance is that if Taiwan voluntarily chooses to be part of mainland China, then Washington has no objection to it. The American fear is that if China were to use military force against Taiwan and get away with it, then the whole region would become volatile.

The economic aspect of American apprehensions about China is as interesting as the military one. There seems to be the fear that China could overtake America in economic terms and become the largest economy in the world. China wants to overtake America as an economic power and it thinks it can do it by around the middle of the 21st century. China would be celebrating the centenary of the communist rule in 2049.

According to technology and cybersecurity expert Jim Lewis, who works with a Washington D.C.-based think tank, these latest American measures would set back China by years. He said, “China isn’t going to give up in chip making …but this will really slow them (down).” American officials on Thursday made it clear that the aim is to prevent foreign companies from selling advanced chips to China or provide Chinese companies with the means to make advanced chips. These are indeed indirect economic sanctions.

Earlier, the American government used these restrictions on foreign companies from exporting technology to Chinese telecom company Huawei Technologies Company Ltd, which was a leading 5G technology leader. A similar restriction was placed on the flow of semiconductors to Russia after Moscow’s invasion of Ukraine in February this year. The new rules will impact Chinese supercomputer computing systems. Eric Sayers, defence policy expert at the American Enterprise Institute in Washington said, “The scope of the rule and the potential impacts are quite stunning but the devil will of course be in the details of implementation.”

Chinese foreign ministry spokesperson Mao Ning called the American move “abuse of trade measures and an attempt to reinforce American technological hegemony. It seems that the new Cold War between ideological rivals is now being fought between America and China.