GEEKY | INTERNATIONAL RELATIONS | SEMICONDUCTORS | CHINA | USA
Why Biden’s Assault Against China Is Far More Brutal Than Trade Tariffs
Assault? What assault?
The crude solution to gut the development of a country is to enforce tariffs on their products. That was the 45th’s way. Against smaller or weaker countries it would have worked, but not against the second largest economy.
While the 45th’s trade tariffs/war with China were in the spotlight for an obscene amount of time much less light has been shone on President Biden’s very different trade war against China.
It is quite more subtle, has made no headlines, and yet -combined with a domestic Act that also barely made the news- could well gut China’s development for years, at least in the high tech sector.
Biden signed a series of executive orders ostensibly on national security grounds but his administration has just one objective: Slow down China so that the United States can catch up and, if possible, prevent them from displacing USA as the world’s largest economy.
Slowing down China is one part of this strategy. The US government has used its enormous clout to ban not only American tech companies from doing business with China but also companies from allied countries, incl. a certain relatively unknown but extremely important Dutch company.
That company, ASML, happens to enjoy a global monopoly on EUV lithography equipment. ~75% of total chips and literally 100% of advanced node chips are fabbed via their multi-million dollar NXE machines.
The banning of ASML alone automatically excludes all Chinese semiconductor companies from making modern chips themselves. By ‘modern’ I mean all chips currently used in laptops, mobile phones, tablets, servers, desktop computers and some automotive chips.
What’s left is IoT and smartwatches, which are less demanding and can use chips fabbed on older nodes. China can still order modern chips from companies like TSMC and Samsung, but they cannot make them themselves. Not until they develop their own EUV equipment.
The other part of Biden’s strategy is the decade spanning CHIPS and Science Act, that was signed into law on August 9, 2022. Gutting China’s high tech sector alone is not enough. You cannot cripple a strategic competitor unless you plan to become a viable alternative yourself.
That’s the goal of the CHIPS Act. It is a massive $280 billion program spanning everything from semiconductor R&D and high tech education to building new fabs. The goal of the Biden administration is to slow down China’s high tech sector while massively expanding the American one.
After decades of exporting manufacturing overseas Biden’s goal is to reverse that trend and literally bring those jobs back home. It no longer works to design the chips domestically and fab them in China or Taiwan.
The goal of the CHIPS Act, which includes generous subsidies and tax incentives for multiple new fabs built on US soil, is to be a top — bottom solution. Above countering the Chinese competition its primary goal is to make America -no, not that one- self-sufficient in chips.
~80% of modern chips are manufactured in Taiwan. If China attacks Taiwan and TSMC shuts down Samsung and Intel are the only other companies that can fab such chips; those two comprise the other ~20%
However they alone cannot meet the demand because they lack the capacity, and that’s because they don’t have enough fabs. Basic supply & demand economics would suggest that if demand for advanced chips remained constant but supply dropped by 80% their prices would soar.
China attacking Taiwan would have the same effect on every chip bearing device that the Ukraine war had on food. If you think inflation is high now a protracted war of China against Taiwan would send it off the charts.
In that sense the CHIPS Act is far more national security motivated than Biden’s executive orders -which will gradually become laws- against China. If the United States could fill Taiwan’s gap in the case of such a war the effects of chip shortages on both the US and globally would be far less severe.
But that will take a decade, assuming everything goes according to plan and a future GOP Presidency does not sabotage the CHIPS Act because it was Biden’s baby. Right now Intel is a complete joke as a fab.
They cannot even fulfill the demand for their own chips, let alone fab chips for other clients (they tried, screwed up royally, everyone remained at TSMC and Samsung).
Four of the largest CPU/GPU/SoC companies -Intel, AMD, Apple and Nvidia- are American but three of them do not fab their own chips and one barely can. Intel even outsourced some chips to TSMC.
Biden wants to fix that. He wants to bring all high tech production and jobs back home over a span of a decade. That is a not a political stunt, nor is it nationalistic like those the 45th pulled. It’s about self-sufficiency.
You cannot be the world’s largest economy without being self-sufficient in semiconductor parts and energy. The energy bit will have to wait, but if the CHIPS Act is well executed USA might eventually catch up.
Will it stop China from surpassing the USA as the world’s No1 economy? No it will not, but it could delay them. China will be the world’s largest economy, the only question is when. If anything banning ASML will motivate them to create their own ASML analogue and become fully self-sufficient in making high tech chips as well.
The trickiest part is the optics, which ASML gets from Zeiss. Very hard to make -the EUV mirrors need to be smoother than those used at space telescopes, including the James Webb- but not impossible with enough funding and expertise.
Xi’s own self-goals will dampen China’s development further though. His recent purge of the CEOs -along with enforcing politically motivated ‘reforms’- of some high tech companies -just because they grew too powerful- further slumped China’s economy, and Biden’s executive orders came at roughly the same time.
At times the CCP is its own worst enemy. They operate in a “I want to have my cake and eat it too” fashion. They want big healthy companies but not big enough to threaten the CCP brass.
Said purge sent most foreign investors in those companies running for the exits. Many foreign investors do not appear to realize China is a dictatorship until they are financially hurt by political interference.
The original prediction -in 2019- was that China would surpass the United States in total GDP output by 2030. The combination of COVID, Biden’s CHIPS Act, Biden’s executive orders and Xi’s purges will probably delay that until 2035.
Some say more years, some say China will adapt sooner. I think a 5-year delay is a good bet. We all know, after all, that the next GOP President will cripple the CHIPS Act, making sure most chips keep on being fabbed overseas. America can be its own worst enemy as well…
Inspired by: ‘A sea change’: Biden reverses decades of Chinese trade policy | POLITICO
Another article about China by Nikolaos Skordilis:
