Cindy Wang | August 25, 2020
Responding To: Is U.S.-China Decoupling Really Feasible?
The U.S.-China Tech War: Escalating Decoupling?
In April, the United States issued new export control rules on technology, and the restrictions have become much broader than before; in May, BIS strengthened control on semiconductor exports to China. To secure its manufacture and production, Huawei contacted the UK to build a 1.2 billion USD chip factory in Cambridge, which brought wide criticism from the United States. Since 2019 when the United States put Chinese technology firms such as Huawei and ZTE on the entity list, the U.S.-China tech war continues to escalate, making the U.S.-China relationship more unstable. In the phase one trade deal, China and the United States have agreed to build mutual trust. However, the hope of the phase one deal as a stepping stone for improvement in the U.S.-China technology relationship seems to fail according to the current conflicts. What does the relationship look like under the present condition? Where is it heading for? How should we cope with the tensions? These questions are urgent to be answered, especially in terms of technology.
In the U.S.-China relationship, front-end technology and IP have always been a main focus since the trade war, and semiconductors, as one of the highly advanced inventions widely used in various products with high economic values like smartphones, have raised lots of concerns in terms of U.S.-China trade and manufacture. On the one hand, the United States is trying to strengthen scrutiny and control on technology exports to China, and at the same time trying to bring back manufacturing to America and enhance it, which is shown by its recent cooperation with TSMC; on the other hand, China may seek help from other countries and accelerate its independent research and development on technology as a response to the U.S. actions, and it plans to have more control on the early stages of manufacture, such as research, design, and front-end fabrication.
All of such measures, if not decoupling, would still promote it, particular in regards to cutting-edge technology. In addition, with the political tensions drawn by the blame game of coronavirus and the slow progress in trade talks, the likeliness of shifting technology companies and factories also increases.
On whether the two countries will decouple further in the future, in terms of the chip market, it seems decoupling will not go too far if it causes some rough damages, since it is hard for the United States to cut its relationship with China as a fast-growing large-size market, and China would also not like to go hard with the United States who still controls the most advanced semiconductor technology in the world and controls a large chunk of the global chip sales market.
However, decoupling is more likely to happen in R&D and its related manufacture. According to Mr. Jimmy Goodrich in the meeting U.S.-China Decoupling: Separating Myth From Reality, China will become more independent in the chip supply chain by having more control over the early stages of chip manufacturing, and the United States may face fierce competition in memory chips with China in the near future. Also, as the United States keeps issuing more restrictions on technology exports to China and advocating to bring manufacturing home, the likeliness of further decoupling increases.
Nevertheless, decoupling may not really come suddenly in an unacceptable way since the supply chain has already been spread globally. The recent disruption in the supply chain caused by COVID-19 has no doubt made both sides more aware of their dependence on other countries. Also, according to the data provided by Tao Wang and Dan Wang in the meeting, most foreign companies in China have chosen not to move despite the influences of the trade war and COVID-19, and China as a low-cost manufacturing place with vast land is hard to replace. In all, whether the United States and China will decouple further in the semiconductor aspect is uncertain, and if it happens, the actual process may not be too fast.
Although the future condition is hardly predictable, uncertainties and conflicts are for sure, and the damaging effects of COVID-19 and the trade war on both sides’ economies and development should encourage China and the United States to ease tension. To avoid conflicts and pave the way for possible cooperation, specific rules on technology and IP protection, as well as relative trade and manufacture, need to be established and improved with tangible practices for both sides’ technological and economic benefits. The rules can provide guides on manufacture and trade for both the Chinese and U.S. governments to find the proper line to separate technology for civil products and military use, which would prevent potential cooperation from being hindered by mistrust or conflicts and help to ensure academic exchanges on certain technological sectors permitted for better development as a whole. Considering a worse condition, even if the United States and China may face a further and harsh decoupling, both sides ought to negotiate to find ways to reduce harmful effects during the process rather than escalate the trade war with sudden and high tariffs causing unbearable damages.
It is more important than ever that mutual trust and better negotiations between the United States and China are needed to reduce tension for overall benefits. The blame game and hostility in the media has proven to be harmful and meaningless for the U.S.-China relationship, and both countries have suffered economic loss from the trade war. Although the dynamics of the U.S.-China relationship are frequently changing, there is one thing that both sides need to keep in mind, which is to have the right attitude to respect, communicate, and trust each other to make wise decisions and negotiations.
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