12/6/2024
Today’s focus is on China’s measures to counter U.S. chip restrictions. They highlight an escalating technological and economic rivalry. Recent developments demonstrate that these restrictions may yield unintended consequences, echoing lessons from the U.S. sanctions on Huawei.
Lessons from Huawei’s Resilience
Huawei’s response to U.S. sanctions reveals the limitations of such measures. While the sanctions caused a temporary setback, Huawei swiftly adapted by:
1. Investing in Domestic Semiconductor Capabilities: Producing the Kirin 9000S chip for its Mate 60 series.
2. Shifting Market Focus: Targeting non-Western markets and leveraging telecommunications strength.
3. Maintaining Profitability: Achieving $7.7 billion in net profit in the first half of 2024, despite restrictions.
Ironically, these sanctions spurred Huawei's technological advancements, contradicting U.S. initial policy goals. The Huawei case underscores how restrictions have backfired by fostering self-reliance and innovation.
Strengthening China’s Semiconductor Ecosystem
According to the Center for Strategic & International Studies (CSIS), current restrictions have bolstered China's resolve to reduce dependence on foreign technology. Key actions include:
Massive Funding Initiatives: Establishing a 300 billion yuan ($41 billion) semiconductor fund.
Increased Investment in R&D: Strengthening capabilities across the semiconductor supply chain.
These efforts come as no surprise as they align with China’s broader goal of technological self-sufficiency, accelerating its pursuit of domestic innovation.
Retaliatory Measures and Their Impact
China’s restrictions on exporting rare earth minerals like gallium and germanium introduce additional complexities:
1. Semiconductors and Electronics: Essential for advanced semiconductors, LEDs, and solar panels, these materials’ scarcity will increase production costs and delay timelines for U.S. industries.
2. Defense Technologies: Rare earths are vital for radar systems and precision-guided weapons. Restricted access could disrupt the U.S. military’s supply chain.
3. Renewable Energy: The Biden administration’s clean energy goals may face setbacks as solar panel and wind turbine production costs rise.
4. Consumer Electronics: Smartphones, laptops, and other devices could become more expensive for U.S. consumers.
5. Dependency on Allies: The U.S. will need to pivot to allies for rare earths, but most nations lack the processing expertise China has developed.
A Lose-Lose Game
The current tit-for-tat dynamic risks broader consequences for global supply chains. As the U.S. and China deepen their divide, both nations incur significant economic fallout, while global industries and consumers bear the brunt of the collateral damage.
This lose-lose scenario calls for cool-headed diplomatic engagement and innovative trade solutions to mitigate further harm. However, reversing the trajectory demands a rare measure of wisdom and foresight—qualities that seem alarmingly scarce in today’s geopolitical climate, unfortunately.