US-China Technological Conflict: Actions and Consequences

The ongoing conflict between the United States and China has led to a series of retaliatory measures from both sides. The US initially banned exports of chips, semiconductor equipment, and software to Chinese tech giants, to which China responded by banning the import of lower-grade US chips. The US then imposed further bans on chips to Chinese cloud providers, and China retaliated with export restrictions on rare earths. The most recent development is the White House’s executive order to restrict US capital flow to specific sectors within the Chinese technology industry.

However, these actions reflect a naivety regarding the history of the consequences they may bring. China has been compelled to accelerate its self-sufficiency efforts in building domestic capabilities earlier than anticipated. The success of Huawei’s Mate 60 smartphone, equipped with a domestically produced 5G chip, highlights the risks of driving Chinese innovation and self-sufficiency through decoupling. Moreover, the US may face the loss of revenue that has fueled its own research and development, while China is likely to build its own semiconductor ecosystem in the long run.

Historically, unilateral or extraterritorial enforcement efforts to impede China’s technological rise have failed. For instance, when the USSR withheld nuclear weapons technology from China after World War II, China launched its own Manhattan Project and successfully tested its first nuclear weapon. Similar scenarios played out with satellite technology and the GPS system. China bypassed restrictions and developed its own systems, thereby mitigating the intended effects of US actions.

These unilateral enforcement regimes have also damaged US geopolitical alliances and cut off American firms from high-growth markets. They have weakened the core ingredients for American technological leadership and emboldened nationalists in targeted countries. This self-serving unilateralism will be challenging to sell to allies and is beginning to backfire.

In order for US technology export restrictions to be effective, allied chip-producing nations must hold the line. The US has engaged Dutch, Japanese, Taiwanese, and Korean support for its export restrictions on China, but the response from these nations remains unclear. The broader issue is that this conflict is primarily initiated by the US to protect its own interests, which may not align with the commercial interests of its allies.

Furthermore, emerging markets have shown a clear divergence in interests from US imperatives. China has become the largest trading partner to 120 countries, including major markets in Asia, Europe, the Middle East, and South America. These countries are reluctant to choose sides between the US and China, and they desire open tenders to select providers based on objective criteria rather than being forced to take American products.

In many tech stack verticals, there is currently no viable US alternative to Chinese offerings. Imposing blanket decisions on the market only serves to accelerate decoupling and the fragmentation of regional technology ecosystems. This results in reduced market access and missed business opportunities for US technology companies.

The US-China technological conflict carries significant consequences and risks for both parties. It is essential for a balanced and nuanced approach to be pursued in order to avoid further damage to global relationships and sustained innovation.