- A recent US edict requiring a licence for sales to Chinese semiconductor manufacturer Fujian Jinhua shows the trade war goes far beyond tariffs
- But there are ominous implications for the world as the two countries move closer to all-out protectionism
By Tom Holland
/ UPDATED ON
On Thursday, the US president tweeted that he had just had “a long and very good conversation” on trade with his Chinese counterpart. And on Friday, the Bloomberg news service reported that Trump had ordered officials to draft an agreement to present to Xi in Argentina.
But even if the two leaders do manage to agree to scrap punitive duties on each other’s goods, a tariff truce will do little, if anything, to bring peace in the rapidly escalating economic cold war between the United States and China – because their dispute goes far beyond tariffs.
That was made clear last Monday, when the US Commerce Department announced that American businesses would require a special licence to export all “commodities, software and technology” to Chinese semiconductor manufacturer Fujian Jinhua Integrated Circuit.
And just in case anyone should be in any doubt, the Commerce Department statement added that “such licence applications will be reviewed with a presumption of denial”.
Much of the media coverage of the US export ban implied that it was prompted by an intellectual property dispute. Fujian Jinhua is one of two state-owned companies singled out under Beijing’s “Made in China 2025” policy to become a global leader in DRAM memory chips. Last year it was accused by US chip giant Micron of stealing Micron’s designs. Fujian Jinhua counter-sued, and in July a court in its home province banned the sale of some Micron products in China.
Many observers have assumed Monday’s action by the US Commerce Department is a straightforward retaliation against Fujian Jinhua. But although on Thursday the US Justice Department filed theft charges against the Chinese company, the Commerce Department action has far more wide-ranging implications.
With Fujian Jinhua’s fabrication plant in Jinjiang city almost complete, the US export ban will make it extremely difficult, and very likely impossible, for the company to obtain the US supplies and service contracts it needs to commence chip production.
But the grounds that Washington cited for halting sales to Fujian Jinhua make it clear this was no mere tit-for-tat intellectual property spat.
In his statement, US Commerce Secretary Wilbur Ross bluntly accused Fujian Jinhua of “activity contrary to our national security interests”.
The threat, as Ross sees it, is that Fujian Jinhua’s new plant would have allowed it to produce DRAM chips in sufficient scale, and at sufficiently low cost, to flood the global market and drive US producers out of business. This, said Ross’s statement, “threatens the long-term economic viability of US suppliers of these essential components of US military systems”.
This is a new departure. If safeguarding national security means preserving US economic and technological dominance – and if Washington feels it can take pre-emptive action on national security grounds against a Chinese company because that company might pose a potential competitive threat to US corporations that might be links in supply chains producing equipment for the US military – then pretty much any and all protectionist barriers can be justified as essential to national security.
Given the view in Washington that the generosity and breadth of Beijing’s state subsidies and protections for its domestic industries mean that any competition from China is an unfair threat, the imposition of export restrictions is unlikely to stop with sales of chipmaking equipment and software to Fujian Jinhua.
In particular, industry players in Silicon Valley fear that US semiconductor producers, some of which generate more than half of all their sales in China, will find themselves hit by Washington with strict controls on their exports to Chinese customers in the name of US strategic security.
Although it may be new for the US to equate the market dominance of its industrial companies with its national security, such naked economic nationalism is commonplace elsewhere in the world. China itself has long designated a wide range of industries – from mining through metal-bashing to telecommunications – as “strategic”, banning foreign competition.
And more recently Beijing has made it policy to order China’s private-sector companies to develop military applications for their civilian technologies. So in one sense, Washington is simply paying Beijing back in its own coin.
But the implication of these trends is ominous. In the long term, US export controls are at most only likely to retard, not prevent, the development of hi-tech industries in China. However, mounting protectionism on either side will ensure what has been called the “Galapagosisation” of technology, in which technological industries in different countries develop in isolation from each other, much as species on different islands of the Galapagos archipelago evolved differently in isolation.
The consequences will be nothing less than the severing of global supply chains, the end of international technological interdependency, and the roll-back of globalisation.
And while it is debatable whether globalisation was ever quite the force in averting international conflict that its advocates claimed, it is a safe bet that de-globalisation is never exactly going to promote the cause of peace and harmony between nations. Protectionism on national security grounds is a threat to everyone’s security. ■