The new U.S. export controls on semiconductor technology will hurt Chinese industries. Xi Jinping has only himself to blame.
As the Chinese Communist Party’s 20th congress wrapped up at the weekend, its general secretary and the country’s president, Xi Jinping, emerged with his new leadership team—loyalists to a man—and with more commanding control over China than any political figure has held in the country for nearly half a century. Having shoved aside his political rivals, Xi can rule over the world’s rising great power virtually uncontested.
Yet, amid this display of pomp and power, President Joe Biden showed Xi who’s boss. Two days earlier, on October 21, Biden had dropped the hammer on China’s semiconductor industry by fully implementing a slew of tough controls on the export of American chip technology to China. This is a painful blow to Xi’s ambitions to rival the U.S., delivered at the very moment when the Chinese leader has reached the pinnacle of his political influence. Even as Xi laid out his vision for the nation’s “great rejuvenation,” indicating that he considers China’s technological achievements central to it, Biden demonstrated that the U.S. still possesses the fight—and the bite—to defend its primacy.
Biden’s new policy reveals that the standard narrative of China’s unstoppable ascent and America’s inexorable decline is based on flawed assumptions. The U.S. continues to hold tremendous economic and technological advantages over China, which, as Biden just signaled, Washington is becoming more willing to use against its Communist competitor. Above all, Biden’s export-control measures are a ruthless expression of American clout—and an intentional reminder that, in many respects, America has it and China does not. The technology analyst Gregory Allen, a senior fellow at the Center for Strategic and International Studies, wrote that Biden “is exercising technological and geopolitical power on an incredible scale.”
Read: The tech site that took on China’s surveillance state
The curbs Washington has imposed involve the export of certain chips and manufacturing equipment to China (and, in some cases, to particular blacklisted Chinese companies). The goal is to impede China’s efforts to develop the high-end semiconductors required for artificial intelligence and supercomputing. Though they target a narrow range of chip technologies, the controls are comprehensive. The regulations block Chinese firms that are trying to develop advanced chips from accessing non-Chinese factories that rely on U.S. technology to manufacture their products, and deprive those firms of expertise by barring American citizens and companies from assisting them.
How damaging the controls will be depends on how stringently they are enforced. In theory, they allow U.S. companies to apply for licenses to sell the proscribed products to China. But the purpose of the policy is clear enough: to hobble China’s quest to catch up with the U.S. in crucial industries of the future.
And the policy could work. The U.S. is a leader in the global businesses of artificial-intelligence chips, chip-design software, and much of the equipment indispensable for manufacturing chips, enabling Washington to constrain Chinese access to important segments of the global chip supply chain. Dan Wang, a technology analyst at the research firm Gavekal Dragonomics, told me that Biden’s controls “will likely have a fairly large impact on China’s ability to make advanced semiconductors.”
These controls mark a distinct shift in Washington’s approach to China. On top of trying to outcompete China, which is the intent of the CHIPS Act recently passed to support the U.S. semiconductor sector, Washington is now purposely and openly working to hold back Chinese economic progress. Allen called the controls a “genuine landmark in U.S.-China relations” that heralds “a new U.S. policy of actively strangling large segments of the Chinese technology industry—strangling with an intent to kill.” Wang also put it bluntly, describing in a report the controls as “a new China containment strategy.”
Read: Behold, Emperor Xi
In Washington, the policy is seen as a rational response to heightened geopolitical threats, and the central role technology plays in them. National Security Adviser Jake Sullivan said in a speech in September that “we have to revisit the long-standing premise of maintaining ‘relative’ advantages over competitors” in which the U.S. “maintained a ‘sliding scale’ approach that said we need to stay only a couple of generations ahead.” But, he went on, “that is not the strategic environment we are in today. Given the foundational nature of certain technologies … we must maintain as large of a lead as possible.”
And in remarks earlier this month, he explained that the chip restrictions “are premised on straightforward national-security concerns.”
Emerging technologies such as AI and supercomputing have applications in advanced weapons systems, and Washington can’t run the risk of helping China upgrade its military capabilities. “Our strategic competitors should not be able to exploit American and allied technologies to undermine American and allied security,” Sullivan added. But the impact of these controls will also be commercial. Holding back Chinese chipmakers means they are less likely to compete with established American players, sustaining U.S. economic competitiveness vis-à-vis China.
To Beijing, Biden’s new stance appears terribly unfair: a dominant power desperately trying to hold a rising rival down. Xi is clear-eyed about the fact that China’s future economic development, and therefore its ability to become the world’s premier superpower, depends to a great degree on closing the technology gap with the U.S. and its allies. During the past week’s congress, Xi highlighted the importance of technological progress to China’s continued ascent, describing it as one of the “foundational and strategic pillars for building a modern socialist country” and “our primary productive force.”
But Xi brought this reversal on himself. His oft-repeated call for a world-class military is aimed at tipping East Asia’s balance of power in China’s favor, and he would be foolish to expect Washington to hand him the technology to help him reach his goal. Economically as well, Xi’s industrial programs deploy huge state financial support with the clear goal of overtaking the U.S. in key technologies and pushing American companies out of the China market, and ultimately making them uncompetitive. Biden’s harsh controls are less surprising than Xi’s apparent assumption that the U.S. would blithely participate in bringing about its own economic doom.
More surprising, perhaps, is that Biden’s shift took so long. Although Washington has imposed export controls and sanctions on China for some time, specifically targeting the People’s Liberation Army and individual firms such as the telecom giant Huawei, U.S. policy makers have generally been reluctant to interfere with private commerce on a wide scale. The chip controls suggest that is no longer the case.
Jeffrey Goldberg: A conversation with National Security Adviser Jake Sullivan
The U.S. could exploit other advantages over China in a similar fashion. Xi recently touted China’s domestic-made jetliner, the Comac C919, as a major achievement for Chinese industry, but this supposed competitor to the Boeing 737 is so reliant on U.S. aviation technology that Washington could probably ground it. China’s continued dependence on the U.S. dollar for international transactions also leaves Chinese banks and companies susceptible to sanctions. Many in Washington are concerned about the important position China holds in American industries and supply chains, and the risk that presents to the U.S. economy. But the integration of the American and Chinese economies cuts both ways, rendering China at least as vulnerable to the U.S. as the other way around.
Xi’s awareness of that threat drives his quest to eliminate Washington’s economic and technological leverage by achieving his stated aim of “self-sufficiency” in chips and other indispensable products. But that goal, which he stressed during the congress, is proving elusive. The Chinese government has poured untold billions of dollars into its chip industry, but it still lags badly behind the U.S. The problem for Xi is that he picked a fight with a wealthier and technologically more advanced power well before his nation had attained the economic strength to wage it. Xi has thus put China in the awkward, probably untenable position of reliance on support from a country he is determined to undermine.
Xi’s best route would be to negotiate a settlement on chips with Washington that keeps American technology flowing. But Xi, who poses at home as an implacable defender of Chinese interests, cannot be seen to kowtow to Washington. Instead, Biden’s export controls will likely reinforce Xi’s need to act as China’s defender against Washington’s predations—returning to his mantra of self-sufficiency and his efforts to push back American power. The belligerent rhetoric was already there in Xi’s report to the party congress when he described “external attempts to blackmail, contain, blockade, and exert maximum pressure on China,” which the country has faced with “a fighting spirit and a firm determination to never yield to coercive power.”
Such self-sufficiency is more rhetorical than real: Building a fully Chinese supply chain in advanced microchips will prove immensely expensive, and may simply be impossible, at least in the near term. For now, China’s technology sector will suffer. Biden’s controls will also hurt some American chip-equipment companies; Applied Materials and Lam Research have already warned that compliance with the new rules will cause significant revenue losses. But both sides seem willing to accept the costs—in that regard, Biden and Xi share a common intent to protect their own perceived national-security interests, even if that means commercial sacrifices.
That priority does not bode well for the future. The mutual economic benefit brought by greater integration was a foundation of the U.S.-China partnership. As their two economies move apart, so will other relations attenuate. In a search for security, both leaders may be making their countries less secure.