US economy at risk of being damaged in tech war with China
(Baonghean.vn) - America's dependence on Chinese components means that the defense industry and critical infrastructure could soon be in jeopardy.
US government officials and businesses say the US does not have the factories or skilled workers to replace Chinese imports to support defense contractors and critical infrastructure, leaving the US economy vulnerable in the event of a full-blown trade war with China.
That’s why Biden administration officials have ignored calls from more China hawks to completely cut off China’s semiconductor sector from American technology.
A group of 10 prominent House Republicans wrote to the US Department of Commerce on September 14, asking the US government to stop exporting semiconductor chip technology to China and arguing that export controls imposed in October 2022 are ineffective.
The Republican letter cited “recent reports that China’s leading technology company Huawei Technologies has developed a smartphone that contains a 5G-capable 7-nanometer (nm) semiconductor chip manufactured by China’s state-owned Semiconductor Manufacturing International Corporation (SMIC).
“We are deeply concerned and puzzled by the failure of the Bureau of Industry and Security (BIS) to effectively enforce export control rules against violators, particularly China,” the letter added.
Semianalysis.com, a popular website about the semiconductor industry, said: “The US sanctions have failed. Huawei’s 7nm chip is “technically amazing” and “a semiconductor chip designed with the same capabilities as the best artificial intelligence (AI) processors from leading US semiconductor manufacturers Nvidia and Qualcomm.”
Semianalysis.com concludes that a complete export ban on all categories of semiconductors would stifle China’s rise. Half-measures would be ineffective, but a full-scale attack would make the cost of recreating a domestic semiconductor supply chain nearly impossible. While we don’t advocate any of this specifically, it’s clear that the West could still stop China’s rise if decisive action were taken.
The US cannot stop China from producing high-end semiconductor chips like the new Cortex 9000 processor unless it shuts down all semiconductor manufacturing in China. That would cause major disruption not only to the semiconductor industry but to dozens of industries that depend on it, with serious economic consequences.
It’s unclear whether the US can convince allies like Japan, South Korea and the Netherlands to join in. But the Biden administration recently accepted South Korea’s request to maintain its existing semiconductor factories in China.
In addition, the world's leading manufacturer of lithography machines for manufacturing semiconductor chips, ASML of the Netherlands, will not sell its most advanced equipment to China but will continue to sell the deep ultraviolet (DUV) equipment that SMIC has used to produce new semiconductor chips to Huawei.
Even if the US could convince other countries to join in a complete boycott of chip manufacturing equipment for China, the US would not be the only country that could wage economic war. The disruptive impact on the global economy would be immeasurable, and one possible consequence could be the crippling of critical US infrastructure.
The Chinese government recently retaliated against additional US export controls by banning government officials from using Apple-made iPhones.
America’s vulnerability is illustrated by the fact that thousands of critical pieces of equipment used in America’s basic infrastructure and defense industry are imported from China. In 2022, the United States imported $33 billion worth of goods from China for electricity generation and distribution, items that are no longer produced in the United States.
U.S. industry officials say replacing domestic production of these items would be time-consuming and expensive. In the event of a full-blown trade war, a Chinese ban on critical components could cripple America’s basic infrastructure.
Regarding this issue, in April, former top US energy official Brien Sheahan said that the US and its allies have allowed themselves to become hostages of Chinese corporations by allowing this country to control the production of electronic components, high-power magnets, printed circuit boards, computers, drones, rare earth metals, wind turbines, solar panels, mobile phones and lithium batteries. In fact, almost every component of the technology-based digital smart grid depends on Chinese-made equipment.
US defense contractors are also heavily dependent on China. In an interview with the Financial Times on June 19, Raytheon CEO Greg Hayes said his company has several thousand suppliers in China and that decoupling is impossible. We can reduce risk but we cannot decouple.
“Think about the $500 billion worth of trade that comes from China to the United States every year,” Hayes added. “More than 95 percent of rare earth materials or metals originate or are processed in China. There is no alternative. If we had to pull out of China, it would take us many years to re-establish that capability domestically or in other allies.”
Raytheon is known as the manufacturer of Tomahawk cruise missiles, Maverick air-to-ground missiles, Javelin anti-tank missiles and other important weapons in the US arsenal.
Meanwhile, the US effort to reduce its dependence on foreign supply chains for critical goods has stalled. Taiwan’s TSMC, the world’s top semiconductor chipmaker, accepted $15 billion in cash grants and tax credits from the Biden administration to build an advanced semiconductor factory in Arizona, but a shortage of skilled workers has delayed the plant until 2025.
Similar bottlenecks will hamper US efforts to replace Chinese components in critical infrastructure. The US faces a shortage of skilled labor in the next two years.
According to statistics from the consulting firm HBK (USA), by the end of 2025, 22% of skilled manufacturing workers will retire. This could lead to 2 million to 3.5 million unfilled manufacturing jobs by 2025.
According to the US Federal Reserve, orders for US manufacturing equipment have stabilized at between $1.5 billion and $2 billion a month, roughly half the level before the 2008 recession. While the growth rate of manufacturing capital has slowed, the US trade deficit has widened.
In fact, China still depends on the West for many types of semiconductor manufacturing equipment, while the US depends on China for a large amount of input materials. Thus, both have the potential to hurt each other badly if the technology war escalates.
But the question is whether they will. Biden administration officials are acutely aware of the vulnerabilities that exist and are being cautious about stepping up their tech war against China.
Industry experts say that even with full mobilization, it would take the US several years to build up enough manufacturing capacity to replace key components coming from China.