The Chip War Rages On

Miksalmina . March 16, 2023

Picture: iStockphoto

Techspace - As the year is entering the end of its first quarter, the so-called Chip War between the world’s two foremost economic powers, the US and China, seemed to gather more heat. Beginning in October last year, the US government released the Chips and Science Act.

This dictated the change in the US’ policy towards high value technological products such as microchips. Detailed within the act are efforts to shore up its domestic chip manufacturing capability and to safeguard its national security. The latter effort manifested in the US restricting and effectively stopping exports of certain chips to Chinese companies.

The escalating restrictions on Chinese chip market

Unsurprisingly, this policy change within the US government  seemed to align with its Japanese and Dutch counterparts. This is evidenced by the agreement these three countries finalized earlier this year.

Read more: US, Netherlands, and Japan: Working Together To Limit Exportation of Chip To China

Both Japan and the Netherlands are prominent stakeholders in microchip technology and economy. The latter country is home to the ASML Holding, a prominent firm within the microchip industry.

Meanwhile, the world’s foremost holder of microchip market share, the Taiwan Semiconductor Manufacturing Facility (TSMC), seems to fall in line with the policies of its home country’s government. Taiwan has maintained its foreign policy of entertaining US’ interests in this Chip War.

Started in August last year, talks seemed to be progressing between representatives of the US government and its Taiwanese counterpart. This is signaled by the US’ then House Speaker Nancy Pelosi’s visit to Taiwan, which was rumored to be reciprocated by the Taiwanese president’s visit to the White House sometime in the next month.

The Chinese governments’ reaction to more restrictions

These developments have unsettled China, to say the least. Time and time again, the Chinese government has made multiple attempts to dissuade their competing stakeholders from being more favorable towards the US' policy change.

In response to Nancy Pelosi’s visit to Taiwan, the Chinese Ministry of Foreign Affairs (MFA) almost immediately issued sanctions towards the House Speaker herself. Afterwards, the same Chinese government body dubbed the Chips and Science Act released by the US in October as an “economic coercion”.

However, the Chinese government doesn’t seem to have any counter-policies yet to respond to this development. Even now, when their Dutch counterpart announced a policy change in the same direction of the US’ attitude, the Chinese government still seems to be hesitant in responding with a counter-policy of their own.

However, China can't be counted out yet. A spokesperson of the Chinese MFA tweeted anecdotally that the US’ Chips and Science Act is akin to one kid in a classroom cutting off the electricity in that class, and threatening the other kid who protested because of this.

The same spokesperson also believes that this policy change will backfire and hurt US companies. In their opinion, it also violates WTO rules, and will spur the Chinese own market growth, thus backfiring on the US itself.

It’s still too early to assess the effects of this policy change. Beside the effects on international relations, there’s also the effects on the economical side, specifically in business.

The microchip industry’s response

Both US and Chinese companies have been mostly silent in their response towards this change of policy. However, several US-based chip executives have voiced their opinions about it. Some chose to trust their government in that there is a viable threat to US' national security, and that the government is justified to change its policies regarding trade of microchip technology.

On the other hand, some chip executives have shown clear disappointment in this change of policy. They feared the loss of opportunities especially in economic growth, as China itself is a country of 1.8 billion people. This change of policy regarding trade on microchip technology will, in effect, alienate the world's largest economy in their opinion.

They also expressed their concerns of another trade war that could be harsher than the one which happened back in 2020. It remains to be seen, however, what effects will this "Chip War'' have on the economy in general, and on the digital economy specifically.

Read more:Will U.S Become The Top Country For Microchips?

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