Inside Out | US-China chip war offers glimpse of deglobalisation’s dangers

A deglobalising world would be far less efficient and a lot more paranoid – just look at US attempts to block China from the global semiconductor market

Such efforts force other chip-making economies to choose sides and raise the risk that Beijing will seek to domesticate its entire supply chain – real decoupling

Reading Time:4 minutes

US President Joe Biden attends a groundbreaking ceremony for a new Intel semiconductor manufacturing facility in Ohio, US, on September 9. Photo: Bloomberg

Published: 5:30am, 3 Oct 2022

Let me be clear at the outset: I remain confident that the global economy is not set to “decouple”. The trade-driven interconnectivity that has underpinned the globalisation of the past five decades is not so readily dismantled.

Moreover, its global economic benefits are too valuable to destroy. According to a pathfinding study on the potential impact of geopolitical conflict, just completed by Eddy Bekkers at the WTO and Carlos Goes at University of California San Diego, “the projected welfare losses of decoupling can be drastic, maybe up to 12 per cent [of GDP] in some regions”.

The Financial Times’ Martin Wolf recently argued that “globalisation is not dying, it’s changing”. But the changes afoot are significant, and they may prove costly. A deglobalising world is likely to be less productive and more inflationary.

It will have new and unhelpful characteristics. Most troubling will be an irrational obsession with national security that will take precedence over transparency and efficiency. For the US, it will be the security-focused Committee on Foreign Investment (CFIUS) calling the shots, not the Commerce Department or the US Trade Representative.

The World Trade Organization, already hobbled in its ability to arbitrate international trade disputes, will be even less well placed to ensure that trade rules are followed.

If we want to see what a decoupled global economy would be like, there may be nowhere better to look than the global semiconductor market, which is highly concentrated on just a few developed economies, and is critical to achieving breakthroughs in areas like AI and quantum technologies.

Select Voice

Choose your listening speed

Get through articles 2x faster

1.25x

250 WPM

Slow

Average

Fast

00:0000:00

1.25x

.css-1m2rp1p{color:#34b8b5;}Inside Out | US-China chip war offers glimpse of deglobalisation’s dangers

Inside Out | US-China chip war offers glimpse of deglobalisation’s dangers