Opinion | US chip war on China weaponises interdepedence, but the outcome is far from certain

The US’ two-pronged strategy involves onshoring or friendshoring chip production, and cutting off China’s access to essential tech at vulnerable choke points

While the US and its allies currently have the upper hand, especially when it comes to advanced chips, China still manufactures workhorse chips and has market scale

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Visitors walk past the Shanghai Micro Electronics Equipment booth during Semicon China, a trade fair for the semiconductor industry, in Shanghai on June 29. Since 2018, the US has unleashed measures aiming to restrict China’s access to advanced chips and the equipment used to make them. Photo: Reuters

Published: 3:30am, 15 Jul 2023Updated: 5:27am, 15 Jul 2023

How well – or badly – is the US-China chip war going?

As part of the Biden administration’s industrial strategy aimed at revitalising domestic manufacturing, creating jobs, strengthening American supply chains and accelerating future industries, the Chips and Science Act was passed last year, a US$280 billion package of which US$76.7 billion has been allocated to support the US semiconductor industry.

Goodbye free markets, hello industrial policy. The outcome of US-China rivalry hinges on developing and using cutting-edge technology.

In 2018, the Trump administration’s ban on US companies from selling components and software to ZTE for seven years, then China’s second-largest telecoms equipment maker, signalled the start of a tech war. The next year, Huawei, then the world’s largest telecoms equipment maker, was put on the US’ Entity List, requiring it to get US government approval to buy American technology.

In a recent interview, historian Chris Miller, who traces these developments in his book Chip War, released last year, cited three reasons the US focused on chips. First, Washington was concerned about Chinese intentions over Taiwan, home to Taiwan Semiconductors Manufacturing Corporation (TSMC), the world’s leading producer of advanced chips, which are essential to next-generation military and intelligence capabilities.

Second, China was showing signs of narrowing the tech gap with the US. Third, the use of export controls as a deterrent didn’t seem to be effective – as the case of Russia showed – so there was no point in waiting to restrict China’s access to US technology.

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