With the chip ban the United States has signalled — despite the Biden administration’s denials — that it is committed to a strategy of containment not only in military, but now also in economic terms. This begins with thwarting China’s ambitions to dominate the development and production of high-end computing chips that will be central to strategically important industries like AI.
The chip ban may well achieve its intended effects in the short run: China’s chip manufacturing industry is still very dependent on US-developed hardware and software, and the local chip industry is in crisis as firms are cut off from key materials and personnel.
The longer-term effects of the policy are much less certain. China will continue to specialise where it can. Cutting China off from US technology gives Beijing extra incentive to keep throwing money at its own chip R&D, with a view to building an isolated tech supply chain that is even more geared towards state — and especially military — goals. What’s certain is that the chip ban will be disruptive far beyond the semiconductor industry, as global tech supply chains come to be driven less by the economics of comparative advantage than by the geopolitics of the world’s two biggest economies.
US National Security Advisor Jake Sullivan has described these strategies as surrounding a small yard with a high fence. Extraterritorial unilateral sanctions that hurt American tech firms, allies and partner economies are locking others into a larger American yard that may not look so attractive.
In tech just as in other industries, it’s pointless to try and build supply chains delinked from China — most of the region’s critical production chains geared for manufactured exports destined for outside the region run through China, driven by the enduring competitive advantage China has as a manufacturing base, despite rising costs and the recent COVID-zero policy.
Indeed, the Asia Pacific economy is not bound by a distinction between the United States and China — it’s an interdependent system in which China is an integral part.
Singapore’s Prime Minister Lee Hsien Loong made this point during a recent visit to Australia where he remarked that, notwithstanding the principle that certain economic exchange is subject to national security concerns, the chip ban could lead to ‘less economic cooperation, less interdependency, less trust, and possibly, ultimately a less stable world’.
At the very least, decoupling threatens to disturb a pan-regional system of trade and investment that is absolutely crucial to the prosperity not only of established, incumbent players — among them US allies like South Korea and Japan — but the development of relative newcomers to international tech production networks like Indonesia and Vietnam, important partners of the United States who would rather not be forced to choose between participation in rival US- and China-centric tech production chains that decoupling would inevitably create.
The chip ban is of a piece with an emergent US Indo-Pacific strategy that seeks to write China out of American attempts to shape multilateral rules and institutions across the region. That has obvious impacts on the interests of US allies across Asia, but more importantly, as Paul Heer warns in this week’s lead article, the impulse to premise US engagement and institution-building in the region on the goal of excluding China undermines US influence over the long run.
In US policy rhetoric, China is increasingly ‘framed in terms of the central threat it poses to openness, security and prosperity in the region. There appears to be little consideration of the possibility that Beijing might share some of its neighbours’ goals or other elements of Washington’s regional agenda.’ This inhibits cooperation between the two great powers on myriad issues in which the rest of the region has a stake — from climate change and energy to debt relief and rehabilitating the WTO.
Heer calls for a small-r realism about China that would open the door for such re-engagement beyond zero-sum geopolitical rivalry. ‘There is no doubt that cooperation would be complicated, given the inevitable rivalry and strategic mistrust between Beijing and Washington. But the alternative of a region divided between hostile camps would almost certainly be worse’.
Not only would such a divided region be a poorer one — it would probably be bad for the US economy. Opting out of economic interconnectedness in the name of sovereignty isn’t cost-free: in 2016 a majority of British voters decided that the bargain between prosperity and national autonomy that sustained the UK’s participation in the European Union was no longer worth it. As former Bank of England Governor Mark Carney has pointed out, at Brexit the UK economy was roughly 90 per cent the size of Germany’s; it’s now 70 per cent.
Just like Britain, American economic prosperity and political influence will be most enduringly embedded in functional multilateral institutions and an integrated global economy in which small and middle powers friendly to the United States, especially in Asia, can freely pursue prosperity through economic exchange with both China and the West. Such a system is also one in which the US economy — energised by free markets and free thought and backed up by immigration from all around the world — is best-placed to compete with a China that under Xi Jinping has subordinated economic liberalisation to the party-state’s political interests.
The EAF Editorial Board is located in the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.