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The US measures targeting China’s semiconductor industry: Another brick in the wall

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The trajectory of the White House decisions shows that the US will probably be more aggressive in its war against China.

The US and China are in a war that is not fought with weapons but via trade, technology, and data. The latest salvo in the conflict is the US decision to restrict China’s ability to obtain advanced computing chips, develop and maintain supercomputers, and manufacture advanced semiconductors.

In August 2022, US President Joe Biden signed into law the CHIPS and Science Act of 2022. This act is twofold: It aims to strengthen the US semiconductor industry through extensive semiconductor manufacturing investments while also countering China. Following this decision, the Bureau of Industry and Security (BIS) announced on 7 October new restrictions to prevent China from obtaining advanced computing chips and manufacturing advanced semiconductors [1].

Why now?

Several factors underpin the new restrictions. The protection of US national security and foreign policy interests, job creation, and boosting the economy are the first ones that come to mind. However, the key underlying problem is the current dependency on China. Containing Beijing in the medium run has become a critical issue for Washington, especially since the East Asian country’s technological and economic advancement threatens the US global leadership position in the field.

In 2019, China produced 35% of the world’s semiconductors [2]. Even so, China still imports semiconductors due to the massive needs of its industry. In 2020, China imported chips worth US$350 billion, a 14.6% upsurge from the previous year [3].

Therefore, China’s position in the global supply chain is crucially important, given that semiconductors are essential for high-end consumer industries and the defence industry. China plays a substantial role in the processes of assembly, packing, and testing of semiconductors. Moreover, it produces legacy chips with low-profit margins in a way that no other manufacturers from other countries are willing to undertake. Such a situation makes the US and the rest of the world highly dependent on China.

Another major country in the supply chain of semiconductors, especially advanced semiconductors used in the defense industry, is Taiwan. Therefore, a potential China-Taiwan war could devastate the semiconductor industry, opening loads of vulnerabilities for the US and other developed nations. This possibility in the backdrop represents another reason for the US to enact new policies targeting the semiconductor industry.

Another brick in the wall

The new US measures are, in fact, just another brick in the wall. In other words, this is merely another phase in the trade war between China and the US. For a long time, the US considered China’s rise in trade and technology as benign, as Beijing operated in a global commerce system designed and led by the US. When China became a member of the World Trade Organization in 2001, Washington welcomed China’s integration into the global economy as it benefited the US economy. US consumers enjoyed lower prices while US companies made unprecedented profits. However, since the 2008 global financial crisis, Washington has been more concerned about Beijing’s rise because of China’s state-led development model, subsidized industries, and technology transfer requirements. As a result, China’s containment became one of the priorities of the US decision-makers, who started using several tools at their disposal, such as imposing tariffs. Since then, the trade war between both parties has intensified.

From defensive to offensive

The latest restrictions signal a shift in the trade policy goals and policies of the US. Before August 2022, US restrictions against China implied that Washington desired to change Beijing’s attitude, strengthen its own economy, and protect its security interests. However, the latest round of restrictions signifies larger goals, such as challenging the Chinese system, retaining hegemony, and containing China.

For a long time, the US decision-makers thought that defensive policies toward China would suffice. Accordingly, the US carried steps such as investment screenings and regulatory restrictions. Recently, US policies shifted from defensive to offensive and are now focusing on R&D policies in leading industries.

The semiconductor industry, too, was impacted by such a shift. This may be due to US authorities’ realization that the semiconductor industry might side with China and cause the US to lose its hegemony. Defensive policies’ adverse impacts on the US economy may be the other reason. Cutting key supply sources and causing serious disruption for the US industry cannot be underestimated. The industry’s feeling of destabilization may not be collateral damage after all.

China’s response

Uncertainty still surrounds China’s response. So far, China has been more hesitant than the US to employ restrictive measures mainly because of doubts over its self-sufficiency. This reluctance will probably continue for a while because China’s semiconductor industry is not solid enough to fend off these attacks. However, China can still develop its capacity, relying partly on other countries while expanding its production. However, this option seems limited as the restrictions also include non-US companies selling products made with US technology to China. Moreover, the possibility of other countries interfering and nullifying the impact of US policies seems low.

China may also refer the issue to the World Trade Organization (WTO). Beijing has previously stated that the US trade measures that Washington justifies with the WTO security exception rules are, in fact, against the WTO rules. Nevertheless, despite rhetorical objections, experts doubt whether China would effectively refer the issue to the WTO.

What does the future hold?

Xi Jinping’s report presented to the 20th National Congress of China’s Communist Party (20 October 2022) shows that China views technology as the primary productive force and innovation as the primary growth driver. That being the case, it is realistic to expect China to take every possible action against US measures that impede technological advancement and innovation. The fact that Xi’s third term has just started means Beijing will remain on course to realize its goals. The only dark spot for China is its slowing growth rate which could affect the efficiency of the country’s endeavours.

On the other hand, the trajectory of the White House decisions shows that the US will probably be more aggressive in its war against China. Harsher measures targeting other industries might be in the wind. However, the US needs to assess the possible costs and benefits of such policies for itself and the global economic order.

There will be consequences

While the conflict appears to entangle Washington and Beijing solely at this point, the reality is that every nation is concerned with a global crisis. The confrontation between the two countries has potential long-standing benefits to the US while presenting drawbacks to China. However, the ripple effect will negatively impact many industries worldwide and, beyond it, the prospects for a reshuffle of the international economic order.

This article originally appeared in the opinion section of Anadolu Agency.

Countering China’s BRI: The G-7’s Partnership For Global Infrastructure And Investment (PGII)

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OSAKA, JAPAN - JUNE 28: Chinese President Xi Jinping is welcomed by Japanese Prime Minister Shinzo Abe (not seen) upon his arrival at the G20 Summit in Osaka, Japan on June 28, 2019. ( Metin Aktas - Anadolu Agency )

This discussion paper will argue that G-7 members’ motivations for countering the BRI revolve around weakening China’s economic and political power.

The G-7’s efforts to counter the BRI are significant because it shows that Global North powers see China’s development model as a threat and worry about China’s rise with its promotion of non-Western political values. Moreover, its significance stems from the fact that such efforts will probably lead to a reform in the BRI and the PGII, will in- crease the focus on global concerns and will lev- el up the volume of infrastructure projects.

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Reforming the United Nations Security Council: Accountability, Effectiveness, and Representation

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This Discussion Paper concludes that reforms regulating the use of veto as well as reforms increasing the number of non-permanent UNSC members must be prioritised.

The inefficacy of the United Nations Security Council (UNSC) to take a solid step in response to one of its permanent member’s breach of the UN Charter and international law led to dissatisfaction and increased calls for UNSC reform. The current reform calls must be evaluated with this historical background in mind. Considering this, this discussion paper, first, will evaluate the need for UNSC reform. Defining the UNSC’s role and assessing its success in fulfilling its role, the paper concludes that reform of the UNSC is necessary. Then, it will discuss the most popular reform proposals, namely the reforms regarding veto rights and UNSC membership structure. Considering the possible procedural obstacles specific to each reform proposal, and the advantages and disadvantages of a specific reform, it will list the reforms that need to be prioritised. Accordingly, the paper concludes that reforms regulating the use of veto as well as reforms increasing the number of non-permanent UNSC members must be prioritised.

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The Global Impact of the War in Ukraine on Food Prices: Deprivation, Discontent and Unrest

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This discussion paper will explore how the ripple effects of the Russia–Ukraine war have the potential to cause global unrest directly contributing to the increase in food prices and therefore creating conditions for discontent and deprivation.

The first part of this discussion paper will explain how the war contributes to the increase in global food prices. The second part will discuss how such an increase will likely create discontent and deprivation on different scales. Lastly, the third part will detail whether the recent global food price increase will likely cause worldwide and local unrest and how such disturbance could unfold globally and locally.

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The war in Ukraine has an economic domino effect fuelling global social unrest

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DEMYDIV, UKRAINE - APRIL 6: Unexploded shell is seen as Ukrainian army secured the area following the withdrawal of the Russian army from the Kyiv region on previous days in Demydiv, Ukraine on April 6, 2022. ( Andre Luis Alves - Anadolu Agency )

The war in Ukraine has exposed how much our world is interconnected. Hostilities in one country are not confined within its borders; they have a global effect, with resultant social unrest and instability.

The war between Russia and Ukraine since 24 February has already had a global impact. Energy prices have spiked, triggering a sharp increase in the cost of food. The UN’s Food and Agriculture Organisation’s food price index that measures the monthly global price change in food commodities reached an all-time high last month.

The war has had an economic domino effect. Both Russia and Ukraine are seen as a world food basket. However, Ukraine’s food production process has been halted, with its crops destroyed and ports blockaded. This has increased the cost of commodities such as wheat and sunflower oil. The war has also triggered a spike in energy prices and the cost of fertilisers, increasing food prices through higher transportation costs.

High food prices are already unbearable for many. For example, in Somalia, prices have increased by around 30 per cent since the war began. Annual food price inflation for India’s rural areas has doubled. Inevitably, this has created and continues to create global discontent. People in Spain and Iraq, for example, have held demonstrations about rising food prices; Albanians, too, have taken to the streets to express their anger.

The intensity of unrest will differ in each country. The main variable is whether government policies are effective or not. Countries which are stable politically and economically and have effective government policies will experience low-intensity protests. For example, most EU member states that already enjoy the bloc’s monetary support regarding high food prices will experience low-intensity protests. At the other end of the spectrum, politically and economically unstable countries with ineffective government policies will experience high-intensity protests and uprisings.

Egypt, for example, has a history of food-related uprisings. There were bread riots in 1977, and the Arab Spring protests were partly triggered in 2011 by the slashing of bread subsidies and a rise in food prices. The Egyptian authorities remember this and have taken several measures against rising prices, including diversifying its wheat imports and imposing a price cap on non-subsidised bread prices. However, the jury is still out on whether these measures will be effective and prevent another spate of protests.

Lebanon and Tunisia are among the countries likely to experience high-intensity protests. Lebanon was already gripped by a severe economic crisis when Russia invaded Ukraine, and political instability is rife. The economy has collapsed and inflation has reached its highest ever level. Tunisia is also going through a political crisis, with the president dissolving parliament and demonstrators taking to the streets in protest at his move and political and economic instability in general. Under such circumstances, both countries need effective government policies. The Lebanese government is already tendering for wheat from India, while Tunisia is trying to secure a loan from the International Monetary Fund (IMF). However, considering the level of economic and political instability in both countries, the effectiveness of such measures is doubtful. They can probably expect high-intensity protests.

Sri Lanka is already experiencing mass protests about the economic crisis and its repercussions, such as blackouts and shortages of medicine and food. While the problems did not begin with the Russia-Ukraine war, it has exacerbated them and depleted Colombo’s already low foreign exchange reserves, widening the massive budget deficit and causing the free fall of the Sri Lankan rupee. Protests are expected to intensify.

The situation is dire for countries just emerging from humanitarian catastrophes. In Somalia, where civil war continues, severe drought has pushed thousands into famine. In Yemen, where a vicious war is ongoing, tens of thousands of people live under famine-like conditions, and 14.4 million are food insecure. The Russian invasion’s economic domino effect has made matters worse. Due to high food prices, even humanitarian aid organisations are struggling to provide essential aid to the Somalis and Yemenis. Human suffering is growing, and the death toll is mounting. Moreover, given the ongoing conflicts, the unstable governments are unable to implement effective measures. As usual, the most vulnerable in society face the greatest risk.

The war in Ukraine has exposed how much our world is interconnected. Hostilities in one country are not confined within its borders; they have a global effect, with resultant social unrest and instability. This is unlikely to end overnight if hostilities cease. As such, it is time for the major international organisations and economic blocs to take this problem seriously. If the pandemic has taught us anything at all, it is that in our interdependent world, no one is safe until everyone is safe.

This article originally appeared in the opinion section of the website Middle East Monitor.

Sanctions on Russia: How Effective are They?

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This discussion paper will assess the likelihood of sanctions’ effectiveness separately for each objective by considering the desired outcomes of the sanctions and whether the sanctions might be able to achieve their objectives.

For the assessment, the paper will accept that sanctions that have even a minimum contribution to the achievement of an objective, result in a significant concession of the target state, and take effect in a timely manner depending on the objective are effective. The first part will explore the idea that the recent sanctions are effective as a statement. The second part will analyse Russia’s and the senders’ motivations for the military operation and imposing sanctions respectively and will explain the impact of sanctions on such motivations. Considering the possibility of Russia making significant concessions, the recent sanctions will likely be relatively effective for changing the target state’s behaviour. The third part by explaining sanctions’ possible negative impacts on the international system’s structure in the long term, will conclude that the recent Russian sanctions will likely be ineffective for maintaining the international system’s structure.

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