Wednesday

7th Dec 2022

Opinion

Where the US-China microchip wars leave the EU

  • Beijing: intense digital rivalry with Washington for technological dominance (Photo: Tambako the Jaguar)
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A few weeks ago, the US administration dropped one of the biggest regulatory bombs in the history of export controls.

Days before the start of the National Congress of the Chinese Communist Party, Washington unilaterally announced new extraterritorial restrictions on the export of advanced chips, semiconductor equipment and related components to China.

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Single-handedly, the US has decided to starve its Asian rival of all of the complex technology used for next-generation quantum computing, AI systems and military equipment.

For years, Washington and Beijing have been engaged in an intense digital rivalry for technological dominance.

The US has never shied away from imposing tariffs or export controls in order to hamper China's growing tech sector and military-industrial complex.

The federal ban on telecommunications equipment from companies such as Huawei and ZTE was one of the public warning shots.

However, if all of the previous steps by the US tried to handicap China, the recent announcement is openly going for the kill.

The sweeping October measures bar American companies or US persons globally from exporting advanced semiconductors or hardware/software, which might be used for the production of high-end chips in China.

Moreover, the ban applies not only to US-made products per se, but also to third country technology which has partial US design or components.

If enforced effectively, these new restrictions mean that China will lose a big chunk of its semiconductor imports, related equipment and essential software.

In a nutshell, most of China`s future production in AI systems, autonomous vehicles, 6-G phones or smart hypersonic missiles are in serious jeopardy.

This landmark moment marks a new chapter in US-Sino rivalry. Importantly, the US has signalled a change in its strategic thinking.

The previous doctrine posited that the States need to stay one or two generations ahead of their Asian rival when it comes to breakthrough technology.

The newly announced rules imply that Washington wants to fully dominate this industry and guarantee American economic and national security interests.

In the words of the US national security advisor Jake Sullivan: "Given the foundational nature of certain technologies, such as advanced logic and memory chips, we must maintain as large of a lead [ahead of China] as possible".

This draconian export controls package comes after decades of deliberate intellectual property theft by Chinese state actors and their proxies.

Worse still, Washington is aware that Beijing is using foundational technologies for state surveillance, domestic human rights abuses and international espionage.

Clearly, there is bipartisan consensus on Capitol Hill that enough is enough.

The effect of these unilateral measures is still to be studied.

In the immediate fallout, Apple froze its future partnership with Chinese chip company YMTC, while Europe`s biggest supplier of chip-making equipment ASML told its US employees to immediately stop servicing all Chinese customers.

The biggest concern for private companies globally is whether this new regime will have unintended consequences on international supply chains. It is also unclear how and when will Beijing reiterate to this aggressive move.

Implications for EU

As the semiconductor fight intensifies, there are several important considerations for the EU.

First, the US went ahead with these restrictions, without domestic public consultation nor discussing them openly with international Allies.

Brussels needs to be adamant that this new regime should in no way impede the competitiveness of the European semiconductor industry.

Secondly, these developments raise the stakes for the US-EU Trade and Technology Council (TTC).

By birth, the TTC is designed to discuss export controls, dual use items and misuse of technology, among the other important items on the transatlantic agenda.

The EU should insist that the current and future US policies in this domain are deliberated within the TTC and receive the backing of European Allies.

The EU needs to be proactive within this high-level forum. It is true that there is a huge overlap in our joint priorities but there is much to be desired by our American partners on privacy, data sharing and domestic subsidies that feed jingoist protectionism.

Most importantly, the EU needs to seriously consider what is happening within the sector of semiconductors globally.

The new aggressive posture by the US, coupled with their pledge for $52 billion (!) in funding available for domestic chip manufacturers, could completely sideline the EU`s efforts to excel its own semiconductor industry.

Brussels' call for fair market competition starts to ring hollow, also given China's traditional mammoth state funds and protectionist policies for its internal tech industry.

Right now, semiconductor design and manufacturing is dominated by Taiwan, South Korea, the US and China.

The EU still lags behind and its nascent European Chips Act regrettably remains only a paper tiger for the time being.

European leaders need to increase their own commitments and public funds in support of a sector with strategic importance for the future of technological tech development and international competitiveness. The chips industry is clearly becoming one of the active battlefields of geopolitical rivalry.

Subsidies, protectionism and political tricks will, regrettably, be the name of the game. The EU had better not come empty handed in this skirmish.

Dimitar Lilkov is a senior research officer at the Wilfried Martens Centre for European Studies in Brussels

Disclaimer

The views expressed in this opinion piece are the author's, not those of EUobserver.

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