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CvT: Using Semiconductors to Prevent Semi-Conductive US-China Relations

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As the first term of Trump’s presidency comes to a close, the administration is turning to the regulation of next-generation technologies to maintain its rivalry with China post-departure. Particularly worrying to the administration is China’s Made in China 2025 plan, which is designed to rapidly expand the nation’s high-tech sectors and develop an advanced manufacturing base.

The Trump Administration views the strategy as a key piece in China’s long-term plan to replace the US on the global stage, representing a distinct threat to American national security. In response, the administration has drafted countermeasures that focus on starving the plan by cutting off supplies to the main Chinese telecommunication companies, Huawei and ZTE, through the Chinese technology supply company, Semiconductor Manufacturing International Corp (SMIC).

Chinese telecoms: the major players & Western response

Huawei and ZTE are two Chinese telecommunication companies well positioned to sell their next-generation telecommunication equipment internationally. For Beijing, the benefits in these companies securing contracts is akin to providing China similar strategic advantages as the United States gained when it developed the internet.

To secure these advantages, Beijing has committed to providing economic assistance that allows these companies to offer market pricing substantially lower than their Western competitors, while still boasting high-quality western technological components. However, while Huawei’s prices are cheaper, the company is still dependent on Western manufacturers for high precision semiconductors and computer chips, which exposes them—and Beijing by extension—to sudden supply change risks.

Aware of the leverage this provides to Western rivals, particularly the US as the majority producer of the world’s semiconductors, Xi Jinping has recently called for economic independence and self-sufficiency in his dual-circulation strategy, which would see Chinese producers develop the capabilities to supply domestic market needs in strategic industries.

The US response to Huawei and China’s other 5G inroads

Given the political and economic support that the company receives from central sources, the Trump Administration has been concerned that Huawei’s connections to the government and People’s Liberation Army’s (PLA) will open channels for state-sanctioned surveillance within the informational flow of next-generation technologies. These backdoors, coupled with Huawei’s operational potential for significant global market share, could thus present a sizable threat to any nation at odds with Beijing.

As virtually all countries will need 5G infrastructure to carry the data required for next-generation technologies, the governance structure behind data handling and process flows are also of extreme significance – and thus far lag behind technological development. In response, the United States introduced the Clean Network Initiative, a set of standards designed to counter digital authoritarianism and maintain Western standards in data protection, privacy, and ‘principled collaboration’ in telecommunications. Currently, 50 countries have subscribed to the initiative; however, only the United States, Australia, India, Taiwan, and the United Kingdom have taken the more extreme step of outright banning Huawei equipment from their networks.

Future proofing the Trump Administration’s advances

As its runway for legislative action comes to an end, the Trump Administration has been acting on its long-term perception of China as a threat to national security. In September 2020, the Department of Commerce (DOC) began requiring a license to sell technology to the SMIC. In another blow to the company behind China’s main push for domestically produced semiconductors, the Department of Defense recently designated SMIC on its list of “Communist Chinese Military Companies.” Inclusion on the list implies ties with the PLA and provides the rationale for the DOC’s Bureau of Industry and Security to list the entity on the Export Administration Regulations (EAR), which then places the organization on a no-export list. This act marks a significant development for a hawkish Trump Administration since removal from the list would require greater political clout by future administrations.

Biden’s national security team views it as unrealistic to exclude billions of Huawei users from global communications networks. The Trump Administration is turning to regulation because it takes a longer time to overturn. In this case, as the EAR regulatory process requires unanimous approval across departments to initiate the appeal process, the Biden Administration will be unable to immediately lift them in return for Chinese cooperation on areas of potential common interest, such as climate change – marking a win for Trump and his administration’s confrontational stance on US-China relations.

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