Tensions in the South China Sea

The United States trade control measures on semiconductors are being grossly exploited, as evidenced by reports of domestic companies prevented from exporting items to China by government officials. Exploitation of export control mechanisms by the Biden administration are being called out as a violation of international trade rules

Such measures undermine the international trading norms, prevent technological cooperation from taking hold and are a self-defeating strategy for the Biden administration.

By not shelving its controversial and provocative export control policy on semiconductors and persisting with export control measures, the US is violating principles of free trade and cooperation, which are crucial for global integration. Such deliberate escalations by the Biden administration are nothing, but a self-serving strategy as American officials ask chip designers such as Nvidia Corp to stop exporting advanced computing chips to China over alleged risks of military use. Such harmful trading measures undermines technological cooperation.

For a country which touts itself as a promoter of multilateral trade and a rules-based world order, such measures are harming global supply chains at a time when the world economy needs resuscitation and revival. The rationale cited for implementing such policies however, is to promote greater prosperity across the world which is far from reality. The truth is that such controls are preventing other sovereign states from being able to conduct cost-effective and advanced computing for tasks critical for social and national development. It also undercuts the legitimate rights and interests of the domestic corporate base of China as mentioned aptly by the Chinese Commerce Ministry. Healthy competition is being systematically replaced by escalatory tactics which does not bode well for fair competition principles or an equitable trading environment.

For the US, the export control machinery being employed domestically is also self-defeating. Restrictions imposed such as new license requirements for exports to China will only backfire. Note that in a Securities and Exchange filing by graphic chip maker Nvidia, the company feared a monumental loss of $ 400 million due to governmental restrictions with a company statement claiming that its ability to complete H100 chips in a timely manner and support consumers of the A100 chip is being severely compromised. Note further how Silicon Valley firm, AMD is slated to witness curbs on its artificial intelligence chips reaching the Chinese market. None of these domestic variables however, are being factored in as Washington continues to devise export control measures. In fact, such actions are justified by the US Commerce Department claiming that they are necessary to safeguard national security and foreign policy interests. The question however, is whether US foreign policy involves adhering to international trading rules or undertaking efforts to strengthen the global economy. Recent trends suggest otherwise.

In August 2022 for example, President Joe Biden signed a $52.7 billion bill as subsidies for domestic semiconductor production and research related activities. However, such assistance came with preconditions. Semiconductor companies are prevented from exporting or increasing the production of chips to China which is a gross violation of trading rules. Such unilateral measures also involve investing in one’s own domestic industrial base and undermining others with predatory policies stifling China’s base being operationalized. Hence, it should come as no surprise that exploitation of export control mechanisms by the Biden administration are being called out as a violation of international trade rules. Such self-centred approaches will only establish a reputation of the United States being a hegemonic economic player which undermines instead of reinforces confidence in global semiconductor cooperation.

In essence, the Biden administration is also taking a leaf out of Tsai Ing-Wen leadership’s outlook which involves politicizing the industry and bifurcating it into two camps, namely the ‘democracy’ and the ‘authoritarian’ camps. Such attempts are anchored in cold war mentalities being embedded into national policy making with industries slated to contribute to global development, being used as tools to demonize other states. The Biden administration has not been cognizant of how such unilateral measures ignore the fact that the global semiconductor supply chain is integrated and how such measures can stymie the technological exchanges between countries. Such exchanges are key principles of multilateral organizations such as the World Trade Organization which need to be upheld in letter and spirit.

The question is whether such trade control measures uphold the spirit of apolitical technical cooperation envisaged by champions of free trade. Most would agree that American draconian policies are contributing to the malaise. The Biden administration which brandishes America’s image as a promoter of free trade is actually undermining it by coming up with policies which affect millions of people across the world, of which many believe in the concept of capitalizing on the free flow of semiconductors. The mindset of challenging corporate potential, which is critical for developing countries, is a major roadblock towards global and regional connectivity. Most would agree that the semiconductor industry is critical for the smooth functioning of technological start-ups without which any semblance of rational technical investments would become tedious and cumbersome. As a result, the United States is fairly derided by the Chinese, who call out reckless competition for what it is and how tensions in the South China Sea are being translated into the international cooperation front. This is not a recipe for success.

Sadly, the United States is not upholding such principles in letter and spirit and is pursuing a self-serving and self-defeatist policy on semiconductor exports instead. The industry is critical for global growth; however, Washington’s apathy is acting as a major roadblock.

The writer is an Assistant Research Associate at the Islamabad Policy Research Institute