Over the past decades, China’s economic power has grown significantly. Changes in China became especially noticeable after the 2008-2009 global financial crisis. According to China’s State Statistics Committee, the country’s GDP in 2022 was $17,450 trillion according to the World Bank, and the US’s GDP over the same period was $20.890 trillion. In other words, China unconditionally claims leadership in the global economy, and this fact cannot cause concern in the White House.
There are several reasons for concern. The United States does not want to give up its grip on the world economic system, including the dollar’s role as the main reserve currency and payment currency for international contracts. Meanwhile, China is already demanding payment in yuan for its exports. Russia made agreements with China and India in national currencies.
It is worth remembering that Chinese goods conquered world markets due to their cheapness. Moreover, manufacturers do not hesitate to copy advanced Western models of many industries. Who hasn’t heard of Chinese Rolexs, Cartiers and other brands? Every year their quality is only increasing – they use almost European quality Seiko mechanisms, cases and bracelets, leather straps. Yes, and their own Chinese brands are already appearing, for example, Seagull (“Seagull”), which is quite competitive with Japanese manufacturers.
But it’s not just about the clock. Almost all famous sports shoes, sunglasses, auto parts, electronics, etc. Trademarks are copied and imitated. The most striking example is the Chinese Moskvich: outwardly presentable, expensive, but how reliable will it be?
Copying in the field of intellectual property brings an additional income of 5-6 billion dollars to Chinese industrialists, despite the WTO rules and national legislation in this field.
However, the line between direct borrowing (piracy) and duplicating designs is very thin. Look at all modern smartphone models and find at least a few differences in the exterior design. The same can be said about cars with aerodynamic “remains” of approximately the same shape (in their class), the difference can only be found in optics. This is understandable – progress in the industry is improving, based on the success of competitors, and patented innovations are easy to get around by changing the details.
In addition to borrowing industrial designs, the US is also plagued by unfair competition from Chinese manufacturers in “sensitive areas” of the economy. In 2011, American company Solar World and a number of other companies sued Chinese solar panel manufacturers for supplying products at a lower cost thanks to subsidies from the Chinese government. The US reaction was not long in coming – the US Department of Commerce sharply increased import duties on Chinese solar products from 31% to 250%.
Also, China has already begun to bypass the United States in the field of telecommunications – the previously unknown Chinese company Huawei has already begun to push leaders from the United States, including Cisco. This is already a serious challenge to the superiority of the United States in the field of high technologies. Therefore, Washington imposed harsh sanctions against the company, and the CEO’s daughter and the company’s financial director were jailed for violating sanctions against Iran (the re-export of American dual-use electronics).
Semiconductor chips – memory chips, processors, etc. – a similar picture emerges in its production. As you know, today’s most modern processors are based on 7 nanometer processing technology (by the way, in 1997 processors had 350 nanometer processing technology). The lower the process technology value, the more transistors can be placed on the chip. Such processors are produced by the Taiwanese company TSMC for such well-known manufacturers as Apple, Huawei, Qualcomm. Processors with 5 or even 3 nanometer processing technology will be released in the coming months.
China is actively participating in this race, but there are only two countries in the world that produce equipment for the manufacture of such microcircuits – the Netherlands and Japan. In Japan these are Canon and Nikon, in the Netherlands – ASML, and it was he who in recent years has doubled its market share to 62%, because it alone produces deep ultraviolet photolithography equipment with wavelengths of 13.5 and 7 . nanometer. It is on the equipment of all well-known chip manufacturers. And the components of these machines are produced by around 5,000 suppliers.
However, the United States is blocking the supply of advanced technology to Chinese companies because it fears China’s superiority and military space. In 2018, Huawei placed an order for the Dutch to supply an ASML ultraviolet scanner, but under pressure from Washington, the Dutch government has yet to issue an export license. In addition, all ASML products are included in the list of dual-use products, and their export everywhere is strictly controlled by the EU and the USA. And although the company itself is very interested in the Chinese market, China needs its products even more. Additionally, the COVID-19 pandemic has interrupted the ever-present supply of small equipment.
China is trying to increase its own chip production, but the United States is trying every possible way to avoid this while maintaining its technological advantage in the world. The Joe Biden administration has signed an agreement with the Netherlands and Japan to limit the export of some advanced microchip technologies to the PRC. At the same time, like Japan, the USA and the Netherlands try not to comment on these agreements.
The Netherlands recently said it plans to impose new restrictions on the export of semiconductor technology to protect national security, according to Reuters. It is not yet clear whether ASML will be able to service vehicles already delivered to China.
Beijing’s response did not take long: “Washington is abusing export controls, destabilizing global production and supply chains,” said the Chinese Foreign Ministry. It’s hard to disagree with that. It is clear why there is a shortage of chips in the market of electronic components, including those for cars.
This war did not start today. Since the presidency of Donald Trump, namely 2016, the US administration has been demanding that China reduce its exports to the US, especially high-tech products that successfully compete with US firms. According to The Wall Street Journal, citing Department of the Treasury and Commerce reports, the United States will ban investment in advanced industries not only in China but abroad, especially if these industries can increase the military potential of US competitors. and poses a threat to America’s national security.
However, despite the limitations in semiconductor manufacturing, China is already able to produce chips at 13.5 nanometers, which is quite suitable for military production. In addition, Beijing will be able to manufacture chips using cutting-edge technologies in the near future.
I note that the United States felt the threat from China right after WWII and realized that Beijing might finally be a competitor. Even before 1972, the USA tried to hinder the development of the PRC. For this, a trade embargo was established, extensive support was provided to Taiwan by sending troops, and support was provided to the Tibetan rebels who were trying to get out of Beijing’s control.
Objectively, however, China, with its enormous and rapidly growing population and resources, was a profitable market for Washington. With the development of Chinese industry, cheap goods from the Middle Kingdom began to play an important role in the trade between the two countries.
Of the total volume of Chinese exports to the United States, engineering and electronics already account for 60%, and textiles – 20%. The USA and China have become each other’s second largest trading partner, with a trade volume exceeding $500 billion. China supplies about 40% of the furniture sold in the United States, a range of metals, primarily steel, often at discounted prices. But in US exports, by contrast, raw materials and underprocessed products now account for almost 2/3. US exports to China are falling at a disastrous rate, especially soybeans and other agricultural products.
Over time, these relationships became more complex: China began to devalue the yuan to increase the attractiveness of its products and to copy foreign technologies.
Cheap labor in the PRC led to the massive transfer of American production to China, resulting in increased unemployment in the United States. Trump emphasized this in his election campaign. He successfully continues his studies and Biden.
In recent years, however, the cost of such collaborations has become conspicuous. The American economy made huge profits by supplying technology to the PRC and getting cheap goods in return, but with increased exports of high-tech goods from China (Huawei being a typical example) the US ran a huge trade deficit. It exceeded 355 billion dollars.
In the two months of the current year, the trade turnover between the two countries decreased. China’s exports to the US fell 21.8% year-on-year, while imports from the US fell 5%. It is clear that the damage is borne by consumers in both countries.
In fact, we are faced with a real trade war or economic conflict caused by trade restrictions of one state (or group of countries) against another in the form of tariff or non-tariff restrictions and retaliatory measures of another state. However, in this case, we also have a political subtext in the trade dispute between the US and China to limit a competitor’s technological (as well as military) development.
At the same time, the imposition of taxes on exports from China also leads to inflation in the United States, where the Fed is so eagerly fighting it by raising interest rates.
Who benefits from this war and how will it end? The answer is obvious – without Washington’s imperial ambitions, anyone could buy the most modern and high-tech products from China.
The author expresses his personal opinion, which may not coincide with the editors’ position.