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America is losing the semiconductor battle to China

Daniel Nenni

Admin
Staff member

Beijing's Micron ban shows that other countries want no part of the US trade war​

GettyImages-1249748364-e1684777119333-1024x529.jpg

Stormy times ahead for Joe Biden. Credit: Getty

The trade war continues to heat up, and now the boundaries are starting to be defined. On Sunday, the Chinese government announced that semiconductors from the American company Micron would be banned among operators of “critical infrastructure” in China. The ban could arguably have been worse — Beijing could have banned imports of the chips altogether — but the American company will still feel the pinch, given that it derives around 16% of its revenue from China and Hong Kong.

Shortly after the announcement, South Korea signalled that it would not do anything to prevent the Chinese buying chips from their companies as a substitute. Last month, the White House asked Seoul to prevent the American chips from being substituted, but South Korea shrugged it off, insisting that it was a matter for their companies to decide. Even if they wanted to, imposing such a ban would be difficult, with one industry leader pointing out to the Financial Times that “even if we increase our supply to Chinese customers, how can they examine all these deals individually and judge that the increased volume comes from us, replacing Micron’s?”

South Korea’s refusal to damage its companies to fulfil the desires of the D.C. foreign policy establishment shows that there are hard limits to Washington’s trade war. American strategists seem to assume that the products over which they are picking fights are not easily replaceable; that, in economics-speak, they are “non-fungible”. But, as with Russian crude oil, we are seeing the global market work its magic and arbitrage away any attempts at preventing trade.

The only way America can make its trade war work is to convince a substantial slice of the world economy to put in place similar restrictions to those being imposed by Washington. But as the Micron example shows, these restrictions bring with them counter-restrictions — and this grim cycle can quickly escalate, destroying the companies caught in its wake. Countries like South Korea are simply not interested in getting involved.

Meanwhile, the United States is still trying to revive diplomatic relations with the Chinese following Secretary of State Antony Blinken’s announcement that he was cancelling his trip to Beijing after the Americans shot down a Chinese balloon earlier this year. At the G7 meeting over the weekend, President Joe Biden referred to the incident as a row over a “silly balloon” and said that he expected diplomatic relations to thaw very soon. Washington has clearly realised that the Chinese are not willing to play ball with any attempt at a “hardline” diplomatic strategy.

This last year has produced a series of lessons for the US and its allies that, in a rapidly changing world, there are limits to their power, both hard and soft. China is not Iran, or even Russia. Trying to isolate the country economically and diplomatically is near-impossible, and may well end up isolating the country attempting to impose the measure. In the coming months, it seems increasingly likely that America will have to revise its China policy.

 

Beijing's Micron ban shows that other countries want no part of the US trade war​

GettyImages-1249748364-e1684777119333-1024x529.jpg

Stormy times ahead for Joe Biden. Credit: Getty

The trade war continues to heat up, and now the boundaries are starting to be defined. On Sunday, the Chinese government announced that semiconductors from the American company Micron would be banned among operators of “critical infrastructure” in China. The ban could arguably have been worse — Beijing could have banned imports of the chips altogether — but the American company will still feel the pinch, given that it derives around 16% of its revenue from China and Hong Kong.

Shortly after the announcement, South Korea signalled that it would not do anything to prevent the Chinese buying chips from their companies as a substitute. Last month, the White House asked Seoul to prevent the American chips from being substituted, but South Korea shrugged it off, insisting that it was a matter for their companies to decide. Even if they wanted to, imposing such a ban would be difficult, with one industry leader pointing out to the Financial Times that “even if we increase our supply to Chinese customers, how can they examine all these deals individually and judge that the increased volume comes from us, replacing Micron’s?”

South Korea’s refusal to damage its companies to fulfil the desires of the D.C. foreign policy establishment shows that there are hard limits to Washington’s trade war. American strategists seem to assume that the products over which they are picking fights are not easily replaceable; that, in economics-speak, they are “non-fungible”. But, as with Russian crude oil, we are seeing the global market work its magic and arbitrage away any attempts at preventing trade.

The only way America can make its trade war work is to convince a substantial slice of the world economy to put in place similar restrictions to those being imposed by Washington. But as the Micron example shows, these restrictions bring with them counter-restrictions — and this grim cycle can quickly escalate, destroying the companies caught in its wake. Countries like South Korea are simply not interested in getting involved.

Meanwhile, the United States is still trying to revive diplomatic relations with the Chinese following Secretary of State Antony Blinken’s announcement that he was cancelling his trip to Beijing after the Americans shot down a Chinese balloon earlier this year. At the G7 meeting over the weekend, President Joe Biden referred to the incident as a row over a “silly balloon” and said that he expected diplomatic relations to thaw very soon. Washington has clearly realised that the Chinese are not willing to play ball with any attempt at a “hardline” diplomatic strategy.

This last year has produced a series of lessons for the US and its allies that, in a rapidly changing world, there are limits to their power, both hard and soft. China is not Iran, or even Russia. Trying to isolate the country economically and diplomatically is near-impossible, and may well end up isolating the country attempting to impose the measure. In the coming months, it seems increasingly likely that America will have to revise its China policy.


After reading this article, I don't understand why the author naively concluded that America is "losing" the semiconductor battle to China. For example, he does not know most non US governments will not publicly endorse US policy in such situation. They will always keep it ambiguous and claimed they will leave it to the private business to decide. The negotiation and wrestling are behind the scene and hard to tell at this moment.
 
"After reading this article, I don't understand why the author naively concluded that America is "losing" the semiconductor battle to China. For example, he does not know most non US governments will not publicly endorse US policy in such situation. They will always keep it ambiguous and claimed they will leave it to the private business to decide. The negotiation and wrestling are behind the scene and hard to tell at this moment."

Agreed but it is an interesting perspective from an economist. Unfortunately, provocative titles are required these days to get clicks.

It is my hope that politicians are using semiconductors as a pawn in a chess game that will improve relations with China. At some point in time we must hit rock bottom where the only place to go is up. Hopefully we get there without war.
 
"After reading this article, I don't understand why the author naively concluded that America is "losing" the semiconductor battle to China. For example, he does not know most non US governments will not publicly endorse US policy in such situation. They will always keep it ambiguous and claimed they will leave it to the private business to decide. The negotiation and wrestling are behind the scene and hard to tell at this moment."

Agreed but it is an interesting perspective from an economist. Unfortunately, provocative titles are required these days to get clicks.

It is my hope that politicians are using semiconductors as a pawn in a chess game that will improve relations with China. At some point in time we must hit rock bottom where the only place to go is up. Hopefully we get there without war.

🙏🙏
 
"After reading this article, I don't understand why the author naively concluded that America is "losing" the semiconductor battle to China. For example, he does not know most non US governments will not publicly endorse US policy in such situation. They will always keep it ambiguous and claimed they will leave it to the private business to decide. The negotiation and wrestling are behind the scene and hard to tell at this moment."

Agreed but it is an interesting perspective from an economist. Unfortunately, provocative titles are required these days to get clicks.

It is my hope that politicians are using semiconductors as a pawn in a chess game that will improve relations with China. At some point in time we must hit rock bottom where the only place to go is up. Hopefully we get there without war.

 
I'm not surprised Seoul refrained from picking a side, they would have everything to lose and very little to gain by committing to either.

What's more surprising is that some folks in D.C. saw the need to announce the request publicly, thus forcing a public response that shows the US in a somewhat negative light.
 
I'm not surprised Seoul refrained from picking a side, they would have everything to lose and very little to gain by committing to either.

What's more surprising is that some folks in D.C. saw the need to announce the request publicly, thus forcing a public response that shows the US in a somewhat negative light.

If we follow the recent development and the actions that South Korea has taken, South Korea already picked a side, the non-PRC side.
 
If we follow the recent development and the actions that South Korea has taken, South Korea already picked a side, the non-PRC side.
Well clearly not with this news. Plus, leaning to one side or another in various spheres of activity for tactical advantages doesn't demonstrate commitment, but the opposite, a strategic neutrality.
 
The U.S is not losing. China is screwed by the damage their “wolf warrior” diplomacy has done to their relations with developed countries. China has made it policy to piss off any and everyone to play to domestic audiences and it has backfired massively. Everyone with a brain is aware of what Chinas intentions are now and kneecapping their semi conductor ambitions is in everyone’s interest.
 
China, the US, the EU, everyone, protects their own industries and tries to keep foreign business at bay. It never works as sanctions, as protection for domestic industry, or even as industrial policy. If it did work, then Communism would be the leading economic system.

Communism failed because markets allocate resources better than governments. Way, way, way better.
 
China, the US, the EU, everyone, protects their own industries and tries to keep foreign business at bay. It never works as sanctions, as protection for domestic industry, or even as industrial policy. If it did work, then Communism would be the leading economic system.

Communism failed because markets allocate resources better than governments. Way, way, way better.

when doing something for political.interest over economic interest the mindset is surely different also.

As you say the misallocation of resources is a big problem and can lead to issues down the road.
 
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