The Temperature of the US-China Tech Conflict Just Keeps Rising

Friday - July 14 2023, 23:30 UTC - 1 year ago

The temperature of the US-China tech conflict just keeps rising. Tensions are rising due to export restrictions imposed by the US and allies, and China responding by instituting controls on gallium and germanium. The US-China relationship is continuing to worsen with Yellen's visit last week showing that this back-and-forth retaliation is not ending anytime soon. The tech war may expand out of the semiconductor field to involve things like battery technologies, where China has a larger advantage. Additionally Tesla is laying off workers in China, BYD is building factories in Brazil, and Shenzhen is facing population decline.

The temperature of the US-China tech conflict just keeps rising.Most experts see the move as China’s most significant retaliation against the West’s semiconductor tech blockade, which expanded dramatically last October when the US limited the export to China of the most cutting-edge chips and the equipment capable of making them.But as I reported yesterday, China’s new export controls may not have much long-term impact .

"Export control is not as effective if the technologies are available in other markets," Sarah Bauerle Danzman, an associate professor of international studies at Indiana University Bloomington, told me. Since the technology to produce gallium and germanium is very mature, it won’t be too hard for mines in other countries to ramp up their production, although it will take time, investment, policy incentives, and maybe technological improvement to make the process more environmentally friendly .

So what happens now? Half of 2023 is now behind us, and even though there have been a few diplomatic events showing the US-China relationship warming up, like trips to China made by US officials Antony Blinken and Janet Yellen, the tensions on the technological front are only getting worse.When the US instituted its chip-related export restrictions in October, it wasn’t clear how much of an impact they would have, because the US doesn’t control the entirety of the semiconductor supply chain .

Analysts said one of the biggest outstanding questions was the extent to which the US could persuade its allies to join the blockade.At the end of June, the Netherlands followed suit and announced that it will limit the export to China of deep ultraviolet (DUV) lithography machines used to pattern chips. That’s also an escalation of the previous rules, which since 2019 had only limited export of the most advanced extreme ultraviolet (EUV) lithography machines .

These expanding restrictions likely prompted China to take a page from its enemies’ playbook by instituting the controls on gallium and germanium.Yellen’s visit last week shows that this back-and-forth retaliation between China and the US-led bloc is not ending anytime soon. Both Yellen and the Chinese leaders expressed their concern at the meeting about the other side’s export controls, yet neither said anything about backing down .

If more aggressive actions are taken soon, we may see the tech war expand out of the semiconductor field to involve things like battery technologies. As I explained in my piece on Monday, that’s where China would have a larger advantage.Catch up with China1. Tesla is laying off some battery manufacturing workers in China as a result of the cutthroat electric-vehicle price competition in the country .

(Bloomberg $)2. China’s top EV maker, BYD, is building three new factories in Brazil to make batteries, EVs, and hybrid cars. They will be built at the location of an old Ford plant. (Quartz)3. Shenzhen, the city often seen as the Silicon Valley of China, is facing population decline for the first time in decades. (Nikkei Asia $)4. Five people were arrested by the Hong Kong police for involvement in creating an online shopping platform that was used to support protesters during the 2019 Hong Kong protests .