It is now referred to as a "chip war" between both of these giants because of the daily increasing rivalry in the chip commerce and production between the USA and China.
We will go over all the information and actions Beijing and Washington have taken in order to improve their positions in the chip industry in this analysis. This will improve the ability to view the entire picture and make it easier for us to predict what will happen next.
China
With the introduction of a more comprehensive national security plan in 2014, China took the first major step toward strengthening its position in the semiconductor manufacturing market. As part of its plan to become a worldwide superpower, China's primary objective in science and technology is to position itself as the world's dominant power in these fields. This approach is still in effect today. It occurred on Chinese officials that semiconductor microchips are essential to developing civilian and military technology, to accomplishing their long-term geopolitical objectives, and possibly to overtaking the United States as the global nation.
China is developing technology at a rate that is significantly faster than predicted by industry evaluations and intelligence agencies in the West. For instance, the goal of the military-civil fusion program is to blur the distinction between military and civilian applications and merge civilian technologies with military capabilities.
The desire to become less dependent on Western technologies and to become self-sufficient in vital industries like semiconductors is a component of the larger national security policy. That is precisely why China's president, Xi Jinping, has advocated for more technical independence in an effort to improve China's standing internationally and oppose Western influence. Along with making significant investments in the semiconductor sector, they have set high goals to boost chip independence.
However, the ongoing pressure from the USA in the form of stronger trade regulations and measures limiting Chinese exports and investments in technology has boosted those efforts even more. Beijing's economic security policies center on semiconductor microchips. Anticipatedly, the microchip issue with the USA was not without retaliation. For instance, China stepped up its attempts to get rid of chips developed globally, particularly those produced in the USA, and gave domestic telecom companies until 2027 to comply. That approach could seriously harm the US economy financially and specifically target American chipmakers like AMD and Intel.
US
In terms of the United States, worries about China's quick technological advancement were already evident when President Biden assumed office in 2021. AI was the primary subject of such worries. There was a general fear that China may surpass the United States in semiconductor technology, so risking the West's technological domination over the East.
For this reason, the EU and the USA started prioritizing economic security, reversing their previous positions that supported trade freedom and globalization. Alleged reports that China obtained Western technologies through partnerships and initiatives and disrupted supply chains for essential supplies and machinery were another factor that set off this.
The adoption of the CHIPS Act in August 2022, however, was the most important shift in American politics with relation to the manufacturing of semiconductor microchips. The CHIPS Act was primarily designed to strengthen local semiconductor manufacture and secure it from any sabotage. It also includes the trend of reducing US dependency on imports, particularly those from China.
In addition, Washington enforced a number of export restrictions and sanctions to protect its national security and intellectual property rights. The sanctions focused on chips smaller than 16/14 nm and prohibited the shipment of machinery needed to make advanced semiconductors to China.
The United States then moved to secure a few of its closest allies. They mainly accomplished this with Japan and the Netherlands, strengthening export regulations on machinery used in the production of high-performance semiconductors. Additionally, in an effort to further isolate China, the White House suggested Taiwan, South Korea, Japan, and others form the Chip 4 Alliance, which would increase the robustness of East Asia's semiconductor supply chain.
What can we expect?
Under President Joe Biden, China and the USA have maintained their competitiveness in this area, which began under Donald Trump's administration. It represents a unique bipartisan agreement in the US Congress to oppose China's aspirations in technology. However, China views being a worldwide leader as an expression of pride in its country, an attitude that dominates President Xi Jinping's leadership.
The semiconductor industry and green technology are two of the most prominent areas where the wider tech war is evident. While green technology is becoming more and more significant for the global economy, chip manufacturing is essential for information processing. China and the USA are competing with each other for supremacy in these fields.
In an article titled "The digital wars are set to enter a fiery new phase," The Economist predicted that the next US president would probably keep criticizing China's technical accomplishments, regardless of the results of the country's upcoming elections. This is similar to the coordinated efforts in Washington to counter China's increasing sway in cutting-edge technology.
The Economist went on to say that increased hostilities and a more assertive US strategy under a subsequent government are also possibilities. This would entail extending export restrictions and penalties to additional Chinese tech businesses in addition to Huawei and other corporations. Such acts could incite China to take retaliatory steps, intensifying the tension even more.
The US government may put pressure on Taiwanese chipmaker TSMC, which has large holdings in China, to curtail its activities there. This might also occur with other international businesses that operate in China and are entangled in the fight.
Even while the USA has won over certain allies, it may still require assistance from other allies, especially in Europe and Asia. Because of differences in objectives, Washington's approach to technology and China may have an impact on its relationships with some allies. This might strain alliances and make it more difficult to organize a unified front against China's technical ambitions.
The global economy would surely be impacted by this conflict between the two superpowers. According to estimates from the International Monetary Fund (IMF), cutting off high-tech commerce between the two nations may cost up to $1 trillion a year, or 1.2% of the world's GDP. While all signs point to a delayed resolution, it is in the public interest to end this dispute as soon as possible.