The Changing State of US-China Competition in the Semiconductor Industry
ABSTRACT
The United States and China are two of the most important links in the global semiconductor industry, and the involvement of suppliers, producers, and customers in the two countries are integral to the industry’s path towards $1T growth milestone. And yet, despite the abundance of wealth and knowledge brought by bilateral interconnectedness, governments in both countries are pursuing strategies to insulate certain technologies’ supply chains from the others. The elevation of national security-based reasoning over economic policy calculus has made it more difficult for commercial voices to be heard in both counties. This speech will outline the courses both countries are pursuing and discuss the business implications of US-China technology competition.
China’s strategy, as it has been since the early 2010s, is to aggressively subsidize domestic firms to achieve technological breakthroughs in emerging technologies. China has a unique toolbox of support measures for the private sector and large State-Owned Enterprises. In recent years, China’s toolbox has become more sophisticated and now includes preferential subsidization lists, deep linkages to the financial sector, and new regulatory levers. Local governments, often responsible for implementing high-level calls for industrial upgrading, have also been active with programs of their own. Changes to China’s economic growth pattern and bilateral trade frictions have reinforced the notion that industrial policy is correct and necessary. At the same time, revelations that some chips have dual civil-military applications is leading American policy officials to treat all Chinese commercial activity in the sector as potentially military—a slippery slope.
The US government has responded with a two-pronged approach. It has chosen to engage in industrial policy of its own through the CHIPS and Science Act. It is also pursuing a revolutionary expansion of its export control regime to slow down the development of China’s advanced computing sector. The export controls introduce never-before-seen restrictions on the activities of American citizens, American technologies, and American business services in China. At the same time, calls in Washington to create a regime to oversee and approve outbound US investments to China related to certain industries and technologies enjoy growing bipartisan support. The US government is also actively trying to recruit other allied countries to join the US by adopting similar export control and outbound investment restrictions.
US businesses in China find themselves in an environment that is increasingly competitive due to China’s industrial policy supporting their Chinese private sector and SOE competitors. At the same time, they face increased scrutiny from US policymakers and regulators attempting to stop the proliferation of certain dual-use technologies. Businesses must therefore carefully evaluate the costs and opportunities of bilateral technology competition by examining the goals and likely applicability of US government restrictions to their company’s technologies and their alignment to government priorities for investment and oversight of the industry. Holistic compliance, risk management including regulatory scenario planning, and market analysis operations are more important than ever to maintaining a strong market position and navigating restrictive US and Chinese government policies. Businesses must also carefully monitor how new regulations and geopolitical trends impact their supplier and customer relationships. For suppliers, manufacturers, and consumers of chips, the financial cost of mounting bilateral tensions is likely to become more acute as supply chains may shift in response to evolving regulatory and geopolitical trends.
BIOGRAPHY
On July 26, 2018, Craig Allen began his tenure in Washington, DC, as the sixth President of the United States-China Business Council (USCBC), a private, nonpartisan, nonprofit organization representing over 200 American companies doing business with China. Prior to joining USCBC, Craig had a long, distinguished career in US public service.
After working at US embassies in Japan, China and South Africa, Craig became Deputy Assistant Secretary for Asia at the US Department of Commerce’s International Trade Administration. He later became Deputy Assistant Secretary for China. Craig was sworn in as the United States ambassador to Brunei Darussalam on December 19, 2014. Craig received a B.A. from the University of Michigan in Political Science and Asian Studies in 1979. He received a Master of Science in Foreign Service from Georgetown University in 1985.