Will the U.S. succeed in blocking semiconductor development in China?

Editor's note: C. Saratchand, a special commentator on current affairs for CGTN, is a professor at the Department of Economics, Satyawati College at the University of Delhi in India. The article reflects the author's opinions and not necessarily the views of CGTN.

The United States government has been recently seeking to deploy a whole host of coercive industrial policy measures to try and prevent the further economic development of China. However, for specific political reasons, which we will shortly examine, this coercive industrial policy has been couched in the language of U.S. national security.

The current round has principally involved export controls on semiconductors. These include restrictions on both the sale of high-end chips, concerning artificial intelligence and related areas, and chip making equipment, including extreme ultraviolet (EUV) lithography systems as well as many variants of them. The expectation of the United States government was that these measures would ensure that the technological gap in semiconductors between the United States and China would remain sufficiently large.

Before examining the results of these export controls, let us examine the purposes underlying these coercive measures. First, the "national security" dimension behind these export controls is completely misplaced both in terms of fact and relevance. China is already in possession of the threshold type of requisite semiconductor chips and their production capacity for its national security purposes. However, by highlighting the ostensible national security concerns of the United States, a public narrative has been created within which the governments of countries "allied" with it could be coerced into falling in line with the demands of the U.S. government. However this public narrative seeks to prevent them falling in line with the dictates of the U.S. government as being rightly interpreted as a loss of their strategic autonomy, that would have adverse domestic consequences in these countries.

Second, and more relevant, is the anxiety of the U.S. government that it is losing its near monopoly on some types of high technology and therefore its ability to earn monopoly profits on commodities produced by such technologies. It needs to be emphasized that American firms operating within the territory of the United States do not have the ability to produce high-end semiconductors in significant scale. Semiconductor companies in the United States earn their monopoly profits principally, but not exclusively, through their provision of driver software for these chips, but this is declining in significance as alternatives are developed. The United States is trying to get high-end semiconductor manufacturing companies to set up in its territory by "inviting" such companies from East Asia. But the overall state of manufacturing, infrastructure and skilled labor in the United States is unlikely to make these ventures internationally significant in terms of market share in the semiconductor sector.

Third, these export controls on semiconductors also make it transparent that the U.S. government's incantation about free trade is merely a public narrative underlying two processes. One, the industrial policy of the United States in disguise but fortified by export controls has always been at work. This industrial policy is employed to try to initially achieve and then seek to maintain its technological lead over other countries. And secondly, it is trying to weaken the ability of governments of other countries from practising what the United States is itself undertaking. But these governments who are being compelled to effectively abandon indigenous technological advancement are able to "rationalize" their actions in terms of their adherence to this incantation. As the industrial policy of the United States has become transparent, the lustre of this invocation has tended to fade.

However, the results of the export controls on semiconductors have been underwhelming. Since the onset of these export controls, China has rapidly ascended the technological ladder through indigenous innovation, resulting in the technological gap in semiconductors becoming largely irrelevant. Unlike the United States, China has a meaningful presence in virtually every segment of the semiconductor value chain and therefore its technological advancement in this sector is sustainable. Each such technological attainment by China has resulted in the government of the United States trying to "strengthen" its export controls; but such export control measures are unlikely to be successful, as demonstrated by the history of failed initiatives in this regard.

The government of the United States has to come to terms with the fact that high technology that includes semiconductors is no longer capable of being monopolistically profited from. The Australian Strategic Policy Institute in a report published in 2023 documented that China's technological lead over the United States extends to 37 out of 44 areas, including robotics, energy, biotechnology, artificial intelligence, advanced materials, and quantum technology. Therefore, it is not surprising that private firms operating in the semiconductor sector, in the United States and elsewhere, have publicly stated that it is not possible to contain China technologically. They are also bearing the brunt of the export controls of the United States government since this has resulted in a fall in sales to China, which is more often than not their principal market.

As China further ascends the technological ladder, the decline of these firms belonging to the United States will become permanent. Unless the U.S. government reverses course, its role in a world where high technology is more widely diffused across countries, will become increasingly marginal.

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