Despite growing tension, US approves tech sales to China

The Ministry of Commerce has approved almost all technology sales to China in 2021.

Diplomatic relations between the United States and China are deteriorating. The United States has also said growing technological competition from China poses a major security threat. Despite these opinions, however, the United States has just approved almost all technology sales to China.

On the other side, the United States imports many consumer electronics products sold in the Pacific. Here are the currently known numbers:

  • The United States exported $125 billion in total, requiring a license for less than 0.5% of those exports
  • China exported $135 billion worth of consumer electronics to the United States in 2021
  • For exports requiring a license, the United States approved 94% of 2,652 instances

The main point of contention is the sale of semiconductors, including semiconductor manufacturing equipment. The list also includes AI technology and aerospace components, which can advance the military sector of the non-allied country.

Most experts agree that the move could potentially harm US interests. Officials are unwilling to stifle exports in the sector, however, at least not yet.

The threat does not prevent companies

This antagonistic policy towards China is aimed at preventing sales of military equipment, the committee within the US Department of Commerce (USDoC) said. The committee cited that all decisions related to export controls to the communist country are made in conjunction with the Department of Defense, Department of Energy and State Department.

Some critics of the committee, however, argue that the USDoC visibly prioritizes short-term commercial interests over national security. Many experts, including Steve Coonen, the former top China expert at the Pentagon, believe an urgent regulatory update will be needed.

The problem currently extends beyond potential damage to US economic interests. Rather, it encompasses growing demand for consumer electronics, which is the first to bear the brunt of China’s reciprocal measures.

Photograph of the Forbidden City in Beijing, China.
China is the United States’ largest trading partner and the world’s second largest economy.

Tighter restrictions may not work

China’s imports of semiconductors from the United States have grown from just over $2.5 billion in 2017 to almost $7 billion in 2021, showing a significant increase in demand over the of recent years.

Many disapprove of these growing sales, saying they are sending potential military hardware to America’s biggest competitor. Others, however, do not share these views and believe that tighter restrictions would not inflict much damage.

Commenting on this, the former US Under Secretary of Commerce in the Obama administration, Kevin Wolf, pointed out that the restrictions imposed by the US will not have a serious impact if other countries do not follow. .

If the United States decides not to sell semiconductors and aerospace equipment to China, Germany, Japan and South Korea should follow suit. Otherwise, the People’s Republic would still be able to procure the materials.

New American technology may have military purposes

One of the issues being debated both in the technology and hardware industry and on Wall Street and Capitol Hill, is the new 7nm chips.

Compared to the older generation, the 7nm chips currently produced by Intel and AMD have a much lower maximum operating temperature, consume less power, and can be clocked at a much higher frequency if needed.

Many politicians, including Texas Republican House Representative Michael McCaul, have pointed out that this technology could go beyond civilian scenarios. New chips could also end up in military operations.

For example, McCaul noted that the USDoC added Semiconductor Manufacturing International Corporation (SMIC) to its blacklist of companies in response to SMIC’s ties to military customers.

Chipmaker, Intel, protested the tightening restrictions on exports to the PRC, taking a hands-on approach to the CHIPS bill still under negotiation. The tech giant believes tougher legislation will only hurt US manufacturers; it will not significantly harm China’s military capability.

Image of a person welding metal.
China is the only country with easy shipping to USA with high manufacturing and low labor cost.

Consumer electronics and products

The U.S. Commerce Department and Capitol Hill stakeholders look past $100 billion in losses from restricting tech sales to China, given potential dramatic increases in domestic consumer electronics prices .

Most semiconductors sold from the United States to China frequently return to the United States as consumer electronics. Even major US tech companies, like Apple, manufacture their products in China. Restricting semiconductor exports will undoubtedly drive up electronics prices for US residents.

Given the spike in prices caused by the effects of war in Eastern Europe, the Biden administration is not looking to make the situation worse with new legislation.

Better Solutions

For more than two decades, the overreliance on Chinese manufacturing has received a significant backlash. This principle was even the basis of former President Donald Trump’s triumph in the 2016 presidential elections. But the United States does not have many better solutions than China.

China has the best ratio of manufacturing capabilities to labor and shipping costs, making it the best option for imports.

While Eastern European and Asian countries have excellent manufacturing capabilities, they offer significantly higher shipping costs. Conversely, the nations of the African continent cannot offer the manufacturing quality demanded by the United States, despite their advantageous geographical position.

Domestic manufacturing and imports from Europe, Japan and South Korea would significantly increase the prices of finished products.

A long-lasting Chinese-American love-hate relationship

Given the current tensions between the United States and China over the Republic of China (Taiwan) and Russia’s invasion of Ukraine, many would conclude that the two countries have a long-standing rivalry.

Despite the deep political and cultural differences between the two world powers, economic relations are still flourishing. And both countries realize the economic interdependence they have developed over the years.

At this time, it is impossible to predict whether the conflict will escalate to a tragic degree. If the worst happens, both economies will suffer greatly.

Sallie R. Loera