FPI / October 2, 2020
Commentary by Jason Orestes
The U.S. continues to be guns drawn against foreign technological threats and has taken impressive action lately against several Chinese companies.
After trying to balance defending U.S. interests with just enough tact to not be incendiary, it appears the Trump administration has opted for direct, unbridled action against China and the optics that come along with it as the November election looms.
President Donald Trump has been successful at turning the largest smartphone maker in the world, Huawei, into a bad word and has banned the technology maker outright from exporting products into the U.S. and collaborating with U.S. companies.
The Trump team now has its sights on China's biggest chip manufacturer.
The Trump administration has placed SMIC, China’s largest semiconductor company, on a list of foreign companies that require special permission for American companies to transact with them. While the Huawei ban has legitimate concerns for national security, with accurate claims the company is a spying tool for the Communist Party, this ban is a bit different.
This move is frankly more strategic in nature and is a tactical move to wield semiconductor superiority as a weapon over China. After years and years of outright IP and technological theft by China, the U.S. is getting in on the chess game and taking borderline hostile steps to help maintain its place atop the technological hierarchy. Future hegemonies will be predicated on technological dominance, and it seems we’re finally acting like it.
Just as we’re too reliant on China for basic necessities, China is rather reliant on the U.S. for semiconductors. Semiconductors have very complicated supply chains and are critical components in essentially all electronics. As more of our everyday devices become “smart” and internet capable, the need for semiconductors continues to grow. A strong SMIC is a move towards chip independence for China, and it’s still quite vulnerable; its stock fell some 8% after news of the restriction was announced. The U.S. has also successfully pressured Dutch firm ASML, another major player in the chip supply chain space, from completing some transactions with SMIC.
The official U.S. position, per the Commerce Department, is that exporting to SMIC may “pose an unacceptable risk of diversion to a military end use.” And this is why a license is required before providing any resources to SMIC.
Personally, I don’t buy this official explanation as the real motivating factor. There are other Chinese chip makers that can still be sold to that represent the same potential threat of providing those exports to the People’s Liberation Army, yet there is no blanket ban on such activity. This is a strategic move meant to disadvantage Chinese independence for the most core and critical technology in all of electronics.
SMIC has, of course, refuted these assertions, claiming it “provides services solely for civilian and commercial end-users.” Keep in mind the Chinese government can legally commandeer any technology or information it wants from its companies under the guise of security; these claims mean nothing.
This comes on the heels of another very aggressive move by Trump, as he recently mandated that massively popular Chinese social media app TikTok divest its U.S. business or face a complete ban in the U.S. market. TikTok harvests data on U.S. users who use the app and the Communist Party could have access to this information. While this ban aligns more clearly with national security concerns, it also fits into the overarching trend of very aggressive, and appropriate, U.S. measures taken against Chinese tech to help advance American interests.
TikTok recently reached a deal with American company Oracle to house and manage its U.S. data and oversee operations. This is a pretty impressive outcome for Trump’s demands. Just imagine the consternation from the U.S. side if China demanded Facebook or Google sell part of its business to maintain Chinese operations, and they actually did it.
Referencing that previous example: China doesn’t even allow Facebook or Google to operate in their country. So while these moves are aggressive, they’re also simply reciprocating the treatment the U.S. has received from Beijing from decades. It’s about time.
Jason Orestes (@market_noises) is a former Wall Street financial analyst who focuses on contemporary political developments affecting economics, markets, and culture. His commentary can be found on Washington Examiner, TheStreet, MSN Money, RealClearMarkets, and RealClearPolitics.
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