American political headwinds have been steadily shifting against U.S.–Chinese integration. In the wake of Trump-era tensions, the US-China $615 billion trade relationship has become a cold war. The US has placed tariffs on $360 billion in bilateral goods and US sanctions on major Chinese technology producers. Like Huawei technologies.
This epidemic led to President Xi Jinping’s stringent virus containment policies. These effectively banned travel from key regions and closed them for long periods. The latest crisis in the secession debate is the escalating tensions between the US and Taiwan, as well as the unprecedented scale of Chinese military drills in the Taiwan Strait.
“There has been some momentum in that direction as a result of the trade war and the pandemic,” Scott Kennedy, senior advisor at the Washington-based Center for Strategic and International Studies, said of the chapter. “The shutdown of Shanghai was really accelerating the beasts. The crisis across the strait in early August added fuel to the fire.”
However, the strategy to reshape the Biden administration – or “friends support”, as Janet Yellen, US Treasury secretary, described it – remains a noble ambition that has not been realized as far as data is concerned.
The US had invested $90 Billion directly in China in 2020. Despite all the talk of a breakup in the industry, they added $2.5 Billion in 2021, according data from China’s Ministry of Commerce. Analysts believe that some companies may be directing investments through Hong Kong or tax havens like the Cayman Islands or Virgin Islands. This could make the actual number higher.
US technology supply chains to China depend on companies from Taiwan, China and elsewhere. This makes the dependence even greater.
Yellen’s “friends support” concept is completely irrelevant to America’s allies. Singapore and other key US partners have warned the Biden administration against isolating China, which could lead to serious economic instability and even “sleepwalk” the largest economy in the world into serious conflict.
After Biden’s visit in May, Singapore’s Prime Minster Lee Hsien Loong stated, “Such actions block avenues to regional growth and cooperation. They deepen divisions among nations. And may precipitate those very conflicts that we all wish to avoid.”
This does not mean the US and China have not yet untangled their technical supply chains. The September 23 Goldman Sachs Report found that the US’s technology imports directly from China have fallen by 10 percentage points between 2017 and 2017, “mainly due to China’s mobile phones exports.”
Apple’s exposure in China is much greater than many other companies. Amazon.com and other companies rely on China for hardware to make servers, storage, and networking products. However, their adoption is far less than Apple’s.
“Unwinding China’s ties…may cause permanent damage to an already fragile global economy.”
Bloomberg Intelligence claims that the industry’s overall dependence on technology could be cut by 20 percent-40% “in most cases”, by 2030. Over the next decade, hardware and electronic manufacturers could reduce their dependence upon the Chinese market to 20 percent to 30 percent.
Biden’s administration has a dual approach to China economic relations. It simultaneously encourages companies to shift production to China via subsidies, and then cascades investment to China through tariffs or export controls.
Biden signed two pieces legislation this summer — the Chips and Science Act and Inflation Reduction Act. These bills contain provisions that will help increase domestic production of certain strategic goods like semiconductors, batteries, and pharmaceuticals.
The legislation bars companies with up to $52.7 billion in federal funding for the program from physically expanding production of the most advanced 28nm chips in China — or a worrisome country like Russia — for 10 years.
The US administration also increased restrictions on US semiconductor exports to China this year. New licensing requirements were introduced to allow chip-making equipment to be sold to factories that make chips with diameters of 14 nanometers and more.
US industry officials are preparing contingency plans to prepare for increased barriers to US-China trade. They anticipate that the Biden administration will announce a series of additional restrictions to exports this fall.
There is potential for a political reset between Biden, Xi and the G-20 summit in Bali. However, there are low expectations for a major detente.
Wendy Cutler (ex-trade negotiator for the United States and vice president of the Asia Society Policy Institute) stated, “I don’t see any breakthroughs out of the Xi Biden conference.”
Meanwhile, private sector morale has deteriorated.
The US-China Business Council recently conducted a survey that found that US optimism regarding China has fallen to a new record low. Emerging challenges, such as China’s nonspreading coronavirus strategy, power outages, and geopolitical tensions have caused more than half the respondents to be concerned. Companies may delay or cancel investments in China.
Nearly 25% of respondents to the survey said that they have moved parts of their supply chains from China in the last year.
Even some companies that have been making in China for decades — and whose exit from the country would be “extremely disruptive” — are making plans, US Commerce Secretary Gina Raimondo said Thursday, citing conversations she has had with chief executives.
However, it is not an exodus mass from China. The combination resulted in “China Plus One”: China remains the primary production base. Any additional capacity is then added in South or Southeast Asian countries, such as India and Vietnam, Malaysia, Thailand, Indonesia, and Thailand.
US companies pledged $740 million last year to Vietnam. It was the largest investment since 2017, and more than twice that amount for 2020.
Taiwan is a critical but vulnerable part of US supply chains. Taiwan Semiconductor Manufacturing is the main producer of more than 90% of the most advanced chips in the world for military and corporate computing. TSMC supplies are essential for the success of Qualcomm, MediaTek, Apple and MediaTek, which together hold more than 85 percent each of the world’s phone chip markets.
A Bloomberg report states that Taiwan is expected to continue to be the major manufacturing hub for high-end chips in the coming five years.
China’s growing market is also a reminder of the potential cost to US suppliers. Bloomberg data shows that China is home to 19 of 20 world’s fastest-growing chipmakers during the past four quarters.
Bloomberg
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Originally published at Brisbane News Station
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