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China, USA and microchips. War over key technology and fears of ‘astronomical damage’

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Microchips become the main axis of the conflict between China and the United States – writes the British newspaper “The Guardian”. US Treasury Secretary Janet Yellen’s visit to Beijing will take place in the shadow of another escalation of the trade war between the two countries. Reaching an agreement on this issue is hindered by mutual hostility and fears about the rival’s position on the international arena. Meanwhile, business raises the alarm and warns of “astronomical damage”.

China’s commerce ministry said on Tuesday it was limiting exports of compounds of gallium and germanium, two metals crucial to the semiconductor, telecommunications and electric vehicle industries. This is another sign of an escalating trade war China with the USA and Europe in terms of technology.

China is the largest producer of both metals. Beijing’s decision will limit their shipments abroad and could increase prices and escalate trade tensions with the United States, as well as potentially lead to further disruptions in global supply chains.

The announcement of the export control decision coincides with US Treasury Secretary Janet Yellen’s four-day visit to Beijing scheduled for Thursday. One of the key topics discussed at the Sino-American summit is to be trade restrictions.

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US concerns

China’s decision is a response to further restrictions on microchips that it is expected to introduce United States. As The Guadian explains, Washington wants to expand the restrictions, fearing the increase in the power of the Chinese armed forces. According to representatives of the American administration, the Middle Kingdom could use technology from the USA to develop advanced weapons and develop modern tactics of warfare.

President Xi Jinping’s goal is for the army to reach a “world-class level” by 2049, the centenary of the rule of the Chinese Communist Party (CCP). Under the vague promise of the party’s general secretary, there are several more specific tasks. By the middle of the century, China wants to develop, among other things, autonomous weapons, including hypersonic missiles that move at enormous speeds and are virtually undetectable by radar. The army is also to use artificial intelligence on a large scale. As noted by “The Guardian”, it is not yet known at what stage Beijing is in implementing these plans.

While China is a world leader in some AI applications, including facial recognition, its domestic industry is not yet capable of producing the most advanced semiconductors. Chinese companies and the military are therefore almost entirely dependent on imports of this technology.

The US turns off the tap

The United States, however, wants to turn off the tap. administration in October Joe Biden has already imposed restrictions on the sale of certain advanced computer chips that could be used by China for military purposes and the development of artificial intelligence. Businesses and individuals in China can now buy chips from US suppliers without obtaining a special government license.

Japan and the Netherlands agreed to join the US. The Netherlands said last week it would tighten export restrictions on semiconductor manufacturing equipment from September, and Japan will implement similar restrictions on July 23.

Key chip production plants are located in both countries, including those belonging to the Dutch concern ASML. The company has some of the most important facilities in the global semiconductor manufacturing industry, as well as a reputation as the only supplier of key technological solutions.

Joe Biden’s National Security Advisor Jake Sullivan he vividly explained that thanks to the restrictions “a small yard is to be created, which will be surrounded by a high fence”. Xi and other senior CCP officials, on the other hand, accuse the US of applying a “containment doctrine” modeled on the policy of Western countries during the Cold War.

Possible “astronomical damage”

Meanwhile, business raises the alarm. Nvidia CEO Jensen Huang said the restrictions could cause “astronomical damage” to the tech industry. In recent months, the company has started selling the less advanced A800 chip to the Chinese market. However, the extended restrictions that Washington is expected to introduce would also limit the export of this technology.

Chinese companies are also under pressure. In the first five months of this year, imports of chips to the Middle Kingdom fell by almost 30 percent. on an annual basis. However, these data may not show the whole truth. Chinese business uses various loopholes to circumvent export controls.

According to the Financial Times, the black market for smuggled semiconductors is growing rapidly. Other companies buy them through intermediaries.

The United States wants to prevent this and broaden the scope of the restrictions. As The Guardian writes, in addition to banning the sale of Nvidia’s A800 chips, the Biden administration is also considering introducing restrictions on the leasing of cloud services, which some companies have used to circumvent the regulations. Pressure will probably also be exerted on the Dutch government, from which the US also expects even stricter restrictions.

Main photo source: Shutterstock

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