While the Ukraine Russia conflict rages on, a pretty complex situation is brewing between
the US and China which has massive implications for the whole world.
The US has fired a powerful salvo at China, albeit through non-military means.
According to officials in the Biden administration, the United States has officially banned federally
backed tech corporations from building "advanced technology" facilities in China for a period
of 10 years.
The rules are part of a $50 billion program to expand the United States' semiconductor
manufacturing capacity.
It comes at a time when US industry groups have been pushing for more government aid
to reduce their dependence on China.
In this video Defense Updates analyzes how the U.S will get the upper hand on China without
firing a shot?
Let's get started.
Reports indicate that manufacturing in the nation has been halted due to a worldwide
semiconductor shortage.
Meanwhile, US Secretary of Commerce Gina Raimondo has said that the US is at a pivotal moment
to foster the next wave of American innovation, protect national security, and stay globally
competitive.
According to a press release, she explained how the US Chips and Science Act works with
an example, "We will also be enforcing the safeguards
to make sure no one using CHIPS money will ever do anything to jeopardize national security.
Because they are restricted from investing in China, they are unable to create cutting-edge
technologies there or export cutting-edge know-how, and vice versa "
This announcement is the most recent chapter in a long-running technical battle between
Washington and Beijing, in which American companies have been pressing for further government
backing in an effort to lessen their dependence on components made in Chinese factories.
It was earlier disclosed by US chipmaker Nvidia that the US Department of Commerce had told
it to halt exports of some of its artificial intelligence (AI) technology to China due
to the risk of the products being used by, or diverted to, a "military end-user."
Now, it has been banned from constructing any new technology factories at all.
In order to lessen reliance on Chinese innovation, the US Congress passed the Chips and Science
Act (Chips) in August.
This law offers $52 billion (£43 billion) in incentives for local semiconductor manufacturers
and associated R&D initiatives.
By 2023, chip manufacturers will be eligible for a 25% investment tax credit, according
to the US Department of Commerce.
The goal of these resources is to assist businesses in undertaking initiatives of the greatest
possible scope.
With our help, businesses will be able to take more risks and expand, as Raimondo put
it.
She said, "We're going to negotiate these arrangements one at a time," noting that organizations
getting government funding would have to "explain to us the money is really essential to make
these investments."
It is well known that manufacturing in China exposes the companies to a high risk of theft
of intellectual property.
This can lead to a situation where soon after operational launch, they face competition
from a Chinese company producing—for all intents and purposes—the exact same product
they, themselves, are manufacturing.
These same Chinese companies frequently have military ownership participation.
As fears of China gaining a technological advantage over the United States gained momentum,
President Biden signed a package allocating $280 billion to high-tech industry and scientific
research in early August.
The BBC noted that since 1990, the United States has cut its output of semiconductors—which
are used in everything from computers to cell phones—from more than 40% of the world's
supply to roughly 10%.
According to Raimondo, CHIPS money isn't designed to sub in for private capital and can't be
used for stock buybacks either.
Ford, Jaguar Land Rover, Volkswagen, General Motors, Nissan, Daimler, BMW, Renault, and
Toyota, among others, have been affected by the semiconductor shortage and have had to
close factories, reduce production, or leave out high-end features like integrated satellite
navigation systems as a direct result of the Chips Act.
According to Raimondo, the new regulations mean that Chip's money may only be used by
enterprises to develop existing mature node facilities in China to supply the Chinese
market.
China's embassy in Washington has spoken out against the semiconductor bill, calling it
a throwback to the "cold war mindset."
Raimondo issued a warning earlier this year that the worldwide chip problem will likely
last until at least 2023.
American semiconductor producers are already feeling the effects of the trade limitations
imposed by the United States government on the transfer of US technology to China.
On September 2, US authorities requested that AI chipmakers like Nvidia and AMD cease exports
to China.
These restrictions are a "gut blow" for Nvidia, says Dan Ives, managing director of Wedbush
Securities.
This, he told the BBC, is "truly a shot across the bow at China," and it will "really feed
those fires" in terms of geopolitical tensions.
Viewers may note that move comes as tensions rise between the US and China over Taiwan,
a key supplier of components to the semiconductor industry.
While US corporations will have some pain in the short term when it comes to long-term
strategic goals, the U.S as a country needs to take these measures.
It is to be noted that the US and China are virtually in a war, and in war, the military
alone doesn't fight but the whole nation needs to put up a joint effort.
The idea here is to cripple the Chinese economy which will impact its military budget and
also reduce access to AI tech which has military use.