The Netherlands and Japan could join in restricting technology exports to China, as the US suggests. These countries are the main suppliers of equipment for the production of semiconductors. How will this affect the Chinese and global economies, and are we in danger of a global collapse of the digital world?
NEW GAME RULES
The reasons for the current confrontation between Washington and Beijing become clearer if we turn to the history of the issue.
The breakthrough in intergovernmental relations between the two countries after the visit of President Richard Nixon in February 1972 was the first step towards the heights in the IT sector that the PRC had reached. “Thanks to cooperation with American industrial conglomerates, China has made a giant leap from an agricultural community to a post-industrial one — and this is before the eyes of just one generation,” said Vadim Zhukov, an assistant professor at the State University of Management.
Japan, Korea, Singapore, Taiwan, Malaysia, the Philippines also experienced an “economic miracle” based on cooperation with American corporations.
However, countries that quickly became rich on cooperation with an overseas partner began to depend heavily on it. The fact is that programs to attract gifted young people from Asia to the American education system, grants to foreign research institutes made it possible to accumulate in the United States the bulk of the scientific potential, while successfully tying the main production cycles randomly scattered around the planet.
Now times have changed. Over the past few years, the confrontation between the US and China has been intensifying.
“Contradictions that have been accumulating for decades are increasingly moving into a phase of open confrontation. There is a struggle for the development of multibillion-dollar budgets for the creation of high-speed 5G Internet networks,” Zhukov said.
The White House launched a real campaign to discredit Chinese manufacturers, American companies are looking for new production sites.
The trouble is that the high-tech market is truly global, and even the United States alone cannot change anything on it. China holds 37 percent of the world’s rare earth metals (molybdenum, vanadium, antimony). Today, Beijing controls 95 percent of their world production, and without this production, according to Zhukov, one can “feel free to say goodbye to modern semiconductor technology.”
“The volume and depth of cooperation in IT between the US and China are so significant that a full-scale confrontation between the two countries could lead to a general collapse of the digital world, which in our time is comparable to a global catastrophe,” the expert admitted.
Russia has an equally important role. According to Alexey Yurasov, professor at the Department of Nanoelectronics of the RTU MIREA, the market for sapphire substrates, which are absolutely essential for the semiconductor industry, is controlled by 80 percent of our country. There is practically nothing to replace these substrates.
The market for rare earth elements, which are needed for chip etching, is also in the hands of Moscow.
WHAT WASHINGTON COUNTS ON
All participants in this global market have their own interests. The Netherlands, which, unlike the United States and Japan, does not seek to limit the development of China at all costs, fears that their producers may suffer from the loss of this market, political analyst Dmitry Galkin argues.
However, according to the expert, there is every reason to believe that the administration of US President Joe Biden will continue to be persistent. In the end, she will win the consent to the imposition of restrictions from one of her most important allies in Europe. For the American leader, this is a matter of principle. He repeatedly spoke about the need for this step in order to prevent the strengthening of China, in particular, the appearance of advanced types of weapons.
In addition, the White House expects that part of the semiconductor production will return to the country, because Chinese companies will inevitably lose part of the American and global market. As a result, Washington will have additional levers of economic influence on the situation in the world.
EVERYONE WILL SUFFER
In this case, the situation in the semiconductor market will change for everyone. Chinese manufacturers will suffer from the imposition of restrictions. Their partners will also feel the consequences. In the event of a technological blockade of China, the export of semiconductor products will also decrease, including to Russia, which increased the import of Chinese chips in 2022.
According to Zhukov, the aggravation of the conflict has already led to an increase in prices in the secondary equipment market. The technological blockade of the People’s Republic of China had a negative impact on Russian plans for the development of semiconductor production.
“Thus, the final consumer will, as always, pay for all the costs associated with breaking existing production chains and building new ones,” he complained.
Of course, any changes in the semiconductor and microchip market can be regarded as new opportunities for small companies and developers. On the other hand, export restrictions on the supply of equipment for the production of semiconductors to China, which are planned by the United States, the Netherlands and Japan, can cause irreparable damage not only to the Chinese, but also to the global economy, experts are convinced.