US-China Tech war: The US is weaponizing its global influence

About five weeks ago, the Biden government announced a sweeping set of export controls, including a move to cut China off from certain semiconductor chips made anywhere in the world with US equipment.

This move is the latest chapter in the US-China tech war, aimed at slowing down China’s technological and military advances. It has major implications for global business and for India.

We asked sinologist and professor at IIM Indore, G Venkat Raman, to unpack the many dimensions to this latest US policy thrust. In this podcast series, he talks about

1. The context: How the US is pushing American and non-American high-tech firms to throttle supplies to China’s tech sectors.

2. The intent: How the US is weaponizing its global influence  

3. Global implications: The US can’t isolate China on its own. How’s the dice rolling in the EU and in Southeast Asia?

4. Business impact: What it means for American, Asian, and of course, Chinese big tech companies

5. What it means for India—and why India must boost its tech prowess and voice in international fora

Part 1: The context

Play time: 7.37 minutes

“The ‘foreign product rule’ is a pretty draconian measure that grants US export controls greater extraterritorial reach. This rule primarily applies to US-origin items, but can be extended in scope to cover non-US firms that have used American technology in the process of manufacturing their products. So, the BIS (Bureau of Industry and Security) has forced semiconductor designers and manufacturers in third countries to limit sales to China's tech giants like Huawei.”

• In August 2022, the Biden administration signed the CHIPS Act, which stands for Creating Helpful Incentives to Produce Semiconductors and Science Act.
• The BIS, a government body which is mandated to exercise effective export control and treaty compliance systems, has announced new policies that set extraterritorial limits on certain export items to China.

Part 2: The intent

Play time: 4:54 min

“The liberal international economic order which the US crafted—they used that position to weaponize the dependence of the rest of the world… The Americans [have a] deeper sense that China will emerge as a ‘digitally authoritarian state’.”

• When the French were doing business with Iran, the dollar payments via Swift code had to be circulated through the American banking system. The Americans simply choked the payments to corner Iran.
• Now, with China’s growing prowess in technology, America wants to weaponize China’s dependence on the supply of advanced chips.
• In its Belt and Road Initiative, China has added new impetus via what they call digital BRI. For example, have more access to data through payment apps like Ali Pay, and use that humongous amount of big data to create artificial intelligence and use it for their tech ambitions.

Part 3: Global implications

Play time: 8:29

“America is going all out to contain China, but they cannot do it alone… The world seems to ask America, on one hand you are talking about containing China, but on the other hand, you’re saying America first. What is in it for us if we join hands with you?”

• When dealing with Saddam Hussein, the US doled out significant incentives for other countries to join in—by providing funds from the World Bank. The US was at the height of its power, and used multiple channels to get a buy-in from the international community.
• Today, the US doesn't have that kind of buy-in yet. And it’s not in a position to dole out those kinds of incentives.
• After the US withdrew from the Trans-Pacific Partnership (a trade agreement with 12 Pacific-rim countries), it’s possible the Southeast Asian region will go with China.
• However, Putin's Ukraine war is leading to some kind of Trans-Atlantic cooperation. Even a neutral voice like Switzerland has been pretty vehement in its criticism of Russia. With the Trade and Technology Council, the US and the EU are engaging in deep negotiations to harmonise their digital regulations.
• Whoever owns the standards, owns the market. Given China’s head start in 5G, and the number of patents it has filed in the EU, whether you like it or not, China has arrived. Any kind of progress on new regulations will be fairly difficult unless you engage with China. If you want to check the growing Chinese tech juggernaut, it is urgent to stitch a coalition.
• China’s BeiDou Navigation System is used by some of their automobile players like Geely. China is exporting its OTT services to different parts of the world, including Europe. It is perceived that China, through the BeiDou network, is able to have access to lots of data.
• Espionage of any sort, whether it is state espionage or corporate espionage, is going to become very difficult for the world to deal with.

Part 4: Business impact

Play time: 8:18 min

“It might seem that only Chinese firms will be majorly hit—like SMTC or major automobile manufacturers like Geely and BYD. But this is going to have implications for American firms, non-American and non-Chinese firms as well.”

• Apple will need to revise the way it looks at its supply chain. It will need a different supply chain for iPhones for Chinese and non-Chinese markets.
• If China’s premium EV brands, especially the autonomous vehicle segment, want to graduate from level two/three to level four/five, they are still significantly dependent on American chip makers like Nvidia and AMD. And the US chip makers’ business is also going to be affected.
• The US is influencing non-US firms with advanced chip manufacturing capabilities—like TSMC (Taiwan) or Samsung (South Korea)—to set shop in the US or diversify to markets like Japan and Singapore. For them too, it’s very difficult to manufacture advanced chips if they operate in China.
• Huawei’s smartphone business has suffered outside China, but also within China.
• China’s progress in the climate change, renewable energy and EV space too is hugely dependent on advanced technology. The moment China emerges as a big player in the renewable energy segment, the buy-in from the international community and its reputational capital is going to increase significantly. By choking the supply of chips and other advanced equipment, perhaps the US wants to ensure that China doesn't get the kind of buy-in it desires.

Part 5: What it means for India

Play time: 7:58 mins

“We need to ensure that we are not getting drawn into this tug of war. And we should be in a position to pick and choose for our national security considerations. That means, preparing for tech self-reliance.”

• China is a state capitalist model; the US is predominantly a market capitalist model. But the US is now compelled by China’s tech march to revisit its model of minimum state intervention, at least in the tech domain.
• In India too, given the national security implications, the central government needs to cobble coalitions within the country and develop public private partnerships with advanced educational institutions and private companies that have high tech prowess. These partnerships will bring new sources of funding for R&D and also more public discourse and awareness.
• As a member of the QUAD military alliance, India needs to think about what it brings to the table to make its voice heard; what it can offer as a quid pro quo if it wants support. For example, when China threatened the world with restricting the scope of rare earth elements, the QUAD said that it will come together and look for funds and new sources of rare earth elements.
• With India taking up the G20 leadership, it will be interesting to see what kind of leadership it will be able to provide and how it seeks to participate in many of these forums.
• Energy and climate change—these are going to be two of the most important pillars on which the so-called democratic world and authoritarian world will engage to gain international currency. India needs to invest in technology.

Listen to the full playlist.