JEFF PAO
China has changed its strategy in a chip war against the United States by focusing more on damage control after it failed to make Washington lift its export ban in three high-level official talks over the past three months.
US Commerce Secretary Gina Raimondo finished her four-day trip to China on Wednesday. Her trip came after State Secretary Antony Blinken and Treasury Secretary visited Beijing in June and July, respectively.
After Raimondo and Chinese Commerce Minister Wang Wentao held a four-hour meeting in Beijing on Monday, there has been no sign that either side will lift its export ban or lower its extra tariffs against the other.
But despite their disagreements in trade disputes, they agreed to set up a new commercial issues working group for government officials and private sector representatives to seek solutions on trade and investment issues. The working group will meet twice annually at the vice-minister level, with the US hosting the first meeting in early 2024.
The two countries also launched an export control enforcement information exchange platform. The first assistant secretary-level meeting was held in Beijing on Tuesday. Besides, an in-person meeting at the ministerial level will be held at least once a year to discuss commercial and economic issues.
The establishment of new mechanisms to handle trade disputes seems to have provided more room for China and the US to extend cooperation, according to some observers.
“Economic and trade relations between China and the US are mutually beneficial and win-win in nature,” Chinese Premier Li Qiang told Raimondo in a meeting on Tuesday.
Politicizing economic and trade issues and overstretching the concept of security would not only seriously affect bilateral relations and mutual trust, Li said; it would also undermine the interests of enterprises and people of the two countries, and would have a disastrous impact on the global economy.
Raimondo said China and the US should work together to solve issues of global concern, such as climate change, artificial intelligence and the fentanyl crisis.
Earlier, she had met with Vice Premier He Lifeng and Culture Minister Hu Heping on the same day.
He Lifeng told Raimondo that he is ready to make new positive efforts to “deepen consensus and extend cooperation” between China and the US.
Besides, both nations agreed to hold a tourism summit in China in the first half of next year.
US hawks
In August 2022, the Biden administration implemented its CHIPS and Science Act to boost the United States’s semiconductor sector. In October, it unveiled its chip export control to prevent China from obtaining US high-end chips and chip-making equipment.
Over the past one year, major US chipmakers, including Intel, Qualcomm and Nvidia, have said that the US government’s chip export ban not only was hurting their income but would also push China to develop and make its own chips.
Chinese commentators said it’s unlikely that the Biden administration will lift its chip ban in the short run, as many “anti-China” US politicians are still calling for strengthening the curbs. They said the newly-established working group can help limit the negative impact of the US curbs on China.
“Dialogue is conducive to the management and control of differences and can help avoid conflicts and an overgeneralization of national security in economic and trade matters,” Zhang Monan, deputy director of the Institute of American and European Studies at the China Center for International Economic Exchanges (CCIEE), told China Central TV in an interview.
The new information exchange platform can help review the impact on the victimized country (China), increase transparency of export control enforcement and limit the risks at a manageable level, Zhang said. This platform is beneficial to China’s industrial security over the long run, she said.
Su Xiaohui, deputy director of the Department of International and Strategic Studies at the China Institute of International Studies, said a lot of American firms are hurt by the United States’s anti-China policy as they suffer from additional costs or revenue decline.
Su said by talking to China, these US firms hope that their messages can create a bigger impact in the US and eventually change Washington’s decision. She said the new working group can serve this purpose.
But she warned that pressure from the US Congress will continue to affect the talks between Beijing and Washington.
National security matters
On August 16, Intel Inc said it had scrapped a US$5.4 billion acquisition of Tower Semiconductor, an Israeli chip manufacturer, after China failed to give a green light on the deal amid high political tensions between China and the US. (China was able to claim a place at the regulatory jurisdiction table because Intel meets the legal threshold for the amount of revenue it makes from China.)
Before cancelling the acquisition, Intel CEO Patrick Gelsinger had visited China for the matter in July but could not achieve anything.
During a meeting with Wang on Monday, Raimondo expressed concerns over the failure of Intel’s deal and China’s ban of Micron chips in key infrastructure over “national security” risks. At the same time, she said the US will not loosen its technology curbs against China.
“In matters of national security, there is no room to compromise or negotiate. And as you say, the vast majority of our trade and investment relationship does not involve national security concerns and in this regard, we are committed to promoting trade and investment in those areas that are in our mutual best interest,” she told Wang.
Wang told Raimondo that an overgeneralization of national security in trade matters is not conducive to normal trade and economic exchanges, and that unilateral and protectionist measures, which are inconsistent with market rules and the principle of fair competition, will only disturb the security and stability of global industrial and supply chains.
Since the US has reiterated that it has no intention to seek decoupling with China, it should translate its words into actions, he said.
‘Discriminatory subsidies’
Beijing described the Raimondo-Wang meeting as “rational, candid and constructive.”
Wang expressed serious concerns over US practices including Section 301 tariffs on Chinese exports, semiconductor policies, investment restrictions, discriminatory subsidies and sanctions targeting Chinese companies.
In May, China called on the World Trade Organization (WTO) to monitor the United States’s “discriminatory subsidies,” which it said may have violated the WTO’s rules. It criticized the US for granting subsidies to green companies but excluding those using batteries from a “foreign entity of concern” in electric vehicles.
It also complained that the US CHIPS and Science Act prohibits US-subsidized chipmakers from expanding their production lines in China for 10 years.
Raimondo maintained that the US government’s investments in the chip and clean energy sectors are not intended to hinder China’s economic progress.
“Under President Biden’s leadership, the US is now undertaking a period of historic investment in our infrastructure, in our people, in our manufacturing and in our supply chain,” she said. “Investment is core to his strategy and it will continue. It’s intended to reduce risk in our supply chain, it is intended to strengthen our country and our infrastructure and create jobs.”
“We believe a strong Chinese economy is a good thing,” she said. “A growing Chinese economy that plays by the rules is in both of our interests. That said, we have to make sure there is a level playing field and we will at all times do what we need to do to protect our workers.”
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