US-China tech war: congressional think tank urges Biden to team up with Japan, EU to counter Beijing’s semiconductor push

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Visitors walk past a display of a semiconductor device at Semicon China, a semiconductor trade fair in Shanghai, China, on March 17, 2021. Photo: Reuters

A new US congressional report warns that Beijing’s efforts to boost domestic semiconductor capabilities could upend American dominance in technology, and calls on lawmakers to push the administration of President Joe Biden to join forces with Japan and the EU to counter Chinese measures.

“China’s state-led semiconductor policies, if successful, could lead to the loss of US technological leadership and significantly shift global semiconductor production and related design and research capabilities to China,” said the China’s New Semiconductor Policies report released Wednesday by the Congressional Research Service, an in-house think tank for US lawmakers.

© Provided by South China Morning Post The Semiconductor Manufacturing International Corp (SMIC) headquarters in Shanghai, China, on March 23, 2021. Photo: Bloomberg

Beijing, according to analysts, is trying to enhance tech self-sufficiency, but it is still looking for foreign capabilities to fill critical gaps. These efforts appear to focus on collaborations between China and countries that are not restricted by the US, according to the report.

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Researchers suggested that US lawmakers consider additional measures to “encourage the Biden administration to accelerate efforts with Japan and EU to develop new plurilateral rules” to counter Chinese state subsidies. Since last year, Beijing has unleashed massive tax incentives to encourage home-grown development in China’s semiconductor industry, from chip design to manufacturing.

The report also recommended lawmakers tighten more controls on the export of US chip equipment, tools and software, noting that US sales of these items to China have increased three-fold since 2014.

The call joins a rising chorus of American voices supporting increasing confrontation with China amid an ongoing technology tussle between the world’s two largest economies.

Former Google CEO Eric Schmidt, chair of the National Security Commission on Artificial Intelligence (AI), said this week that the US should invest “lots of money” to “stay two semiconductor generations ahead of the Chinese”.

US Senator Tom Cotton and Representative Michael McCaul asked the White House this month to restrict sales of chip-design software to China, just weeks after McCaul and Senator Marco Rubio called on the US government to upgrade sanctions against Semiconductor Manufacturing International Corp (SMIC), China’s most advanced chip maker.

Meanwhile a bipartisan group of US lawmakers introduced the Endless Frontier Act on Wednesday, calling for US$100 billion in government spending over five years to bolster technology and science research. Senate Democratic leader Chuck Schumer also said he would push separately for emergency spending to implement provisions related to semiconductor manufacturing in last year’s defence bill.

Last week, Biden proposed to invest US$50 billion to strengthen domestic chip manufacturing.

Explainer | Everything you need to know about the US-China tech war

The US and China have been mired in a trade and technology war ignited in 2018 by former US president Donald Trump. Several Chinese entities that were added to the US export blacklist, such as Huawei Technologies Co and supercomputer developer Phytium Information Technology Co, have seen their chip orders suspended by foreign semiconductor manufacturers.

Despite growing calls in the US to counter China’s technological advancement, some experts have said that Chinese semiconductor companies are still struggling to catch up to global leaders such as Samsung Electronics and Intel.

Morris Chang, founder of Taiwan Semiconductor Manufacturing Co (TSMC), a major supplier to Chinese firms, said this week that China’s semiconductor industry is still five years behind the company and “its logic chip design capability is still one to two years behind the US and Taiwan.”

“The mainland is still not yet a competitor,” Chang said.

China’s 14th five-year plan and Vision 2035 development strategy, unveiled in March, named high-end semiconductors as one strategic area in need of breakthroughs. The country’s industry and science ministries have vowed to support the development of the sector.

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