Session 8: Trade Wars

Question 1

US-China Decoupling

Answer 1

Decoupling: Separate, disengage, or dissociate something from
something else.

Question 1

The contentious US-China Trade Relationship

Answer 1

• Global economic growth
• Winners and losers in the US and globally
• China grew its economy
  five-folded since 2002
  (adjusted to inflation)

Question 2

Despite so much interdependence, the trade conflict keeps escalating. Why?

Answer 2

China: An irreplaceable economic partner for the West… …but, also, a rising threat.

Question 3

4 main reasons conflicts keep escalating

Answer 3

1. unfair trade practices
2. intellectual property
3. domestic politics
4. geopolitics and security

Question 4

Intellectual Property

Answer 4

Chinese corporations are repeatedly accused of stealing
Western technologies. Chinese economy builds on catching up with more advanced foreign technologies.

Question 5

Unfair Trade Practices

Answer 5

State-led Chinese capitalism enables a competitive advantage for Chinese MNEs that is hard to match for Western companies. Low social and environ. standards.

Question 6

Domestic Politics

Answer 6

Losers of globalization polarizing domestic politics in the West. Governments drifting from free trade to protect national jobs.

Question 7

Geopolitics and Security

Answer 7

Soaring Chinese military strength and control of natural resources. Aggressive stance toward Taiwan and increased ties to “Axis of Resistance” countries (N.Korea, Russia, Iran).

Question 8

4 reasons why is the chip industry generating so much friction and conflict between China and the US?

Answer 8

1.Importance of microchips
2.Control over the microchip’s global value chain
3.Leadership in microchips innovation
4.Geopolitical Implications

Question 9

1. Why Are Microchips Strategic?

Answer 9

• Chips are “the new oil” in geopolitics
• “Nearly all electronic goods now require chips […]. Key digital infrastructure such as telecom, banking, social media, webmail, and even global stock exchanges have likewise become reliant on these microscopic silicon wafers. Beyond their vast commercial applications, governments and militaries have also become increasingly focused on securing a dependable supply of chips, as warfare becomes ever more “informationized” and “intelligentized.”

Question 10

2. Dominating the GVC

Answer 10

• China: World leader in supplying
  and processing the raw materials for microchip manufacturing
• US: Owns and develops the
  most advanced microchip
  technologies

Question 11

China Dominates the Supply of
Minerals Essential for the Chip Economy

Answer 11

• Colablt processing
• Cobalt reserves
• Copper refining
• Lithium processing
• Nickel refining
• REE refining

Question 12

USA Leads in Innovative Microchip Technologies – And
Strives to Maintain R&D Control in the GVC. …. As demonstrated by its Trade Policies

Answer 12

• In October 2022, the Biden administration imposed a sweeping set of export controls, targeting China’s access to US origin semiconductors and their related products. Businesses and individuals in China are now unable to buy advanced chips and chipmaking technology from US suppliers without the seller obtaining a specific licence from the US government.
• The US bolstered these controls in January 2023 by persuading the Netherlands and Japan to curb exports of technology used in the productions of chips. Both countries were targeted because they are home to the world’s most advanced chip manufacturing technologies, including the Dutch ASML.

Question 13

3. Leading Innovation

Answer 13

• China now spends more money each year importing chips than it spends on oil.
• Xi Jinping, has focused on gaining
  breakthroughs in core technology as quickly as possible.

Question 14

Chinese strategies to lead semiconductor innovation

Answer 14

• Limiting USA access to critical
  minerals through tariffs and bans to retaliate against limited access
  to advanced technology
• Increased spending on microchip R&D
• Geopolitical pressures

Question 15

US strategies to lead semiconductor innovation

Answer 15

• Industrial policies to reduce
  production and innovation costs of domestic producers to match Chinese state support to firms
• Tariffs and export bans/limitations to cut Chinese access to more advanced tech
• Strategic alliance with the ‘West’

Question 16

4. Geopolitical Implications

Answer 16

Taiwan generates 37 percent of the world’s computing power each year

Question 17

What Impact for hi-tech MNEs?

Answer 17

Consider how the trade war over microchips affects their supply chain decisions and market opportunities.
Ex: Panasonic, Apple, Chinese HiTech industry

Question 18

Do we want China to fail?

Answer 18

• It is a fair question. After all, the US president has repeatedly said he is willing to go to war with China to defend Taiwan. The EU describes the country as a “systemic rival”. Britain is debating formally labelling China a “threat”.
  Surely, if you regard a country
  as a threat and a rival, you do not want to see its economy growing rapidly?
• Rather than trying to make China poorer or to thwart the country’s development, western policy should concentrate on the international environment, into which a richer and more powerful China is emerging. The goal should be to mould a world order that makes it less attractive for China to pursue aggressive policies.