Emerging ‘chiplomacy’

Is US policy towards China on microchips supply chains working? Most likely not, according to the Economist’s latest coverage.

But ‘chiplomacy’ is taking the top of many diplomatic meetings worldwide as the USA tries to keep this strategic issue in global focus.

The Biden administration has been shifting from Trump’s approach of banning exports of microchips to Chinese companies such as Huawei towards more multilateral solutions that will ‘secure supply chains’ as it is terminologically framed.

The USA, according to the Economist, faces the following dilemma:

America is caught between choosing a softer set of controls that may work better in the long run, or a harsher set that could hurt Chinese technology more in the short run but might harm American industry overall.

In search of an optimal approach for US interest, it has to take into consideration the following elements:

  • Unilateral control does not work since there are ways to bypass export bans. In the short run, some companies may be hurt as was the case with Huawei, but in the medium and long term, it will fail.
  • Asian and European countries are not willing to go with harsh sanctions on China. They also prefer a multilateral solution while the USA prefers a fast solution among a group of ‘like-minded countries’.

In the search of a compromise solution, they are experimenting with the development of, what the Economist calls, ‘the Organisation of the Semiconductor Exporting Countries’ (analogous to what OPEC is for petroleum). But more immediate solutions are searched, including cooperation in the context of the EU-US Trade and Technology Council, QUAD cooperation, etc.

You can access the Economist article here.

The GIP Digital Watch will follow these developments closely.