The US is restricting exports of critical semiconductor components and technology to China, causing questions over how long the world’s second largest economy can maintain its current pace of growth.
China’s lack of mastery over the chips that power modern technology could jeopardize President Xi Jinping’s hopes of transforming the country into a digital power and surpassing the US as the world’s largest economy.
The US tech ban is one of the reasons why international organizations have revised their predictions of China surpassing the US in economic growth. Goldman Sachs predicted that there could be a 0.26 percentage point hit to the Chinese economy in 2023 as a result of US containment efforts.
The digital economy accounts for 39.8% of China’s GDP and is seen as a major driver of growth, but to reach its potential, the country needs semiconductor chips.
The US containment efforts are affecting a number of industries in China, including the semiconductor and computer sectors, driverless cars, high-speed computing, and artificial intelligence.
When Biden took office in 2021, there was hope of rapprochement with China, but he doubled down on tech containment by signing the CHIPS and Science Act of 2022 to bolster US semiconductor development and expanding the list of technological controls on China.
The US, Netherlands, and Japan joined forces to limit the supply of cutting-edge chipmaking equipment to China.
The EU is expected to pass the EU Chips Act later this year, hoping to double Europe’s share of global chip manufacturing capacity to 20%.
The race for semiconductor supremacy, driven more by political motivations than economic considerations, threatens to not only divert industrial development but reshape the dynamics of economic growth in the US, China, and EU.
China has set a goal of raising its chip self-sufficiency ratio to 70% by 2025, from around 30% in 2019.
The recent US sanctions have led to China ramping up its rhetoric about technology independence and seeking alternative chip suppliers.
