The Biden Administration continued the punitive tariffs and technology sanctions that Donald Trump imposed on China, extending Trump’s restrictions on chip sales to Huawei and a few other Chinese firms to the whole of China. Despite the apparent continuity in US policy, there is an important distinction between Trump’s approach and Biden’s.

Donald Trump is less a China hawk than a bare-knuckles negotiator looking for American advantage. Biden's team has an ideological commitment to prevent China's emergence as a challenger to the American high-tech industry, especially in Artificial Intelligence. For the Democrats, cutting off China's access to high-end semiconductors is a matter of raison d’êtat. For Trump, it’s all part of the art of the deal.

In an Oct. 6 interview, Trump left the door open for a deal with the world’s second-largest (and by some measures largest) economy. John Solomon asked the former president if he had a strategy for de-coupling from China. Trump responded: “At least partial decoupling – we’ll see. They may very well turn out to be fine. It’s very popular politically – ‘We’re going to decouple!’ – but I think I had a very good relationship with China.”

De-coupling is an illusory goal. The US now imports more capital goods than it makes at home, which means that it would have to first import more capital goods in order to produce more items at home. As Trump said, de-coupling is politically popular. But it’s practically impossible.

Trump’s stance toward China was nuanced. In 2018, China’s number two telecom equipment producer, ZTE, was caught violating US sanctions against Iran, and the Commerce Department cut off its access to US chips. ZTE was on the brink of failure, and Trump allowed the firm to pay a $1.2 billion fine and keep its access to US chips. The Commerce Department in December 2019 proposed to stop Huawei from buying chips from Taiwan required to power 5G smartphones. Trump initially opposed the measure, but acceded the following May after he blamed China for the COVID-19 pandemic.

That devastated Huawei's smartphone business, but had little impact on China, because other Chinese handset makers such as Xiaomi and Oppo replaced Huawei phones in the market. Huawei was able to produce 5G infrastructure using older, domestically produced chips. China proceeded to roll out the world's largest 5G network with 70% of the world's installed capacity.

Trump slapped a 10% tariff on most goods imported from China in August 2019, on top of earlier tariffs on most US imports of metals, solar panels, and some consumer goods. These measures were motivated less by concern about China’s rise than by Trump’s misguided attempts to reduce the US trade deficit—which continued to widen despite the tariffs.

The Biden Administration kept Trump’s tariffs and technology controls, tightening them in October 2022, when it banned exports of high-end semiconductors to all Chinese buyers and persuaded US allies to stop selling China the equipment to produce them. A September 2022 report by the National Commission on Artificial Intelligence chaired by former Google CEO Eric Schmidt provided the rationale. The Commerce Department declared in its announcement of the new sanctions, “These items and capabilities are used by the PRC to produce advanced military systems including weapons of mass destruction; improve the speed and accuracy of its military decision making, planning, and logistics, as well as of its autonomous military systems; and commit human rights abuses.”

Western analysts predicted the “complete collapse” of China’s semiconductor industry, although a minority warned that the measures might backfire. China is the world’s largest importer of semiconductors; in 2022 it bought $416 billion of chips, compared to $366 billion of oil. US tech companies depend on Chinese sales. Accordingly, Washington allowed US chip makers to sell slower versions of their AI chips to Chinese customers.

In November 2023, the Commerce Department decided that the slower chips were still too fast, and imposed additional restrictions. Industry analysts aren’t convinced the new rules will do much good. More important is that in September 2023, Huawei shocked American officials by offering a 5G smartphone chip manufactured in China, something Washington considered impossible, and the Chinese giant reportedly is working on even more advanced chips, using older chip-making equipment in ways that Western analysts hadn’t considered.

The dust hasn’t settled, but it appears that the net impact of Washington’s tech sanctions has been to elicit massive investment in China’s semiconductor industry and substitution of domestic technology for imports. Biden’s attempt to contain China has failed. If Trump returns to office, he may surprise the world by striking a deal with Beijing.

 

David P. Goldman is Deputy Editor of Asia Times