The U.S. government has recently targeted China by restricting its access to advanced technological advancements, especially on semiconductor chips over the years.
These restrictions primarily aimed at stopping China from using advanced chips in various military applications and boosting up its technological industry.
After this, China has had to think of various kinds of retaliation as these restrictions have heavily put a strain upon its economy and technological development as well.
The U.S. has also restricted Chinese tech firms like Huawei and SMIC (Semiconductor Manufacturing International Corporation) from accessing the most advanced chips and manufacturing equipment.
China has long relied on imports for high-tech components, but the chip curbs threaten to slow down its ambitions in areas like artificial intelligence, 5G, and other cutting-edge technologies. Given this, here are some of the ways that China could react to the U.S. sanctions.
Transition to Home-Based Production
One of the most apparent reactions China would have is to redouble efforts to become self-sufficient in semiconductor production. For the past few years, China has invested significantly in developing its own semiconductor manufacturing capabilities.
However, even though it has made strides, China still lags behind in producing the most advanced chips used in industries like AI, telecommunications, and high-end computing.
China can attempt to ramp up its domestic production by continuing to boost investment in its chip manufacturing sector.
This involves offering subsidies to local firms, encouraging talent to return home, and accelerating the development of its own chip technologies. This would be an ambitious path and time-consuming.
It takes not just money but expertise to develop advanced chips, and it is not easy to replicate the complex supply chain that has been developed in countries like the U.S. and Taiwan over decades.
Nevertheless, China has an apparent incentive to invest in its chip industry. The country would depend less on foreign suppliers, helping it cushion from U.S. sanctions in the future if it can make more advanced chips at home.
Building relations with other countries
China also can pursue stronger alliances elsewhere that will help in balancing U.S. involvement in the worldwide supply chain for chips.
For instance, it’s been working closely with countries such as South Korea, Japan, and the European Union in the development of a more diversified source of semiconductors.
Specifically, China may focus its efforts on countries that are not at the same side as the United States in the technology war and attempt to form economic and political partnerships.
To do this, China might offer better trade terms and investment opportunities to encourage other countries like Japan or South Korea to supply semiconductors to China.
This, in turn, would increase China’s chances of decreasing dependency on the U.S.-based chip manufacturers, such as Intel, and build an alternate supply chain.
Even if it takes time to develop such ties, a shift towards a multi-polar tech world, in which the U.S. does not dominate chip production anymore, could further weaken American curbs. China can develop greater resilience in its tech sector by expanding its supplier network.
Countering with Trade Barriers
China could retaliate against U.S. sanctions by imposing its own trade barriers. For example, it could place restrictions on U.S. tech exports to China, especially in the area of chips and other high-tech components.
The U.S. is a major supplier of semiconductors, software, and equipment that are crucial for the operation of China’s tech companies.
By restricting the import of prime U.S. technologies, China could slow down the pace of American tech firms that rely on the Chinese market.
Companies such as Apple, Qualcomm, and NVIDIA would be more vulnerable due to China becoming a major market for their products.
In addition to the import restrictions, China may raise tariffs on American goods in retaliation for the chip restrictions.
This will affect American companies that have their sales in China and may escalate the tension between the two countries. But this may inadvertently affect Chinese consumers and businesses that depend on American technology.
Targeting U.S. Companies Operating in China
Another approach China can use is to squeeze U.S. companies with a large footprint in China. Many American tech firms have manufacturing operations, research and development facilities, and other business activities in China.
Those companies would be susceptible to regulatory scrutiny or even possible shutdowns if the two countries’ relations worsen.
For instance, China could increase its stringency on U.S.-based companies operating in its country, making it extremely hard for them to undertake business.
It could go ahead and impose huge penalties or even cancel licenses for various operations. Companies such as Apple, Intel, and Tesla, which have huge investments in China, would be within the scope of such restrictions.
China could further intensify the enforcement of intellectual property law by either repossessing patents owned by Americans or tightening rules and regulations that would sharply
disadvantage American tech companies. The country could thus give the message that it’s ready to fight back against U.S. tech leaders.
Developing Alternatives to Key U.S. Technologies
China could continue with an expansionary strategy of acquiring alternatives to key American technologies. For instance, China could speed up the development of its own operating
systems, software, and hardware solutions that can replace U.S. products. This will decrease the reliance on American technology in critical areas.
For example, China has already made significant strides in creating its own operating system, known as HarmonyOS, which is designed to compete with Google’s Android and Apple’s iOS. Although still in its early stages, HarmonyOS could eventually become a key part of China’s efforts to replace foreign software with domestic alternatives.
China could also focus on developing its own cloud computing infrastructure, to compete with Amazon Web Services, Google Cloud, and Microsoft Azure. This would help reduce its dependence on American companies that dominate the cloud computing market.
While China has achieved success in developing some of these alternative systems, it still suffers from considerable challenges.
While most advanced technologies are significantly dominated by U.S.-based firms, especially the most sophisticated software and cloud computing technologies, China seems to have a chance at least to break the leverage the United States has over the entire Chinese tech sector if it somehow succeeds in developing its indigenous alternatives.
