Trade
The United States doubles down on its tech war with export and IP controls that target China but also hit Taiwan and South Korea
Author: June Park, Schmidt Futures
The United States has unleashed its arsenal to go ‘full throttle’ in the chip war against China regardless of the potential consequences, including the impact on its allies. On 7 October 2022, the Bureau of Industry and Security (BIS) of the US Department of Commerce laid out high level export controls on supercomputers and semiconductors to China.
The market was shaken in September 2022 by restrictions on the sale of graphic processing units by Nvidia and Advanced Micro Devices to China. Companies had already begun to pull their staff out of China in response to new controls prohibiting US citizens from supporting the development and production of chips in Chinese firms.
The new license requirements for items destined to a chip fabrication facility in China are blocked subject to a number of thresholds. The new measures are meant to halt Chinese chip companies at their current levels of progression. Ten days after the BIS announced the reinforced export controls, the US International Trade Commission announced a Section 337 investigation into semiconductors in response to two cases filed by the non-practicing entity Daedalus Prime LLC, which holds intellectual property of US chipmaker Intel against Qualcomm, Taiwan Semiconductor Manufacturing Company and Samsung.
The Taiwan Semiconductor Manufacturing Company and South Korea’s Samsung and SK Hynix have received one-year waivers from the BIS regulations, but the doors may soon close on upgrading their businesses in China. SK Hynix is reluctantly contemplating selling or relocating its equipment in China to South Korea.
The BIS move comes at a time when the US Department of Commerce, in concert with the US Trade Representative, is soliciting Asian counterparts to join the Indo-Pacific Economic Framework. Yet US President Joe Biden’s ‘Made in America’ initiative is concurrently aiming to increase the domestic production of semiconductors via the CHIPS and Science Act and the CHIPS for America Fund, and to re-shore other high-tech industries involving clean energy via the Inflation Reduction Act. This is all in the pursuit of US supremacy in emerging industries.
The BIS export controls have been met with disillusionment from allies, particularly as the measures are being imposed on them without clear incentives, while the US Department of Commerce is still approving most US tech exports to China. Seoul has frowned upon US Secretary of Commerce Gina Raimondo’s diversion of a Taiwanese silicon wafer firm GlobalWafers’ investment bound for South Korea to Texas.
For the United States, the restrictions are not a question of feasibility but are imperative to limiting the transfer of dual-use technology. But for allies, the reality of ‘friend-shoring’ — manufacturing and sourcing components and raw materials within a group of countries that have shared values — raises questions as to whether they can defend their key industries.
US export controls on dual-use technology are not at all new. In 1949, the United States launched the Coordinating Committee for Multilateral Export Controls against the Eastern Bloc in the aftermath of World War II.
This committee was dissolved upon the dissolution of the Soviet Union in 1991, but the United States launched the Wassenaar System in 1996 to succeed it. During the US–Japan trade war in the 1980s, the United States did not hesitate to impose measures against its ally. The Committee on Foreign Investment in the United States, originally established in 1975 to study foreign investment, was empowered to reject deals from 1988 by the Exon-Florio Amendment. This revision occurred amid fears of Japanese investment after Japan’s Fujitsu tried to acquire Fairchild Semiconductor.
The United States fortified its unilateral export controls in the aftermath of the 9/11 terror attacks in 2001. These export controls were reinforced during the US–China trade war from 2018 under former president Donald Trump. Biden’s tech war now presents an upgraded form of these export controls as uncertainty looms over the US economy.
As Chinese President Xi Jinping enters his third term, the stakes for the Taiwan Semiconductor Manufacturing Company have been raised by the likelihood of escalation in the Taiwan Strait. The United States has been manoeuvring to compel its East Asian allies — Taiwan, South Korea and Japan — to join the ‘Chip 4 Alliance’, for which the preliminary meeting was held on 29 September 2022.
While the partnership aims to build a more robust semiconductor…
Trade
Self-Reliance and Openness: Core Principles of China’s Third Plenary Session
The Third Plenum communique from the CCP indicates a prioritization of stability and compromise in response to China’s economic challenges. It highlights the concept of Chinese-style modernization and establishes political guidelines for balancing regulation and market forces.
The CCP’s Third Plenum communique signals a focus on stability and compromise in the face of China’s economic challenges. It emphasises Chinese-style modernisation and sets political directions for balancing regulation and market forces. While not as groundbreaking as previous plenums, it acknowledges the importance of market mechanisms and technological self-reliance, aiming to address issues like high youth unemployment and private sector uncertainty. The communique seeks to navigate the complexities of global competition and domestic innovation, potentially reshaping global supply chains and trade dynamics. Overall, it presents a pragmatic blueprint for China’s economic future.
Source : Self-reliance and openness central pillars of China’s Third Plenum | East Asia Forum
Trade
Trade Prevails Over Political Persuasions in China-Germany Relations
China and Germany maintain a strong bilateral relationship, rooted in economic cooperation despite ideological differences. Recent visits and agreements focus on expanding trade and addressing mutual concerns, navigating challenges while nurturing ties.
Evolving Bilateral Ties
China and Germany share a strong bilateral relationship, rooted in history since 1972. This connection has seen moments of cooperation intertwined with periods of tension. German Chancellor Olaf Scholz’s April 2024 visit underscores Germany’s commitment to fostering this partnership, reflecting a mutual interest in maintaining economic ties despite ideological differences.
Economic Pragmatism
As the second and third largest global economies, China and Germany’s economic interdependence is crucial. Germany emerged as China’s primary trading partner in 2023, with trade values reaching €254.4 billion (US$280 billion). In response to global scrutiny, Germany has taken a balanced approach, emphasizing economic stability over political discord. This was evident during Scholz’s prior visit in November 2022, where his diplomatic tone contrasted with broader EU sentiments.
Facing Challenges Together
Despite increasing public skepticism in Germany regarding China’s global influence and human rights issues, both nations continue to seek common ground. Their October 2023 Joint Statement highlights intentions to pursue cooperation in areas like carbon neutrality and open markets. To navigate these complex terrains, Germany can utilize its institutional frameworks to enhance dialogue, while also considering supply chain diversification to reduce dependency on China. The intertwining nature of their economies suggests that, despite challenges, both countries will continue to prioritize their substantial trade relations.
Source : Trade trumps political persuasions in China–Germany relations
Trade
Fixing fragmentation in the settlement of international trade disputes
Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.
Fragmentation in Global Trade
Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.
Challenges with WTO Dispute Settlement
The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.
The Path Forward for Global Trade
Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.
Source : Fixing fragmentation in the settlement of international trade disputes
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