US-China relations hanging by the thread of chips: NYT
3 Min Read
A report by The New York Times highlights the double-edged relationship between the Chinese and US economies, highlighting chips as the central determinant of future ties.
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An illustration of the inauguration of the Herstal Group's new electronic card production line, Herstal, Belgium, June 17, 2022 (AFP)
A decoupling of the Chinese and US economies is unlikely due to the two giants' interdependency in the field of microchip production and use, a report by The New York Times explains.
The article focuses on the issues Micron Technologies faced after the Chinese government banned local companies that handle crucial information from using its chips after the company failed a cybersecurity review.
Micron rushed to make its commitment to the Chinese market known, as the company referenced a $600 million investment package targeted at expanding its production facilities in China.
"This investment project demonstrates Micron’s unwavering commitment to its China business and team," the company posted on its China social media accounts
This highlights the US companies' dependence on the Chinese market for both production and sales as China makes up one-eighth of Micron's revenue. In other cases, US chipmakers' sales in China account for 60 to 70 percent of their revenues.
This comes at odds with the behavior of the US government which has imposed restrictions on chip sales to China as it believes they go at odds with its national security objectives.
Growing tensions spurred by the Biden administration come at a great cost for global semiconductor producers who find themselves having to balance between both countries.
Read more: Mercedes chief: Germany cutting economic ties with China ‘unthinkable'
The US says products made by its companies are being utilized in Chinese military and surveillance programs, prompting the government to offer incentives, including grants and tax credits, for chip makers who start up their operations in the US.
However, the US still benefits from setting up factories in China as companies utilize favorable conditions to source raw materials and package and assemble their products in the country.
On the other hand, China remains a major consumer of chips, since the technology goes into many of its products including smartphones, home appliances, cars, and computers.
"China is the world’s largest market for semiconductors, and our companies simply need to do business there to continue to grow, innovate and stay ahead of global competitors," said John Neuffer, the president of the Semiconductor Industry Association. He added, "We urge solutions that protect national security, avoid inadvertent and lasting damage to the chip industry, and avert future escalations."
This sentiment was shared by US Treasury Secretary Janet L. Yellen who concluded her trip to China on Sunday.
"I have made clear that the United States does not seek a wholesale separation of our economies," Yellen said during a roundtable meeting with US companies operating in China. "We seek to diversify, not to decouple. A decoupling of the world’s two largest economies would be destabilizing for the global economy, and it would be virtually impossible to undertake."
Read more: Yellen: decoupling US-China economies 'virtually impossible'
