US tech war on Beijing heats up, Yellen fears impact on global economy
6 Min Read
Washington's Treasury Secretary aims to create common ground during her trip to China and cool down fiery relations.
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Illustration image showing the Chinese and American flags with a background depicting the internal part of a semiconductor. (AFP)
US Treasury Secretary Janet Yellen will make a three-day trip to China later this week to discuss a wide range of economic issues, including trade restrictions and the status of bilateral ties after they had deteriorated earlier this year over several incidents.
China's Ambassador to the United States, Xie Feng, said China hopes on Wednesday that Yellen's visit would create a common ground for Beijing and Washington to manage their differences and resolve their disputes.
Xie expressed a desire that both countries would "meet each other halfway," boost dialogue and cooperation, and implement the crucial consensus between the country's leaders.
The Treasury Secretary is scheduled to travel to Beijing from July 6-9, while her Department said the objective of the relationship is "to responsibly manage our relationship [Sino-American relations], communicate directly about areas of concern, and work together to address global challenges."
Yellen's visit comes just weeks after US Secretary of State Anthony Blinken made a long-stalled visit to China.
While the general outcome of Blinken's visit was described as positive, US President Joe Biden shortly made an aggressive statement during a party for his party's donors, where he directly attacked Xi by calling him a "dictator". The State Secretary then expressed support for his President, considering that "he speaks for all of us."
But officials from Biden's administration rushed to tone down the president's hostile remarks in an attempt to not widen the rift between the two largest economies.
One of China's main concerns today is the US chip war declared on the Asian giant, which saw Washington imposing restrictions on semiconductors and related technology to Chinese firms, including on non-American companies.
The Wall Street Journal reported last month that the United States is considering introducing more restrictions on chip exports to China, claiming concerns over the possibility of its use in the military and cyber industry.
The US Commerce Department could make the announcement as early as July, the newspaper said citing sources informed on the matter. American giant IT companies, such as Nvidia and Advanced Micro Devices (AMD) among other chipmakers, will be prohibited from exporting semiconductor technologies to China and other countries deemed by the US as "security threats".
On Wednesday, Biden pledged to increase US allies' engagement in the anti-China chip campaign.
China fired back and announced earlier this week that it will curb the export of some critical material used in the chips industry in retaliation to growing US restrictions on China's access to the technology in attempts to cripple the country's advancement in the field.
Read more: Beijing to ban export of rare earth metals in response to sanctions
The commerce ministry announced that the new controls aim to protect national security and interests. Exporting rare earth metals, such as gallium and germanium, now requires special permission.
But Washington's tech aggression on the world's second-largest economy was not limited to physical hardware.
The WSJ said on Tuesday, citing sources, that the Biden administration is drafting further controls to prohibit US cloud firms that use advanced artificial intelligence AI chips, such as Amazon and Microsoft, from providing services to Chinese companies without official permission.
The Netherlands will also be part of the US anticipated measures against China's chipmakers.
Backfire
But Washington's tech war against China could end up backfiring and fuel the Chinese drive to independently develop their own IT hardware and solutions, while US companies would have been deprived of large profits from the largest chip market in the world.
In May, WSJ reported that American sanctions on Chinese IT businesses have caused them to expand research to build artificial intelligence (AI) without relying on cutting-edge US semiconductors.
According to the report, Chinese firms searched for strategies that might enable them to employ fewer or less powerful chips to achieve high-level AI performance.
Read more: US sanctions on chips not to hamper China military capabilities
Also, some American tech companies opted to continue operating in the Chinese market despite growing pressure from Washington to cut all tech ties with the Asian giant.
US memory-chip pioneer firm Micron announced last month plans to increase investment in its China-based factory by over half a billion dollars.
Micron's decision came shortly after China banned critical infrastructure operators from buying the firm's products in response to Washington's tech-trade hostility against Beijing.
Plenty of cards
However, according to former Chinese Vice Commerce Minister Wei Jianguo, Beijing has plenty of trade-related weapons to choose from if the US fires back.
"This is just the beginning," Wei told China Daily on Wednesday.
"China's tool box has many more types of measures available."
Feasible and desirable
The US Treasury noted that the US does not expect a "major breakthrough" from this initial trip, but it does hope to establish longer-term channels of communication with China.
"We recognize that there are also significant disagreements that will not be resolved over the course of a single trip," a US Treasury official said on Wednesday.
"My hope in traveling to China is to re-establish contact. There is a new group of leaders - we need to get to know one another," Yellen told US media last week, stressing that improved economic ties between the two countries is something both feasible and desirable.
Yellen will reportedly meet with her Chinese counterpart, Vice Premier for Economic Policy He Lifeng.
During talks with China's top financial officials, she is expected to emphasize the importance of positive relations between Washington and Beijing, which will directly reflect on the global economy.
The Treasury head spoke with Ambassador Xie on Monday in what was described by the department as "frank and productive” talks.
Hawkish
But not all US officials are pleased with Washington's approach to manage disputes with China.
Senator Marsha Blackburn, in a hawkish tweet on Wednesday, appeared to mock Yellen's mission to “responsibly manage our relationship.”
"In order to take on China, we must pursue a policy of peace through strength, not peace through appeasement,” she suggested.
Janet Yellen is traveling to Beijing on Thursday to meet with senior Chinese officials to discuss how to “responsibly manage our relationship.”
— Sen. Marsha Blackburn (@MarshaBlackburn) July 5, 2023
In order to take on China, we must pursue a policy of peace through strength, not peace through appeasement.
