The ‘chip wars’ between the US and China will have far-reaching technological and military repercussions

A visit to Beijing by the US Treasury secretary is the latest attempt to calm the economic clashes between the two superpowers centred on commercial disputes, writes Kim Sengupta. But the race for advanced hardware is every bit as important as the arms races of the past

Joe Biden, right, and Xi Jinping met on the sidelines of a G20 summit late last year – but the economic tit-for-tat has continued between the US and China (AFP/Getty)

The visit to China by the US Treasury secretary, Janet Yellen, is being seen as an opportunity to seek a reset in the growing strategic confrontation between Washington and Beijing.

Ms Yellen started her term two years ago as a strong critic of Xi Jinping’s government, attacking its “unfair and illegal” economic practices and its human rights crackdown against the Uyghur community in Xinjiang and pro-democracy activists in Hong Kong. But she has taken a more emollient tone of late, stressing the need for stability and the maintenance of economic ties with China.

Her trip, however, takes place against the backdrop of an escalating semiconductor war that has been triggered between the superpowers: a race for advanced civil and military technologies – to which semiconductors are key – that has brought renewed recriminations between Beijing and the West.

This week began with Beijing restricting exports of two key minerals, germanium and gallium, which are needed for the manufacture of semiconductors and other hi-tech products. Germanium is used in high-speed computer chips, plastics, and military kit such as night-vision devices, as well as in satellite imagery sensors. Gallium is also needed for satellites, and for radar and radio communication devices and LEDs.

China warned that this was just the first salvo of a coming campaign. Wei Jianguo, a former deputy commerce minister and a powerful voice in the Beijing hierachy, said that foreign countries pressuring China should expect appropriate countermeasures. “This is a well-thought-out heavy punch, and it’s just the start,” he said. “If restrictions targeting China’s high-technology sector continue, then countermeasures will escalate.”

President Xi, along with others in the Chinese leadership, has accused the US of trying to enforce a “Cold War containment” policy on his country’s ambitions.

The Chinese retaliation follows punitive measures by the Biden administration last autumn aimed at Beijing’s access to US-origin semiconductors and ancillary products. Under new rules, Chinese buyers now need specific American licences for advanced microchips and chip-making technology.

The US, meanwhile, is preparing further curbs on selling microchips to China and limiting leasing of cloud services by American companies. Allied countries have been drafted in. Japan and the Netherlands, the producers of the most sophisticated microchip technologies, have begun imposing strict controls on exports at Washington’s behest.

In March, the British government ordered the sale of the country’s biggest microchip factory, Newport WaferFab, because of security concerns. It is owned by Nexperia, which is in turn owned by a Shanghai-listed company, Wingtech.

Nexperia, which is based in Amsterdam, has launched a legal challenge to the government over the enforced sale order, which was made under the provisions of the UK’s new National Security and Investment Act.

Last month, Downing Street announced that the semiconductor industry would be subject to a billion-pound investment programme over the next decade in order to help it move away from its dependence on advanced Chinese technology. The initiative followed Rishi Sunak’s visit to Tokyo for the G7 summit, where discussions were held on the issue among the leaders.

In America, as the government allocated $52bn (£43bn) in federal funding to promote microchip production, Joe Biden said the primary aim was to “win the economic competition of the 21st century”.

But the imperative for the US and the West is not just commercial but also military. President Xi has declared that his country’s People’s Liberation Army (PLA) is on track to become one of the world’s foremost forces by 2049, the centenary of communist rule.

A key part of that will be the harnessing of AI, autonomous weaponry, hypersonic missiles and electronic warfare, and the rapid development of sixth-generation warplanes. The Pentagon said in a recent report that the land, air and sea arms of the PLA are all intent on “pursuing next-generation combat capabilities, defined by the expanded use of artificial intelligence and other advanced technologies at every level of warfare”.

Political “China hawks” in the US, UK and other Western states have been increasingly vocal about the danger the Xi regime supposedly poses. Among these, Nikki Haley, a Republican presidential candidate and a former ambassador to the UN, has openly maintained that Beijing is “preparing for war” with the US.

In Britain, senior politicians and military figures have also voiced alarm. Admiral Lord West, the former head of the Royal Navy, said that while Russia remains the immediate threat, “There is no doubt that China is the real, long-term threat to the UK and the West. We need to be fully aware of that and take necessary steps.”

(Getty Images)

Along with the Chinese military’s technical advancement comes Beijing’s repeated sabre-rattling over Taiwan and the possible consequences. The energy and food crises that followed the Russian invasion of Ukraine illustrated the massive level of international disruption that can be caused by a major war.

Taiwan produces 65 per cent of the world’s semiconductors and 90 per cent of its advanced microchips. The US secretary of state, Antony Blinken, has stressed that a conflict between China and Taiwan would affect “literally every country on Earth”.

In view of China’s threats towards the island state, the US commerce secretary, Gina Raimondo, said last month that “our dependence on Taiwan for chips is untenable and, quite frankly, unsafe”. She went on to say that “there are opportunities for European companies, and opportunities for us to work together to meet the moment in our global competition with China”.

Speaking in Beijing on Thursday, Ms Yellen criticised the new Chinese export curbs and defended “targeted action” by the US to protect national security. She said that the restrictions on the sale of germanium and gallium underscored the need for “resilient and diversified supply chains”. These negative factors should not, she insisted, “needlessly” jeopardise broader relations.

Robert Emerson, a British security analyst, said: “There is the constant attempt by the international community to balance countering the military and intelligence threat posed by the CCP [Chinese Communist Party] and maintain commercial and political relations with a superpower.

“What is going on now with semiconductors shows how difficult it is to keep the two issues separate. The race for keeping control of advanced technology we are seeing is every bit as important as any arms race of the past.”