CSIS Briefs, Scott Kennedy

July 27, 2020

https://www.csis.org/analysis/washingtons-china-policy-has-lost-its-wei

The Issue

The U.S. federal government is obsessed with the Chinese telecom giant Huawei. It has adopted a multipronged strategy to crush the company and decouple the Western world from China’s telecom and semiconductor industries. Although well-intentioned, this effort could seriously harm the United States’ economy and national security. The U.S. semiconductor industry, which is the bedrock of the U.S. economy, has thrived like never before in a globalized industry. The campaign to isolate Huawei and the greater technology decoupling enterprise threatens this historic success and accelerates China’s technological independence. Decoupling would also harm the United States’ military preparedness and reduce the costs of Chinese aggression, most importantly, with respect to Taiwan. The United States needs a different strategy, what I call “principled interdependence,” to address the risks posed by Huawei and China’s high-tech drive while also continuing to benefit from being part of a dynamic global economy. This approach does not require the United States to trust Huawei or China, but it does depend on the United States having greater confidence in itself and to more effectively work with friends and allies.

China’s chip industry is still several generations behind, but it is more likely to advance when deprived of external supplies. Rather than crushing China’s high-tech designs, U.S. actions are fueling them.

The consequence will be slower global sales and a gradual loss of dominance for the U.S. chip industry. According to the Boston Consulting Group, a full decoupling with China would reduce the sector’s revenue by 37 percent and lower its global market share to 30 percent; by contrast, China’s market share would rise from 3 percent to 31 percent. And a weakened U.S. chip industry cannot but hurt the rest of the country’s related sectors, including flagship companies and smaller suppliers as well as their employees.