The new phase of the US-China tech war risks a whole lot of collateral damage

No matter the outcome in November, the leader who stays or moves back into the White House looks ready to risk all kinds of collateral damage as America strives to contain China’s ambitions for technological hegemony.

Signs of an ugly new phase in the US-China tech war appeared on Wednesday after it emerged that the Biden administration was ready to put China in a full-strength chokehold by implementing “the most severe trade restrictions” available, Bloomberg reported.

Specifically, the restrictions would target companies far beyond US waters, such as the Dutch firm ASML and the Japanese company Tokyo Electron, which provide high-value, specialized equipment for the chip industry, which China is racing to advance in.

The targeting of ASML, in particular, offers a key look at why the measures might not squeeze those the US intends to squeeze.

The share price of ASML, known for being one of the few companies in the world capable of making the lithography machines needed to mass-produce the chips vital to sectors like AI, slid more than 10% on Wednesday despite quarterly results that beat estimates.

While the company doesn’t sell its high-tech lithography machines to China, it does sell a whole lot of other products to Chinese companies. Almost half of its second-quarter revenue, about 2.3 billion euros, or about $2.5 billion, came from China.

ASML is based in Eindhoven, the Netherlands.

It’s unclear, then, whether President Joe Biden’s planned measures would cause more damage to China or ASML.

In the short term, new restrictions would mean Chinese companies buying up technology from ASML would need to find alternatives. That may be hard to do in a market where a limited number of companies are involved.

It would also mean ASML loses a huge share of a customer base it is already careful not to sell high-grade lithography equipment to. Of course, this is the main piece of ASML tech that Washington wouldn’t want China to have access to.

There’s another problem here. More-stringent restrictions wouldn’t change the fact that China has been busy trying to wean itself off Western tech since the original export bans came into effect, as it has sought to build a self-reliant economy.

In March, China’s leader, Xi Jinping, told then-Dutch Prime Minister Mark Rutte: “The Chinese people also have the right to legitimate development, and no force can stop the pace of China’s scientific and technological development and progress.”

This isn’t mere conjecture. Eyebrows were raised last year when the local firm Huawei released a new smartphone, the Mate 60 Pro, with an advanced, made-in-China chipset that would once have come from overseas vendors.

The Huawei Mate 60 rivals the latest iPhone. 

Meanwhile, former President Donald Trump has shared his vision of collateral damage in his potential dealings with Beijing by suggesting this week that Taiwan should pay for its own defenses against the threat of an invading China as “it doesn’t give us anything.”

His comments about stepping up tariffs and Taiwan sparked a Big Tech sell-off Wednesday on Wall Street.

Here’s the thing. Trump, who is intent on delivering an “America First” agenda along with his running mate, Sen. JD Vance, does not seem to realize that Taiwan is playing an outsize role in helping America build a key pillar of its future: artificial intelligence.

Taiwan is home to TSMC, the chip manufacturer relied upon by US tech giants such as Nvidia to create the chips fueling the growth of the AI industry and, in turn, the US stock market.

TSMC, which passed a $1 trillion market value this month and reported a 40% year-on-year jump in quarterly revenue on Thursday to just over $20 billion, is building a number of advanced-chip plants in Arizona.

If China did, at some point, decide to take aggressive action in Taiwan, there would appear to be a clear risk to American efforts to build specialized-chip plants on home turf.

That leaves the next president in a bind. Curbing China’s access to Western tech is key if the US is serious about holding on to its technology leadership. It’ll just have to work out how to ensure its own companies and efforts to progress are not hurt in the process.