America’s chip curbs on China appear to have backfired

China has managed to roll out a 5G smartphone with a domestically-produced miniaturised silicon chip, which many analysts previously thought Chinese firms won’t be able to make in the wake of the US-led technology ban.

The Huawei Mate 60 Pro, featuring the Kirin 9000s chip based on advanced technology of the Semiconductor Manufacturing International Corporation (SMIC), reflects China's ability to sidestep curbs on western technology exports.

While Washington was expecting to slow down China’s tech advancement, this development shows that the policy has instead strengthened Beijing’s resolve to march ahead.

In an effort to counterbalance China's ascending technological prominence, the administration of former US President Donald Trump introduced rigorous sanctions, starting in 2018, particularly targeting China's work in critical areas such as Artificial Intelligence (AI) and big data.

US President Joe Biden’s government sustained and, in some cases, even intensified these restrictions, reflecting a bipartisan consensus on the perceived threat of China's technological advancement.

Huawei’s new smartphone marks the first deployment of SMIC's 7-nanometer (nm) technology. To tech enthusiasts, the 7nm chip might seem a touch retro, especially considering that IBM introduced it in 2015 .

Reports about SMIC’s ability to produce 7nm chips emerged last year. But analysts were doubtful if the Shanghai-based company would be able to produce them on a commercial scale.

Admittedly, the Kirin 9000s chip does not put China at the cutting edge of semiconductor technology - yet. Apple's iPhone chips, produced by Taiwan Semiconductor Manufacturing Company (TSMC), are already exploiting 4-nm and 3-nm nodes, placing them roughly two generations ahead of what the Chinese manufacturer has just unveiled. Yet, the rapid development of this capability sends a notable signal, one that the US, in particular, should take seriously.

It is not the absolute technological edge that matters most here, but the direction and speed of the catching-up game. Whether or not SMIC chips will match the prowess of global leaders in the immediate future remains an open question. But what’s clear is that China is still very much in the semiconductor arena. This raises questions about unintended consequences of export controls.

When export curbs backfire

For decades, successive US governments have turned to export controls as a tool, not just for economic advantage, but also as an instrument of national security. By dictating which technology is too sensitive to be shared beyond its borders, the US aims to prevent pivotal tech capabilities from reaching potential adversaries.

However, export controls can occasionally produce unintended consequences. One salient example is the US Defense Department's approach to the Global Positioning System (GPS). Created primarily for defence applications, the US initially curtailed the export of GPS technology, wary of its potential use by rivals. However, this restrictive stance had an unintended side effect: it catalysed international resolve to develop alternative systems.

Moscow, recognising the strategic importance of satellite navigation and unwilling to be reliant on US technology, developed and launched its own version, GLONASS. This trend spread far beyond Moscow. Driven by a desire for technological independence, China rolled out its BeiDou satellite system, and the European Union debuted Galileo in 2011.

Instead of consolidating its leadership in satellite navigation, the US's initial hesitancy to share GPS technology broadly gave birth to a multifaceted global satellite navigation ecosystem.

Historically, the Cold War saw the US restricting technology transfers to the Soviet Union, a move driven by fears of military escalation and a desire to maintain the upper hand.

For instance, until the late 1980s, the US maintained stringent limits on computer exports, reflecting Cold War tensions and concerns about technological advantages its enemies might get. The landscape began to shift only in 1989 when the US eased export restrictions, permitting the sales of specific-use personal computers to both the Soviet Union and its Eastern-bloc allies.

This policy revision enabled tech giants like Apple and IBM to expand their market presence in these regions. Apple could finally market its basic Macintosh models, while IBM introduced its foundational Personal System/2 (PS/2) models in the region that used to be under Soviet influence. Nevertheless, the more advanced and powerful versions of both the Macintosh and the PS/2 remained under tight control. This amounted to a breakthrough anyway because before this relaxation in policy, the technological offerings to the Soviet bloc were considerably outdated. Apple had only been able to sell its 1970s-era Apple II line, while IBM was restricted to its 1981 PC line.

Fast forward to present time, and this narrative has found its way in today's strategic tussle between the US and China. The undercurrent of competition is palpable, with concerns that unrestricted tech flow could bolster China's military/economic prowess or support initiatives that might counter US interests.

However, when we talk about the effectiveness of such export controls, how do we measure success? One could argue that if the US can maintain or even widen its technological lead, especially in the military domain, then the controls are working. But current observations suggest otherwise. China appears to be swiftly bridging the technological divide.

The economic barometer, too, is vital. Should the US persist in pioneering tech innovations and maintain market dominance, it reflects the robustness of its domestic industry. Conversely, if Chinese firms show signs of struggle, it might suggest the sanctions are having their intended effect. The latter seemed to be the case when Huawei's annual profit plummeted by 69 percent in 2022.

The cohesion among US allies and global partners remains a key factor also. When there's a unified front, it magnifies the efficacy of these controls. On the flip side, divergent actions by allies can dilute their collective intentions. If other nations opportunistically occupy the vacuum created by US restrictions, asserting themselves as primary suppliers in the sanctioned tech sectors, it may hint that China has not been truly cut off from the tech supply chain. Instead, the market dynamics shift, and the US potentially loses its market influence. Still, it is apparent that many nations are falling in line with the US stance as evident by the Dutch EUV lithography machine maker ASML’s ban on exports to China

But beyond economics and military considerations, there's a broader strategic canvas to consider. Do export bans deter nations from specific actions? Do they give the US leverage in high-stakes diplomatic dialogues? If the controls lead to policy shifts or significant trade concessions, it points to their influence. However, from activities in the South China Sea to cyber incursions targeting the US, there appears to be little shift in Chinese actions that the US hopes to see altered. While the US might believe that these bans provide short-term victories, they may be setting the stage for long-term strategic challenges that the West is ill-prepared to face.

Moreover, the sanctions might have produced unintended consequences.

Huawei's trajectory in recent years has been nothing short of a global spectacle. The company, which had carved a niche for itself as the top global supplier of telecom equipment, found itself at a crossroads when the Trump administration, acting on spying concerns, blacklisted it in 2019.

The US not only targeted Huawei but also pushed its allies to ban or restrict Huawei products. Countries like Japan, Australia, Canada, and the UK responded in kind, with even carriers in countries like Germany sidestepping Huawei equipment in their 5G rollouts.

These sanctions threatened to obliterate Huawei's mobile business. In the face of reduced access to crucial chip components, the survival of the company seemed in jeopardy. Indeed, Huawei, perhaps anticipating even more restrictive policies, began amassing a reserve of chips. And it was not long before the US tightened its sanctions regime further, expanding its scope to impede specialised chipmaking gear sales to China and casting shadows over potential alternative suppliers like SMIC.

Huawei's stockpiling of chips was just the first step. Later, with government backing, the company embarked on a quest for technological self-reliance. The breadth of this overhaul became evident when Ren Zhengfei, Huawei's founder, shared that the company replaced over 13,000 components with local alternatives within three years and undertook a mammoth task of redesigning more than 4,000 circuit boards. Their 2022 R&D investment alone amounted to an eye-watering US$23.8 billion.

The story of Huawei is not just about a company's survival; it is a testament to the unintended boomerang effect of US policies that were meant to cripple it.

In Washington, there's a growing acknowledgment of the sanctions' multifaceted outcomes. On one hand, the sanctions arguably worked, curtailing China's technological footprint, particularly in the Western world. However, the flip side reveals an unintended, perhaps more vexing consequence: the push toward Chinese technological self-sufficiency. By lessening its dependence on the West, China might, in the long run, edge towards a trajectory that's potentially more prone to conflict.

With export controls, countries hope to maintain their technological edge and prevent potential adversaries from accessing critical know-how. However, the narrative of technology development is replete with instances of unintended consequences. Aiming to choke off a rival's access can, at times, inadvertently stimulate their appetite for innovation, forcing them to venture into uncharted territories, thereby nurturing an environment of self-reliance and indigenous development.