The first salvos in the budding U.S.-China trade conflict struck old-school sectors like steel and agriculture, but Beijing is now bracing for moves against its strategic ambitions in hi-tech. As a U.S. trade delegation heads to Beijing for talks starting today, China's race to catch up to the U.S. in technology looms large. The skirmish is taking place upstream of the consumer applications made by tech giants like Google and Facebook or Alibaba and Tencent, and focusing on semiconductors, the critical building blocks of electronics. Semiconductors, or computer chips, are the brains of electronic devices, enabling them to run programs and store memory.
Most are made by U.S. giants such as Intel, Qualcomm and Micron, which have decades of experience developing the integrated circuits, as well as manufacturers in U.S. allies South Korea and Taiwan. Chips are among China's biggest imports, rivaling oil, and have become a stark reminder of its dependence on American technology. Last month, Washington banned Chinese telecom and smartphone giant ZTE from purchasing crucial U.S. components for seven years, threatening its survival, as punishment for breaking U.S. export controls. The U.S. has also reportedly opened a similar probe into another Chinese telecom major, Huawei. Both companies depend on U.S. chips to build their gadgets and equipment, reinforcing for Beijing the need to control every piece of the technology supply chain. China must rely on itself for core technologies, President Xi Jinping told scientists when visiting an IT firm last week.
"In the past, we had no choice but to rely on our own efforts. Back then we even created two atomic bombs and launched a satellite while tightening our belt and gritting our teeth," he said.
China's advantages, he said, include being able to "gather our strength to do big things."
And that is what concerns Washington.
China's marshaling of industrial policy to catch up in semiconductors and other technologies figures prominently in the Trump Administration's findings against Beijing in an investigation that has led to proposed tariffs on tens of billions of dollars in Chinese goods. The Trade Representative probe looked at Beijing's intellectual property practices and innovation policies, with a subsequent report taking aim at its "Made in China 2025" program, which is designed to spring China from a maker of sports shoes and denim into high-tech goods. China relies on foreign imports for 80 percent of its chips, which Beijing intends to change. To get there, central and local governments have sunk roughly $100 billion into building its semiconductor industry since 2014, the U.S. report said.