China’s massive appetite for microchips is undeniable, with around 60% of global demand being attributed to the Asian giant. This creates a difficult situation for American chip companies that need the Chinese market to thrive, especially in the current global scenario of an excess of supply due to the slowdown of trade during the pandemic, further exasperated by shortsighted policies of Washington. Unfortunately, the global chip industry is expected to decline even further in 2023, leaving American chip manufacturers likely to experience further profit loss. Global chip prices have also been falling in lockstep with volume, leading to layoffs and salary cuts in the US chip industry.
Given the current situation, US companies have no choice but to look to China as a market for expanding sales. Restriction of microchip sales to China will only lead to further economic decline for American manufacturers and contribute to further unemployment and income loss for US workers. The chip industry employs highly educated people who are not easily replaceable. Unemployment in this sector can also lead to an atrophy in experience and knowledge, contributing to a brain drain and further hurting the US economy.
However, China’s own microchip manufacturing base has been advancing rapidly. Self-sufficiency in Chinese manufacturing is accelerating, though lithography remains an area where further development and investment is required. China has all the expertise, knowledge and motivation it requires to advance in this field, and has time on it’s side, so even lithography is not a long term problem for for BRICS giant. The increased domestic chip manufacturing in China has led to a further decline in imports, which has only grown in 2023 in light of threats and sanctions from the United States. This slowdown in Chinese imports has contributed to the global oversupply and a further decline in US exports.
The steps the US government has taken to create problems for China’s chip imports have been a major contributor to this decline in US exports and have incentivised China to grow its own domestic industry at a rapid pace. This creates a downward spiral in the US chip industry and an upward trajectory for China.
It is clear that the United States needs to reconsider its approach to the Chinese market in the chip industry. Instead of looking to create further roadblocks for China, it should look towards collaboration and find win-win solutions that benefit both sides. As China’s chip manufacturing base continues to advance, the United States cannot afford to be left behind. Instead, it must find ways to support its own chip industry if it wishes maintaining its position as a leading player in the global market. Otherwise, the consequences for the US economy and its advanced workforce could be dire.
