U.S. & China Trade War

The U.S. has made many disputes toward China and they could be suspected of violating a trade agreement. The trade war between the U.S. and China, starting in 2018 under the Obama administration, was created with help from the World Trade Organization (WTO). The ban negatively affects more than just technology in China, and is not the first time we have seen a U.S. interruption of another country’s trade deals. The ban entails that computer chips and other computer electronics, like semiconductors and computer chips, cannot be sold to Chinese tech companies. All this kerfuffle has left gaps in supply and demand that individuals can take advantage of. Adrian Edison one of those people taking advantage of the new market for technology in the United States. Chinese companies like Pacific Atlantic logistics, would argue that their market is unaffected by trade war and business is going on as normal. However, during the middle of a pandemic, non-essential workers are losing their jobs and looking to other industries.

The Chinese government is focusing on government policies that benefit industry rather than benefiting their markets. The United States puts a lot of effort in providing a free market across countries to promote foreign trade. The lack of care China puts on protecting their market and the extreme barriers of entry for foreign companies are causing more secure countries a part of the International Trade Association to turn away from Chinese offers. According to the International Trade Association, “Despite significant Chinese government efforts to streamline bureaucracy and reduce red tape, foreign companies continue to complain about lengthy and opaque administrative procedures, especially with respect to permits, registration, and licensing.” Complaints about China’s business practices and market control go beyond the United States and collectively scrutinizes foreign companies.

The technology industry has been shaken up from the United States and Chinese governments. They’re forcing the industry to shift. Starting a small technology company in the United States is a favorable venture during this time, not only from the ban but also from the Corona Virus. E-commerce and online shopping have gained popularity. Large computer suppliers have large stocks due to their inability to sell to China. According to John Wiley & Sons Aug. 2019’ “The escalation of the trade war reduces gross domestic product (GDP) in China and the USA by –1.41% and -1.35% respectively.” On the other hand, due to COVID 19, people have more time to pick up new hobbies. Adrian Edison took the opportunity to start a new business of constructing computers, something he has always enjoyed doing for friends and family.

“Since I haven’t been able to get back to work at the club house, I started to build a computer.” Adrian currently works as a personal trainer at a private club house gym and used to build custom keyboards on the side. “The first computer took me a week to put together after getting all the parts in. Since then, I make them in a couple days after parts arrive.” Adrian says that business is slow, but he can only work on one computer at a time anyway. “I purchase all United States made components because they are cheaper. Not all computer chips are the same, but what it comes down to is the price tag and effectiveness of the chip.”

Adrian Edison lives in West Palm Beach, Florida in a beautiful two-story home overlooking a lake with a fountain. “I can’t believe I haven't been working from home sooner. Especially working for myself, I feel like I work harder.” I passed by an indoor sauna on the way to his porch where an interview with him took place. “Watching the news recently made me nervous about whether I will be able to keep up this new career or not. With a pause on the trade agreements until after the election makes me wary.” Adrian feels that going back to a normal 9-5 job is now behind him, because of the passion he has for building computers it no longer feels like work. Like Adrian Edison, Hughes Jean Denis was let go from UBreakIFix and turned the skills he got from working there into a new career.

Moves from Top Tech Giants

Due to the ban, the largest producer of technology in the world, Huawei, cannot acquire semiconductors from their original supplier, Intel. Nvidia are attempting to buy out Arms Holdings, one of the largest semiconductor producing companies based in England, that are owned by Soft Bank Group. Nvidia is a North American computer game company that is looking to reach new acquisitions with this purchase. Purchasing Arms Holdings will have to get the approval of President Trump because of the size of the merger. China is doing its best to maintain a supply of semiconductors when all the supplies are owned by the United States. Companies must take elusive actions in order to not be targeted by either side and face sanction. Adrian Edison is buying his computer equipment from intel due to their weakened demand from not being able to sell to Huawei. Intel is moving away from faster computer chips, but their computer chips are still top of the line being sold at lower prices.

Trying to find semiconductors from another supplier that is not of Unites States origin has proven to be difficult for Huawei. As of September 18^th, 2020, the technology giant has been unable to get the required parts to produce the Kirin computer chip, making it unavailable to be used on their next generation of smart phones. Due to this, according to Gizehina sept 2020 “The price tags for Huawei smartphones have risen. Prices for selected models have already increased by 40% compared to January this year.” Attempts at saving the company from running out of stock seem too extreme to come back from immediately, and they expect to run out by the middle of 2021. Smartphone vendors in China feel pressured to purchase as much as possible before the price rises too high and they run out of stock. In an interview with Mr. Xiao he said that “If people want the newest smartphones, they won’t mind paying more for it. Prices are getting expensive, but we will have better chips in the future.” Mr. Xiao is optimistic for his phone and technology distribution company and wants to look toward the future rather than be discouraged from trade barriers.

According to David Kirton - Reuters Sept 2020, “The U.S. government last year moved to prevent most U.S. companies from conducting business with Huawei.” Large chip providers like Intel, Nvidia and Qualcomm have already adapted to the ban by taking up new and innovative acquisitions. Intel has started moving towards improving their current computer chip technology by researching artificial intelligence. Qualcomm are more affected by the ban than other companies, due to the large market share they have in China. Currently, Qualcomm is battling with Apple over patent royalties. Samsung has been producing semiconductors that can maintain ten nanometers at a time, they are in the process of getting that number down to four nanometers. Adrian Edison only buys computer chips that are ten nanometers due to the cheaper price for his market.

Semiconductors are made to be small and powerful today. The semiconductors in computer chips are designed to determine the amount of time the computer takes to process information. The smallest number of nanometers means they process information the fastest.

According to The Korean Times in September 2020, “Samsung Electronics … will mass produce highly advanced and next generation Dram memory chips using extreme ultraviolet (EUV) processing technology from next year.” This new computer chip will more than double the speed of the previous generation and could start a new industrial revolution. Semiconductor Manufacturing International Corp (SMIC), a Chinese semiconductor and computer chip producing company, not as successful as Huawei, but it is still receiving United States computer chip producing supplies.

Chinese Technological Expansion Efforts

Hindering the Chinese as much as possible is what the US want to do, and according to the Wall Street Journal, “A ban on U.S. technology, like the fate suffered by Chinese telecom giant Huawei, would derail SMIC’s expansion plan since the U.S. maintains a stranglehold in some essential parts of the semiconductor equipment.” Talks of adding SMIC to the Commerce Department’s “entity list” would not allow U.S. companies to sell semiconductor equipment to SMIC. This could hinder China in the attempt to produce their own computer chips, semiconductors and equipment. Other chip producing companies like Eswin Computing and Yangtze Memory Technologies, have started overclocking their production in case they are the next target of a U.S. ban.

The company, SMIC, has also been estimated to be in difficult financial trouble if they are unable to update their technology this year. Goldman Sachs states that, “SMIC’s revenue could be halved by 2024 if the company is unable to expand capacity.” While under pressure of large expectations, they will have limits on equipment supplies if they are added to the ban list.

We have had to of seen similar bans like this before, according to Studies in Comparative International Development, Chen, Hao and Meg Rithmire say that, “In December 2016, President Obama blocked an acquisition of Aixtron, a German maker of specialty machinery to produce chips, by Fujian Grand Chip Investment.” Aixtron, a German company, creates semiconductors and was offered $721 million by the Chinese. While the ban we are seeing now impacts a country’s specific supply, blocking China from receiving semiconductors seems to have been going on since 2016. China has been trying to receive a good source of supplies to make semiconductors for years now. According to the United States International Trade Commission (USITC), as of 2018 Samsung, Intel and TSMC are the top three suppliers for semiconductors respectively owned by South Korea, United States, and Taiwan. Not one Chinese semiconductor company breaks the ‘Worldwide ranking of the top-15 suppliers of semiconductors in 2018.’ Even though, China imports the most semiconductors in the world.

Chinese Entrepreneur's should be taking advantage of this large market for semiconductor supplies, but instead “90% of China’s semiconductor consumption is supplied by foreign companies (USITC).” Having their own semiconductor supplier in China would allow for economic gain and subvert any bans that come their way. It also allows for the US to focus on increasing our use for semiconductors like Adrian Edison is doing.

War of Regulations

China is looking for a new company to supply them with semiconductors, while people like Adrian Edison are using cheaper US made semiconductors to help cut starting costs for a business. China can deter further bans by looking at other countries to supply them, but the United States doesn’t seem to let it pass. Many Chinese traders have been negatively affected by the trade war and, in turn, badly affecting companies that rely on the business of others. With so much of China’s industry focused on semiconductors, this ban affects logistic companies as well. On top of the inability to export products due to the Corona Virus, logistic companies like Pacific Atlantic Logistics Inc (PAL), are feeling hit especially hard by the ban. The overseas department manager of PAL, Mr. Leslie Xu said in our interview over the phone, “Our customers here have been negatively affected by the trade war between USA & China … China has not ever interfered in the internal affairs of other countries to get benefits and or build disputation between USA and China.” Also, in his response he brought up the time when China tried to buy Aixtron, the German chip making company, as a way for China to not be affected by U.S. bans. Mr. Xu states that meddling in the affairs of other countries and letting countries chose what they can do on their own should be the way to run a business. The USA is seen as the bully in the scenario for interfering in the internal affairs of China from a Chinese citizens perspective.

In a separate interview, Mr. Xu Xun owns a plastics factory in China and does business between the United States and China. Mr. Xun asked to not disclose his company and during the interview, emphasized “It’s no problem for business between USA and China, normal business, to us. Politics is politics, business is business. We're ordinary people.” After, Mr. Xun wishes me a goodnight and hangs up the phone. Mr. Xun seemed upset that I asked him about the state of the technology industry in China. In the article ‘Limits on Freedom of Expression: China’ the law for freedom of speech in China states that “Freedom of speech and freedom of the press are tightly restricted by specific laws and regulations. Typically, laws and regulations governing cyberspace, the press, and the media contain a list of prohibited content and penalties for violations.” Perhaps Mr. Xun felt that I was breaking a law by infringing on the State, or society.

The ban impacts every avenue of revenue, semiconductor supplies and new technology

like smartphones, laptops, and smart watches brought to China’s harbors. The Corona Virus is helping these companies from facing direct impacts from the ban because they have already been directly impacted by the virus. When the virus has a vaccine that is disbursed and controlled, then China logistics companies will still have a hard time getting back into business with the ban still in place.

On the United States front, Hughes Jene Denise works as a freelancer smartphone repair man that gets business from friends. After COVID 19 took him out of work at UBreakiFix, Hughes started getting his friends to come to him instead of the store to fix their phones. “I don’t feel bad for taking their (UBreakiFix) business, I got the skills and the connections to fix phones. They chose to come to me and not the company because they already had a relationship with me, they know what they are going to get.” Hughes goes on the state that, “Creating this opportunity for myself was the best thing I have done, I started getting so involved with fixing phones I replaced all the parts in an old iPhone to get it working again.” This type of innovation was done to better his understanding of smartphones and computer chips and he hope to create his first smartphone one day.

The United States has been seen in the light as a bully by harming jobs and companies of other countries isn’t the figure I like to see in the United States. When China first joined the WTO, or World Trade Organization, the U.S and China focused directly on solving trade disputes. Economist Lawrence Lau states, “It is in the interest of the United States for China to become a peaceful, secure, law-abiding, and contributing member of the international community …a safe and profitable destination for US investments.” Trade agreements would be great for the U.S. and China if their focus on trade disputes hadn’t begun to form political disputes toward one another. A trade dispute is amendable by being justified and a trade dispute can start a trade war. A trade war can come from one or multiple disputes, but they must contain violations. At one time, according to Journal of East Asia & International Law, vol. 11, no. 2, July 2018 “China has been the target of 42 WTO disputes … with US accounting for the majority.” Semiconductors are one of the parts that have been challenged during the disputes. With all these reoccurring disputes, the main reason behind them is currency manipulation, illegal subsidies, and breach of intellectual property rights (IPR) that have caused a multitude of issues with the U.S. and China.

The Tariff Act of 1930 is the root to some of the major trade disputes against China. According to the Tariff Act of 1930, “Articles of non-U.S. origin imported into the United States to be marked ‘In such a manner as to indicate to an ultimate purchaser in the United States.’” China has been given until November 10^th the comply with these rules. This is being disputed in the World Trade Organization now because China has been mislabeling products coming from Hong Kong into the United States. Due to this, President Donald Trump signed an executive order on August 11, 2020 that suspends section 201(a) of the United States-Hong Kong Policy Act of 1992. Section 201(a) of the United States –Hong Kong Policy Act of 1992 states that each country’s laws will be abided by one another, and signing this executive order eliminates Chinese laws from effecting United States companies doing business in China.

The U.S. is concerned with national security and IPR protection because of the benefit to the United States. China does not rely on the United States laws to incur how Chinese companies should conduct business. Instead, China relies on intellectual property and technology that is automatically designed to transfer into their system. Major worldwide technology companies are hit with a major ban leaving room in the United States for the creation of a new technology company that will invoke innovation to that will change the industry. Adrian Edison, and people like him, have already acted.

Work Cited

Wong, Jacky. “U.S.-China Chip-War Collateral Damage Will Range Far and Wide.” The Wall Street Journal, Dow Jones & Company, 7 Sept. 2020, www.wsj.com/articles/u-s-china-chip-war-collateral-damage-will-range-far-and-wide-11599476253?mod=searchresults.

Chen, Hao, and Meg Rithmire. “The Rise of the Investor State: State Capital in the Chinese Economy.” Studies in Comparative International Development, vol. 55, no. 3, Sept. 2020, p. 257. EBSCOhost, search.ebscohost.com/login.aspx?direct=true&db=edb&AN=145271552&site=eds-live&scope=site.

Zhang, Kevin Honglin. “Industrial Policy and Technology Innovation under the US Trade War against China.” Chinese Economy, vol. 53, no. 5, Sept. 2020, p. 363. EBSCOhost, search.ebscohost.com/login.aspx?direct=true&db=edb&AN=144636321&site=eds-live&scope=site.

VerWey, John. “Chinese Semiconductor Industrial Policy: Past and Present.” United States International Trade Commission Journal of International Commerce and Economics, July 2019, www.usitc.gov/publications/332/journals/chinese_semiconductor_industrial_policy_past_and_present_jice_july_2019.pdf.

Nany Hur. “Historical and Strategic Concern over the US-China Trade War: Will They Be within the WTO?” Journal of East Asia & International Law, vol. 11, no. 2, July 2018, pp. 393–411. EBSCOhost, doi:10.14330/jeail.2018.11.2.07.

Abdullah, et al. “The Chinese Are Massively Buying Huawei Devices despite the Price Rise.” Gizchina.com, 18 Sept. 2020, www.gizchina.com/2020/09/18/the-chinese-are-massively-buying-huawei-devices-despite-the-price-rise/.

“China - Market Challenges.” International Trade Administration | Trade.gov, 13 Oct. 2019, www.trade.gov/knowledge-product/china-market-challenges.

Hong Kong, China. “United States – Origin Marking Requirement.” Results List, 3 Nov. 2020, docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S006.aspx?Query=%28+%40Symbol.

Itakura, Ken. “Evaluating the Impact of the US–China Trade War.” Wiley Online Library, John Wiley & Sons, Ltd, 30 Aug. 2019, onlinelibrary.wiley.com/doi/abs/10.1111/aepr.12286.

Kirton Reuters, David. “Huawei Phone Prices Rise in China on Fears of Chip Shortage.” Nasdaq, 16 Sept. 2020, www.nasdaq.com/articles/huawei-phone-prices-rise-in-china-on-fears-of-chip-shortage-2020-09-16.

Zhang, Laney. “China.” Limits on Freedom of Expression, 1 June 2019, www.loc.gov/law/help/freedom-expression/china.php.