After Chinese regulators stalled the deal for almost a year, Intel on Tuesday abandoned its attempted acquisition of Israeli chip foundry Tower Semiconductor. The plan was part of Intel’s strategy—which aligned with President Biden’s CHIPS and Science Act—to manufacture semiconductors domestically as part of America’s delayed grasp of supply chain risks.
Beijing had the authority to delay the Intel deal because the country requires that its State Administration of Market Regulation (SAMR) approves mergers if one of the companies has significant business interest in China. (Intel operates factories in China, and the country is one of its biggest markets. It made almost $23 billion in China in 2021.)
SAMR had incentive to hold up the deal because of the now-apparent geopolitics of the chip sector, which Beijing believes has held the PRC hostage to a growing international contingent of countries interested in curbing China’s rise. The other word for it is “containment”—a term the United States seems increasingly willing to openly deploy in its China policy.
Ironically, Intel’s failed deal is a sign that the coercive arm of the administration’s strategy to compete with China can unintentionally weaken U.S. chip firms’ ability to operate in their historically highly globalized field. U.S. limitations on China’s access to semiconductors—epitomized by the October 7, 2002 export controls—have placed an industry that was previously insulated from geopolitics at the center of it.
American chip companies are vulnerable and accountable to both superpowers. As the tech war wages on, they are continually subject to controls, retaliation, and even values-based appeals from both Washington, D.C. and Beijing. They have to manage the optics and politics of this dynamic while remaining competitive in a crucial field that the U.S. has long dominated.
The problem: America built its semiconductor prowess through broad international cooperation and despite, not because of, its previous experiments with containment. In a CIA report from 1977, the authors explained their “trade control structure” (which was used against the Soviet Union and China) was based on the Communist countries’ presumed “dual use” civilian and military aspirations.
The report conveyed a noteworthy anxiety around the Soviet Union’s desire to not only access chips, but to understand how they worked: “One characteristic of the Soviet effort in the semiconductor area…is that Moscow has sought complete systems…and has also engaged in an ambitious scheme to obtain ‘know-how’ and training.”
It goes on to say that while the Soviet Union had, as far as they knew, not yet obtained this ominous “know-how,” they were in the market for a western partner to help them get it. Luckily, U.S. controls were effective enough to prevent Moscow’s rise and certainly stymy its prospects for becoming a chip giant.
With less McCarthyist language and within an economy so globalized that their predecessors wouldn’t recognize it, the U.S. is again drawing from its anti-adversary chip control toolbox. And so is China, a country that started associating semiconductor development with national security three U.S. presidential terms ago. That makes it late by Cold War standards but early by contemporary ones. The U.S. didn’t rev up its chip security focus in earnest until after the pandemic disrupted supply chains and China’s centrality in the market became unmissable.
Infamously stubborn as they are, market forces have not yet caught up with the U.S.-China standoff. It increasingly appears they will face financial risk whether or not they get with the administration’s “made in America” program. Biden, who just may have four more years ahead of him, has made his stance on domestic production very clear. From National Security Adviser Jake Sullivan’s increasingly duplicitous “small yard, high fence” mantra to talk of forthcoming expanded China chip controls, the American consensus appears to be: keep reigning China in, with no exceptions and no end.
The mood in Washington portends long-term intolerance toward China’s success in any emerging technology, whether it’s renewable energy (which is good for the world) or the semiconductor industry (which is good for American companies). That makes the metrics for completing the containment task, whether by success or failure, dangerously unclear.
China’s interference in Intel’s Tower acquisition may have happened whether or not the U.S. released its export controls last year. That’s because China, professedly unlike the U.S., intervenes in business deals if they appear to have political salience. Beijing does so not only due to the nature of its state capitalist system, but also because it is defensively playing catch-up to a country that has all but openly declared its desire to suppress its rise.
We, the people of that country—Americans—should feel more secure in our global role, since China has in fact not yet usurped us as the world’s primary economic power. It might never.
The geopolitics of semiconductors presents a window into deeper questions about the future role of the world’s policeman and self-appointed moral compass: the United States. As long as Americans are safe and prosperous, why does the mere possibility of another country’s relative success have such salience for our collective identity?
In other words, whether inspired by national security or merely national reflection, we should put real thought into who we are if we’re not winning.
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