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Stupid Self-Defeating U.S. Sanctions Make China Even Stronger

Why the latest desperate, racist and phony high-tech ban against China by the U.S. – the CHIPS Act – won’t work and will only serve to put taxpayer money into the wallets of corporate America and the corrupt politicians.

Lee Siu Hin 李小轩

China-U.S. Solidarity Network 中美民间交流协会

August 20^th, 2022

For the past five years, with the rapid decline of the U.S. empire and the peaceful rise of China, the U.S. has rapidly developed a policy bordering on baffling, anti-China hysteria. From Trump to Biden, Republicans to Democrats, neo-cons to “progressives,” they’re all now focused entirely on an all-out racist cold war of China-bashing/Russophobia, rather than doing anything meaningful for the people and the society.

From never-ending trade war, financial war, sanctions, the war against Huawei; spreading unfounded Chinese communist “high-tech” spy lies in the U.S.; “Wuhan man-made” virus hoax; play “gunboat diplomacy” sending an aircraft carrier to intimidate China in the South China Sea and East China Sea; to provoking ethnic and social tensions by playing the “Taiwan card,” the “Hong Kong card” and the “Xinjiang card,” the U.S. has failed miserably at each step of the way and by doing so even makes their domestic situation more and more messy. This doesn’t seem to stop them; and now there is their latest try — the CHIPS Act.

So what is the CHIPS Act?

When I first heard this alphabet soup title in the media, I thought it was referring to “CHiPs,” the 1977 hit TV series about the California Highway Patrol. Instead it’s just another one of the fast-food type legislative bills in D.C., written by Beltway insider elites for their own cynical agenda, packed like hipster-telemarketing hype with lots of sugar coating and racist hate [the so-called “fear” mongering], but no actual substance or mechanism to guarantee it will ever be implemented.

The “CHIPS and Science Act of 2022” commonly known as the “CHIPS Act,” received bi-partisan approval in Congress and was signed at light-speed by President Biden on August 9^th, is a gigantic $280 billion law. It includes $24 billion in tax breaks and $200 billion in new spending for unspecified future R&D (including $100 million funding annually over five years for the State Department). So it is not “only” $52.7 billion (19% overall budget) designated to bring semiconductor chip manufacturing to the U.S. and away from its current production hubs in East Asia, as the media says. Just like any other bill from D.C. that sounds “too good to be true,” beneath the hype, there’re more money making opportunities for others.

To be fair, it’ll be good news for the U.S. if they can truly help the commercial chip manufacturing industry restart in the country – it has now mostly left the U.S. for Asia – it’ll help to bring back some high-paying skilled jobs to U.S. communities.

Yet, they are motivated by pure cold-war zero-sum rhetoric. The White House says that by signing the CHIPS Act, it will lower costs, create jobs, and strengthen supply chains; at the same time it aims to “Counter China.” The White House press release points out that the most important goal is to advance “U.S. global leadership” in technology. It is a metaphor that reminds us no other country may rise above the U.S., and China is “evil” because they’re catching up. (https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/09/fact-sheet-chips-and-science-act-will-lower-costs-create-jobs-strengthen-supply-chains-and-counter-china/)

This toxic rationale is further enhanced by the right-wing and left-liberal media and think-tanks. On August 12^th NPR interviewed Sourabh Gupta from the Institute for China America Studies (ICAS), a Washington-based think-tank, whose speech was full of MAGA-type “America first” rhetoric: “We just need a certain amount of chips which will not hold the U.S. in a situation of blackmail or in a situation of peril if there is a war in East Asia, or if there are others just general supply chain snafus,” where the key provision of the bill forces chip manufacturing companies that accept funding from the U.S., or do business with U.S., to stop doing business with China.

In this de-facto form of sanctions and economic imperialism the U.S. uses “carrot and stick” policies to effectively ban China from acquiring the latest chip manufacturing technologies or products from the U.S. “It absolutely does [shore up the U.S.’s position]” on global chip leadership, says ICAS’s Gupta; and forces East Asian manufacturers who currently have good business relationships with China, to fearfully ask U.S. government permission to allow them to continue to produce legacy chips in China — the type of chip which are not cutting-edge – and produce the cutting-edge chips in their home countries or in America only for U.S. use. This way the technology which goes into cutting-edge chips “does not bleed into China and enhance China's productive capabilities in any way,” Gupta concluded. (https://www.npr.org/2022/08/12/1116798029/semiconductor-china-biden-law-manufacturing-supply-chain-trade-war-technology)

This is a very racist statement because, the underlying rational is ONLY white America has the right to own the crème de la crème, no one else should even dare to think about it! The best outcome for other countries (including China) is to be the loyal assistant for their white masters.

There is not just money at stake here. The U.S. fears losing their power to use technology to spy on and control the world. That’s the fundamental reason the U.S. is freaking out about the rise of Huawei and is carrying out on all fronts a dirty war against the Chinese technology giant. It is also carrying out a war against China’s popular TikTok that is becoming more powerful than Facebook and YouTube around the world— former President Trump almost succeeded in forcing China to sell the platform to the U.S.; and if China can soon manufacture top-level chips, the U.S. will no longer be able to control the devices we use every day; they desperately need to use any nasty means to counter China’s unstoppable technological rise.

As Edward Snowden has exposed, the U.S. has been systematically using technology to spy on everyone in the U.S. and around the world; every U.S.-made device has a “loophole” to allow CIA/NSA to break into your phone in order to spy and track; U.S. software has a “backdoor” that allows them to sneak into your files and read everything, or easily breaking into your operating system to install spyware and paralyze your equipment; or U.S. websites can easily enter your private account through a backdoor to read your private messages. Or they could also use their internet power to launch information wars and color revolutions through U.S. social networking sites anywhere around the world. All these U.S. imperialist opportunities will be gone if China can offer alternative high-tech products. (China has different technology standards than the U.S., making it extremely difficult for them to hack into the systems). The U.S. will no longer be able to be the “Peeping Tom” of the world, nor to use technology to control and blackmail anyone around the world; that’s what the U.S. fears.

The U.S. cannot afford to carry out a 'Chip War' against China

Soon after Biden signed the CHIPS act, China's Foreign Ministry issued a statement firmly opposing it, saying it will "disrupt international trade and distort global semiconductor supply chains."

The bill is supposed to boost U.S. semiconductor manufacturing; however, many experts and industry figures are not too optimistic about the law: instead of letting business, scientific and expert communities develop workable solutions, with international cooperation; it contains many extremely unpleasant stipulations.

The essence of the CHIPS Act is that it provides government incentives for bringing semiconductor production back to the U.S. Currently almost all U.S. chip makers, like Intel, Micron, Texas Instruments as well as other major global chip makers, such as South Korea’s Samsung, China Taiwan’s TSMC, that they own or operate as joint-ventures with manufacturing operations in China or South East Asia (which account for 70% global capacity).

However, the main problem with the Act is that public investment can only be obtained under one condition: companies must choose the U.S. over China. They will not be allowed to expand their production in China over the next decade. According to China’s National Business Daily, in order to hinder the development of China's advanced manufacturing processes, the Act added additional China-related provisions, that is, to maintain so-called U.S. technological leadership and supply chain security, recipients of financial assistance are required to agree to a prohibition of substantial expansion of semiconductor manufacturing in China. The restrictions will apply to any new factory unless the factory mainly produces "legacy semiconductors" for the U.S. (https://mp.weixin.qq.com/s/g-sycsS6CV1lwM1VmiyCUw)

In a nutshell, it's an "either/or" clause that prohibits companies that receive federal funding from significantly increasing production of advanced-process chips in China for ten years.

There’s no doubt the CHIPS Act is just another political stunt. After the failing trade war, a spy war, a cold war, a color revolution, hostilities in the South China Sea, etc., the U.S. intends to start yet another expensive "chip war" against China. U.S. wants to use “carrot”(money) and “stick”(sanctions) to force U.S. companies and other countries to erect a technological “iron curtain” around China to effectively end up splitting the current global supply chain into two (U.S./world vs. China).

Yet, it is questionable whether the U.S. has the ability to pull the whole world into its "chip war." More importantly, the US may want to curb the development of China's semiconductor sector by imposing various restrictions, but “this may only lead to more supply chain disruptions. As the US becomes increasingly accustomed to abusing various export controls and restrictions, it is actually sabotaging its own supply chain by inviting more risks,” China’s Global Times said.

Another problem with the CHIPS Act is the U.S. declining production capacity. While the U.S. remains a major supplier of key technologies for chip manufacturing, including electronic design automation tools (EDA Tools), owns many advanced design intellectual property patents; yet most final products are not made in the U.S. which produces only 10% of global market share. Over the years, China has penetrated the global supply chain so deeply that nearly all chipmakers package and test their products in China.

The CHIPS Act did not solve the fundamental problem of the decline of wafer manufacturing (one of the key processes in chip manufacturing) in the U.S. With the provisions in the Chip Act, the U.S. is likely to have shot itself in the foot, according to the recent report by China’s National Business Daily (NBD). They argue that by subsidizing U.S. local wafer factories and restricting advanced Chinese processes, the bill may miss its goal. In advanced chip manufacturing processing, the real rivals are South Korea and the Taiwan Province of China, while the Chinese Mainland is thriving with mature manufacturing.

China is the largest market for the global semiconductor industry and has a well-developed manufacturing environment including many highly-skilled workers, research facilities and investment capital, all of which allows it enough room to develop its own indigenous chip technologies and to pursue cooperation with global players who opt to take China’s side, in spite of Washington's hegemonic obstruction. “China doesn't have to follow the same path to chip development as the U.S.” and “any attempt to remove China from the value chain will hit a dead end” another China’s Global Times article concluded last year (https://www.globaltimes.cn/page/202104/1220372.shtml)

China imports nearly $400 billion worth of chips each year, more than crude oil imports. There are good reasons for U.S. manufacturers to shift final production of their products to China. According to Russia’s Sputnik analysis, no matter what means the U.S. uses to curb the development of China's technology industry, it will directly harm the interests of American companies. “Back in 2019,at light-speed when the U.S. first imposed restrictions on Huawei, Qualcomm, Intel, Micron Technology and others lost $10 billion in revenue — the amount of electronic components Chinese companies buy each year.”

Wall Street does not regard the CHIPS Act as a "good" bill. The stock prices of U.S. chip companies did not rise but fell on August 9^th the day when Biden signed the bill: PHLX Semiconductor Index (composed of the 30 largest companies primarily involved in the design, distribution, manufacture, and sale of semiconductors) closed at 2866.90 points, down 4.57%, Qualcomm fell 3.59%, Broadcom fell 2.33%, Micron fell 3.74% and Intel dropped 2.43%, according to the China’s National Business Daily.

There are many indications that the bill will do nothing but waste lots of money, do more harm than good to the U.S. semi-conductor industry and supply chain, and will not necessarily be able to defeat China in the long run. So why is the U.S. so desperately pushing it? No doubt it’s for the upcoming election and will enable many in corporate America as well as politicians to make some quick and easy money from it.

Corruption, lies and video tapes

According to Russia’s Sputnik news agency, tech giants such as Intel or Texas Instruments seem to be the main beneficiaries of the new law: they have ample opportunity to attract public funding over the next five years — an extremely rare situation in capitalist America, where the U.S. is constantly waving the “free trade” banner to keep other countries from subsidizing their own businesses for export production (witness the long U.S. war against Europe’s subsidy for Airbus).

Besides the business community, U.S. politicians will also benefit from the bill; one of them is Nancy Pelosi, No. 3 in the government and one of the most powerful political oligarchs in Washington, D.C. Her recent provocative trip on August 2^nd-3^rd to visit China’s Taiwan province resulted in a major condemnation by China. Pelosi, known for several decades for her historically strong, hawkish and hysterical anti-communist/anti-China stands, made her last political trip before the mid-term elections to Asia, in a move that was intended to break the U.S. “One China Policy” promise which could change the entire future direction of China-U.S. relations, possibly sparking major military tensions with China.

But behind her anti-China political hype, her political trip was exposed later by a few in the U.S. and foreign media: She’s using public resources to help her son for his private business gain.

According to a report in the Global Times August 13^th, during her high-profile Asia trip, the U.S. media was initially (and intentionally) silent about the photos/videos from her trip which clearly showed there was a shadow member of the delegation: Paul Pelosi Jr, Nancy Pelosi’s only son. He was not on the official list of Pelosi’s team to Asia; he has no government post and nor is he a consultant of Pelosi, “prompting political figures and netizens on the (Taiwan) island to suspect whether he has a secret mission that cannot be exposed, such as seeking interests for his family.” (https://www.globaltimes.cn/page/202208/1272871.shtml)

Chiu Yi, a former politician from Taiwan told the Global Times that American politicians always come to the island of Taiwan for one of two purposes: to get Taiwan's financial support, or to promote procurement. Pelosi’s visit exposed a third – filling pockets via financial and stock market manipulation.

According to Chiu, Paul Pelosi Jr’s more important role was to connect Pelosi and her husband in the U.S. “Asian, U.S. and European stocks were all affected by Pelosi's visit to Taiwan. Her son basically followed his father to do financial operations, mergers and acquisitions, so there was obviously a high degree of insider stock trading suspicion: the husband runs the business in the U.S., Pelosi was in charge of causing trouble, and the son worked as an aide to Pelosi,” the expert explains to the Global Times. It is pretty certain that Pelosi’s son talked about some deal with TSMC (Taiwan Semiconductor Manufacturing Company, Limited) after being introduced to TSMC Chairman Mark Liu on August 3^rd. The deal would have been either “related to TSMC's investment in the U.S. or the purchase of TSMC chips” he concluded. In addition, Chinese media reported that Pelosi’s Asia trip in Singapore, Malaysia and South Korea also secretly helped him secure some chip-related business deals — just a few days before Biden signed the CHIPS Act.

However, Pelosi’s biggest fortune has come from mainland China! It sounds too crazy to be true; while she’s shouting anti-China, her husband Paul Pelosi and her son openly and frequently have travelled to China since 1990s and have made lots of money. According to the latest report their China investment fund in Hong Kong had reached $17.4 billion. Many of his investments in China are in state-owned enterprises and the largest Chinese IT companies such as Alibaba, Meituan, Tencent, Postal Savings Bank of China, Pinduoduo, etc.

This is a typical two-faced western politician, what China calls “making money while anti-China” hypocrite. According to the July 28^th Business Insider investigation, Paul Pelosi and his son are making massive stock trades and win almost every time; Pelosi’s cumulative family wealth at least $46.1 million, making her the fourteenth richest member of the Congress (https://www.businessinsider.com/nancy-pelosi-stock-trades-congress-investments-2022-7).

He had holdings in corporations such as Slack, Tesla, Disney, Visa, Salesforce, PayPal, Alphabet, Facebook, and Netflix — companies that together spend tens of millions of dollars each year lobbying the federal government. In addition, according to the “Insider,” stock trades her husband has made since 2021 include U.S. semi-conductor companies Micron and NVIDIA, companies which will surely benefit from the recent CHIPS Act.

Why the CHIPS Act will fail – and at taxpayers expense
The U.S. accounted for more than 37 percent of the world's semiconductor production in 1990. Today, the high-end semiconductors produced in the US account for about 12 percent of the global semiconductor production, with Asian economies including China claiming larger shares of the market, according to the China Daily. Fair and equal international partnership cooperation of the world development has already the consensus from most countries around the world, U.S. and western white colonial imperialist ideologies—we’re No. 1, are already outdated.

Many experts had pointed out that while the CHIPS Act acts as a de-facto “chip sanction” against China, it’ll affect China in the short run (it needs some time to develop its own cutting-edge semiconductor supply chain to catch-up); but for the long-run, the U.S. will lose the competition, have shot itself in the foot.

Because U.S. intentions are not principled, every elite investor inside the Beltway and on Wall Street is paying lip-service to the “anti-China” cause for their own gain. Just think about this as sanctions on steroids (lots of money will pour in) that will only look good for the U.S. in the very short term, maybe up to the 2022 mid-term election or 2024 presidential election (if it still has funding). But just like Biden's massive $2 trillion infrastructure plan last November, which has ended up going nowhere. The CHIPS Act, and the Biden just signed whopping $700 Billion “tax, health and energy bill” on August 16^th, will no doubt meet the same fate: soon after money runs out, the hype will run out too.

About Lee Siu Hin

Lee Siu Hin, a Chinese-American immigrant activist from Los Angeles, CA, is the founder and national coordinator of the China-U.S. Solidarity Network (CUSN) and the National Immigrant Solidarity Network (NISN). He is a long-time community, labor, antiwar and immigrant rights activist for grassroots struggle. He's also a long-time Pacifica Radio KPFK Los Angeles unpaid reporter and producer and war correspondent who has worked in the Middle East, Europe, and Africa.

NISN, a grassroots-based national immigrant activist network; and CUSN, a  network of academia and community activists in both countries committed to building a China-U.S. grassroots activist dialogue.

Lee holds a Masters of Public Administration (MPA) and a Masters of Engineering (Aerospace) from California State Polytechnic University at Pomona, located in Pomona, CA.

He is currently working on community medical big data technology and a COVID-19 AI medical analytic platform for the inner-city community and the global south.

His latest book “Capitalism on a Ventilator” co-published with Sara Flounders in September, 2020; Chinese edition released in January, 2022.

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