Discussions between the US Secretary of Commerce and the Chinese Minister of Commerce in November 2023 highlight the latest complexities in the US–China trade relationship.
Secretary Gina Raimondo clarified that US export controls aim to protect national security without hindering China’s economic development. Minister Wang Wentao criticised the controls for adversely affecting normal trade practices, especially in China’s semiconductor industry.
The introduction of strict export controls by US President Joe Biden in October 2022, updated in 2023, were designed to limit Beijing’s access to advanced technologies and constrain military advances. But the measures are likely to have secondary consequences given the dual-use applications of chip technology.
US export controls and investment restrictions in key sectors are intended to preserve technological leadership and address security concerns. Yet, these policies may also produce unintended consequences, including potentially accelerating China’s efforts to become technologically self-reliant.
China’s response to the controls has been comprehensive, aiming for technological self-sufficiency as part of its ‘dual circulation’ strategy. This strategy seeks to lessen dependency on foreign technologies and diminish risks stemming from global supply chain disruptions. Preliminary signs indicate progress, though a full evaluation is premature. The Chinese government’s investments in domestic research and development and its ambitions to lead in sectors like 5G and artificial intelligence indicate a shift towards homegrown innovation, partly spurred by US policies.
The US strategy, though sometimes seen as overly aggressive, stems from valid concerns over China’s technological and military expansion. China’s technology advancements are crucial to its national ambitions, including reshaping the international order, enhancing surveillance, military modernisation and strengthening its cyber capabilities. Issues like industrial espionage and intellectual property theft further complicate US–China trade relations, justifying the United States’ cautious stance on technology exports.
The impact of US policies has reverberated through the global technology industry, affecting Chinese technology giants and the semiconductor supply chain. The Netherlands’ decision in 2023 to limit shipments of advanced chip-making equipment to China underscores the escalating tension. These actions challenge the operational capabilities of affected firms and reflect a strategic shift in global technological leadership.
This ongoing strategic competition and pursuit of technological dominance affects international trade dynamics. The technological de-risking between the United States and China has altered global production and consumption patterns, creating significant economic and strategic consequences.
Technology-related foreign direct investment between the two countries dropped by 96 per cent from 2016 to 2020, with US multinational corporations facing potential revenue and critical resource access losses. US de-risking from China helped countries with comparative advantages in certain products, who maintain strategic engagement with China. From 2017 to 2022, US imports of certain advanced technology products decreased by 23–40 per cent from China, while increasing by 14–35 per cent from Mexico and Vietnam.
In December 2023, the US House of Select Committee on the Chinese Communist Party called for a reset on the US–China economic relationship, particularly on governing trade, investment and security issues. The committee proposed embargoes, including export controls and sanctions, are anticipated to wield a global impact. Revoking Permanent Normal Trade Relations will likely introduce new controls on Chinese goods, potentially sparking new economic uncertainties.
Such measures will serve as unjustified protectionism and may have a chilling effect on market entry and competition. The effectiveness of export controls is diminishing as technological advancements are no longer dominated by a single country but have evolved into a multipolar phenomenon. The intensifying strategic competition is being superseded by national security instead of economic logic, both for the United States and China.
In the US–China export control debate, World Trade Organization (WTO) law and national security claims stand at the forefront. The United States justifies its export controls on the grounds of national security. The basis finds a backing within the WTO’s legal framework The WTO acknowledges the necessity for nations to sometimes place security above trade commitments, permitting security-based exceptions.
This facet of WTO law allows countries to circumvent free trade principles. Yet, applying such measures is subject to constraints — they must be essential, proportionate and not serve as veiled trade restrictions.
The debate around the US technology sector controls is intensifying, with many suggesting that the measures aim more at preserving economic dominance than mitigating security risks. This controversy highlights the need for export controls to adhere to the legal stipulations of the WTO. Yet, the effectiveness of institutions like the WTO in fostering closer alignment on export controls is limited, as harmonising these controls may not align with various member states’ interests.
Exploring cooperative ventures between the United States and China could offer a constructive path forward. The United States must strategically use these laws to protect its security without undermining its role in global trade. Its approach must be clear-cut and justifiable, balancing national interests against international trade obligations.
The future should prioritise identifying mutual interests and enhancing cooperation, especially in research and development and innovation. This strategy could address shared technological challenges and promote a cooperative global atmosphere conducive to new advancements and collective growth. Engaging in regular dialogues among global technology leaders and adhering to WTO guidelines are essential for navigating technology trade and export control complexities. Ultimately, the US–China relationship requires a thoughtful and strategic approach to export controls and technology policies.
Julien Chaisse is Professor of Law at the City University of Hong Kong and President, Asia Pacific FDI Network.
Dyuti Pandya is Junior Analyst at the European Centre for International Political Economy (ECIPE).