Global Supply Chain Catastrophe Caused by U.S.-China Conflict

  • The supply chain crisis is one of the biggest stories of 2021, but it dates back to the last decade.
  • The US-China “trade war” of the Trump years included semiconductor chips – the exact shortage crippling the global economy.
  • Biden is not changing course from Trump and leaving Americans short on personal electronics and cars.

The holidays are approaching and this supply chain crisis you may have heard of is going to make shopping miserable.

Hundreds of thousands of ships filled with goods imported from Asia are crammed outside Los Angeles and other major ports. American automakers don’t have enough semiconductor chips to make as many cars as people want to buy. All other products – from toys to computers – that need a chip will also be in short supply.

What is often overlooked is that official U.S. government policy is to make these exact chips more difficult for China to manufacture. US President Joe Biden is pursuing a “trade war” with his Chinese counterpart, Xi Jinping, which started under Donald Trump, and he’s not blinking as the supply chain crisis puts Christmas at risk.

The ship and chip crisis is another way America and China are on the verge of “decoupling” as the Trump-era trade war hardens into a new status quo. People hoping for an easier holiday shopping season don’t know how long and painful this transition could be.

US-China trade war left US short on electronics and cars

The United States accounts for only 12% of global chip production, and Asia accounts for a whopping 75%. according to a report by the Semiconductor Industry Association, which predicts that China will become the largest producer of chips by 2030.

But Donald Trump presented himself on a largely anti-globalization platform in 2016, with particular emphasis on how America is being “ripped off” by China. Tokens were an area of ​​influence.

China is not only an exporter of chips, it also needs a constant supply of particularly sophisticated integrated circuits from other countries, including the United States, to power its consumer electronics manufacturing machine. Over the past decade, China has been import more and more chips coming from the United States, because they have to be inserted into electronic products that are returned around the world.

China is generations behind in manufacturing the most advanced chips. For example, the world’s largest semiconductor company, Taiwan Semiconductor Manufacturing Corporation (TSMC), develops ultra-small chips that are 3 nanometers and smaller. China’s largest chip company, Semiconductor Manufacturing International Corporation (SMIC), just started manufacturing 14nm chips in late 2019.

The United States is determined to make China’s manufacturing efforts difficult.

Last September, Trump’s White House imposed export restrictions on the minimum wage, forcing it to source parts elsewhere and reconfigure supply chains in the process.

Meanwhile, companies buying their chips at minimum wage had to go elsewhere, only to find that alternative chipmakers were already at full capacity. America struggled to depend on its own production, as US semiconductor giant Intel struggled with its own production issues. And some companies have racked up chips, says TSMC CEO Mark Lui, further exacerbating the chip tightening.

The Biden administration has enlisted its allies to freeze China from the technological equipment it needs, making sourcing even more difficult for the country.

This all happened after the pandemic shut down semiconductor manufacturing operations for months in 2020, leading to spikes in new and used car prices and shortages of all kinds of electronics.

Biden does not change course

Those who hoped the Biden administration to reject Trump’s playbook have been deeply disappointed.

The president has done little to change the aggressive commercial stance of his predecessor since taking office eight months ago. Katherine Tai, the U.S. trade representative, confirmed the strict policy will continue in a speech on Monday.

“For too long, China’s lack of adherence to global trade standards has undermined the prosperity of Americans and others around the world,” she said in a speech at the Center for Strategic and International Studies, adding that it is “increasingly clear” that China has not responded to the US concerns.

Biden said earlier this year that the key to navigating the current chip shortage crisis was to invest in the country’s chip production, allocating $ 50 billion in its infrastructure plan for manufacturing incentives. of national chips. “The plan I am proposing will protect our supply chain and revitalize American manufacturing,” he said in April, at a virtual summit with auto executives and other business leaders. Of course, Biden was talking about “our supply chain” – that is, American – and not the globalized “Chimerica” ​​supply chain of the early 2000s.

The Biden administration recently made the fight against China the centerpiece of its foreign policy agenda, even reorganizing the CIA to make China a primary focus. The CIA has described the country as a “key rival”.

The transition to homemade chip production will be easier said than done. US manufacturers are not used to expensive US labor, so they will need time to wean off contracted foreign manufacturers, Recode noted. During this time, it can take years for new production facilities to start up.

The Americans are therefore on the verge of a long stalemate. A JPMorgan memo released Friday by a team led by Jahangir Aziz said US-China trade tensions are expected to remain a “palpable risk” as China is in the midst of “economic policy regime change” and an “American-Chinese intensification”. the tension since 2018 has entered a relative freeze. “

Speaking on Friday after a disappointing jobs report highlighted the difficulties of the economic recovery, Biden again argued for his infrastructure plan, which is struggling to find its way through Congress.

He stressed the need for America to regain its leadership and become more “competitive”, and he pointed out that a country outperforms and spends more than America on infrastructure and the economy: that country is China. It could mean a lot more skinny Christmases.

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