USA vs. China: The Dangers of Economic Sanctions

Imposing economic sanctions on China is a necessary measure or just another form of economic self-destruction?

The United States of America's approach to China and imposing economic sanctions on the latter has been a topic of discussion. The recent tensions between the two countries over trade and Taiwan have led some to think that the US is deliberately provoking China. However, there are fears that such actions might do more harm than good in the long run. In this article, we will explore the topic of economic sanctions on China and assess whether they are a necessary measure or just another form of economic self-destruction.

The United States has repeatedly used economic sanctions as a political tool in the past, but recent events with Russia have highlighted the negative consequences of such a strategy. Despite this, the Biden administration seems to be continuing this approach by planning to supply arms to Russia and targeting China. The US is considering imposing sanctions on China, but the question is, is this a wise decision or could it lead to disastrous outcomes?

The recent move to ban TikTok, a social media app owned by a Chinese company called ByteDance, has sparked controversy. The US House Foreign Affairs Committee has voted to give President Biden the power to ban TikTok and other Chinese-owned apps under a law called the International Emergency Economic Powers Act. However, some people are concerned that banning TikTok violates free speech rights. A spokesperson for TikTok also warned that it could hurt the export of American culture and values. Canada and the European Union have also imposed bans on TikTok, citing concerns over national security and spying by the Chinese Communist Party.

The history of sanctions between the US and China goes back to 1949, and some people wonder if the Biden administration will learn from the past or continue with ineffective policies. In the 1970s, the US eased up on sanctions against China, but recent actions by both Trump and Biden have caused controversy. The sanctions target Chinese corporations, enterprises, and research institutions.

In 1989, after the events at Tiananmen Square, the US stopped providing development aid and restricted exports to China, including weapons and military equipment. Fast forward to 2017, and China is now considered a threat to US national security. This has led to trade restrictions and measures against Chinese tech companies such as Huawei, which was put on a list that limits its business with the US.

The Office of Foreign Assets Control (OFAC) imposes financial sanctions on Chinese individuals and companies that break US sanctions against countries like Iran and North Korea or engage in human rights abuses or weapons of mass destruction proliferation. Those on the SDN list face consequences such as blocked assets, visa restrictions, and denial of access to the US financial system.

In addition to secondary sanctions, companies that break current sanctions may face enforcement measures or fines from the US government. Some Chinese organizations linked to the PRC's armed forces have been identified, and US citizens, residents, and legal entities are prohibited from investing in securities of companies defined as "communist Chinese military companies”.

Recently, the US government has taken action against China by expanding the scope of the national emergency declared during the previous administration. President Biden has added eight more organizations to the NS-CMIC List, which includes big names such as China Mobile Limited, China National Nuclear Corporation, and CNOOC Limited.

The US is also using export controls in its policy towards China. The Bureau of Industry and Security at the US Department of Commerce maintains a set of sanctions lists to restrict the export of certain products to listed companies. The Entity List and Military End Users List (MEU) contain about 80 companies, with Beijing Skyrizon Aviation Industry Investment Co., Ltd. and Chongqing Optel Telecom Technology Co., Ltd. being the only Chinese organizations added in '21 and '22. Being on the Entity List means companies need a license to export products from the US, which is often difficult to get if you are a Chinese company!

As the competition in the high-tech sector continues to intensify, the US Congress is pushing for various sanction bills targeting China. They aim to limit Chinese companies' access to technologies and components through sanctions and trade barriers, ultimately tarnishing their businesses' reputations. This trend could lead to technological decoupling between the two countries.

However, China's growing capability in advanced technology sectors does little to alleviate America's concerns. The US is dependent on foreign supplies of R&D-intensive products, including components and technology used in the defense industry. The semiconductor industry is a crucial area of competition where China is making significant strides in development. In contrast, the US semiconductor industry is experiencing a significant shortage of supply, leading to a loss of market share.

Due to tensions with China, some US companies are relocating high-tech production to India, but the long-term outcome is uncertain, especially given the current geopolitical climate where the US and its allies are engaging in economic pressure against Russia's partners.

A recent report by the Australian Strategic Policy Institute, supported by the US State Department, indicates that China is progressing faster than anticipated in the global technology race. The study shows that China has surpassed the US in critical and emerging technology fields, such as defense, space, robotics, energy, biotechnology, and artificial intelligence.

China leads in 37 out of 44 technologies examined, with all of the world's top ten leading research institutions in some areas being located in China. The report calls on Western countries to increase their investments in research and development to keep up with China's advantage.

The latest news reveals that China's chip industry is growing faster than its foreign competitors. In the past four quarters, 19 out of 20 Chinese companies saw an increase in revenue, a significant jump from just eight companies in the same period last year. Companies like Capricorn and the Chinese AI chip are surpassing global leaders such as TSMC. This growth is also boosting chip suppliers and designers based in China, with total revenue increasing by 18% last year, reaching over one trillion yuan. Keep an eye on Capricorn, whose revenue has more than doubled in the past four quarters.

Huawei, a Chinese telecom company accused of having close ties with the Chinese government, security, and intelligence services, is ahead of the United States in 5G deployment, with over a million base stations compared to just 100,000 in the US. The US and its allies have taken measures to restrict Chinese companies, including Huawei, from accessing their telecom networks.

However, Huawei's reputation in emerging economies remains strong, where it has been successful in providing next-generation networking capabilities at a lower cost, thanks to subsidies from Chinese state banks.

Recently, the Chinese government fought back against the US by organizing meetings and releasing public documents. One of the most interesting is "US Hegemony and Its Perils", which calls out America for meddling in other countries' affairs, starting wars, and causing trouble for the world. The document accuses the US of promoting conflict and making political alliances, using national security measures, sanctions, and international laws for their benefit, all while claiming to follow the "rules-based international order". The US is also accused of bullying other countries in the economy, politics, military, technology, and culture.

The question remains: Are sanctions on China a smart move, or economic suicide? Let us know what you think about it.