The current dispute between the US and China relating to the supply of microchips has more profound implications than a one-off spat over trade. It points to a fundamental change in the global economic system, as the realisation is dawning on Washington and Brussels that the People’s Republic is inexorably gaining the upper hand. After centuries of world dominance, the era of European and US supremacy is coming to an end.
In a desperate attempt to stave off the inevitable and reinforce the rule of capitalism, Donald Trump is thrashing around, seeking measures to halt the advance of history. Among a plethora of often erratic measures, he is now trying to stall the flow of hi-tech equipment from the US and EU to China by focusing on microchips. From smartphones to computers, from weapon systems to satellites, from the stock market to industrial control systems, practically everything works today thanks to a tiny yet powerful resource: microchips. Hence the effort to deny China access.
Not for the first time is the United States leading a drive in an effort to prevent the technological advance of other countries. In 1949, they launched the ‘Coordinating Committee for Multilateral Export Controls’ in order to prevent the USSR from gaining access to Western technology. How successful this strategy was may be gauged from the fact that over the following decade the Soviet Union launched the world’s first satellite into space and, two years later, sent the first man into orbit around the earth.
In the modern era, though, the current US president has decided to continue with a policy first introduced by his predecessor, Joe Biden, and that is to target Nvidia’s exports to China. Under the management of Jensen Huang, the California-based company manufactures state-of-the-art microchips, including those used in the production of advanced artificial intelligence (AI) applications. For a period of time, the hi-tech industry in China bought large quantities of microchips from Nvidia.
In light of this, Trump decided to double down on Biden’s restrictions and in April of this year imposed a complete ban on the export of the valuable H20 chip. However, a number of factors intervened that forced the Donald to retreat.[1] Deprived of access to the Chinese market, Nvidia lost a huge slice of its regular income, resulting in the company being forced to cut back greatly on research and development. At a time of rapid advances in this field, it would probably have meant the company losing its lead in this crucial area.
A fact reinforced by the shock delivered to the smug US “tech-bros” and their volatile asset in the White House by the creation of the Chinese AI app, DeepSeek. By developing and granting open access to this high-powered app, China demonstrated that its citizens had the technical ability to match (and possibly outperform) anything Silicon Valley could do. More recently still, after being barred from markets in the US and much of Europe, the Huawei company has succeeded in manufacturing advanced microchips on a par with those produced by Nvidia.
And if that wasn’t enough, China has fired a shot across its competitors’ bows by restricting the export of rare earth materials. China controls an estimated 90% of the world’s rare earth refining and processing capacity [2] and holds nearly half of the global total rare earth reserves—materials necessary for the production of a wide variety of hi-tech devices, from lightbulbs to guided missiles. For example, the American F-35 fighter jet depends on rare earth magnets for its sensors, engines and wing flaps.
Faced with being out-manoeuvred, Trump did what any unprincipled capitalist (is there any other type?) would do and did a deal. In August, Nvidia and another, albeit smaller, US company, AMD, were permitted to sell mid-range microchips to China, but only after paying the US Treasury 15% of their revenue from these exports.
Conceding ground in this crucially important sector is indicative of the overall change in the global economic system referred to at the beginning of this article.
According to a report in the Financial Times last month, “China accounts for two-thirds of global EV (electric vehicle) sales, compared with just 9% in the US. China also has about 70% of the world’s battery share, as well as dominance across the processing of nickel, cobalt and graphite and production of cathodes and anodes.” [3] All are crucial to battery performance, longevity and energy density in advanced engineering. Complementing its manufacturing capacity, the People’s Republic assists climate improvement, as it leads the world in renewable energy deployment, producing 60% of global wind turbines and 80% of global solar panels.
Central to the emergence of the new order being led from Beijing is the country’s employment of socialist-driven central planning. Currently in the process of developing the country’s 15th Five-Year Plan, the emphasis will continue to be on the pursuit of greater self-reliance and strength in science and technology. Standard Chartered’s conservative estimate is for China’s economic growth at 4.3% over the next five years. Goldman Sachs estimates the US rate for the same period to be approximately 2.1%.
No surprise, therefore, why the White House and its allies are desperately trying to stall the rise of China, with its practice and example offering solid evidence of a viable alternative to monopoly capitalism. Because when the chips are down, history is on the side of progressive humanity, as exemplified by ‘Communist China’.
