The US government has targeted Huawei over alleged espionage and ties to the state, claiming that the company's 5G wireless equipment poses a security risk. Credit: Handout.

The Covid-19 pandemic has resulted in a new low in US-China relations.

The delays and lack of transparency by China’s Party-state contributed to the rapid global diffusion of the novel coronavirus.

Beijing then launched campaigns of propaganda in an attempt to change the narrative. Meanwhile the White House has sought to deflect criticism of its poor management of the pandemic by blaming China.

Misinformation, disinformation and conspiracy theorizing in both countries have exacerbated tensions.

The mistrust and hostility that has flared up against the backdrop of the global pandemic have further undermined the prospects for even minimal co-operation.

Meanwhile, the US government has targeted Huawei over alleged espionage and ties to the state, claiming that the company’s 5G wireless equipment poses a security risk.

The rise of Chinese companies is viewed by many in the West as linked to the Chinese government’s power and its brand of techno-authoritarianism.

So what is the solution? Is there room for compromise amid this toxic environment?

Well let’s start here … what if we do follow the path of US national security types and the Pentagon, who want to shut down all high-technology to China, no matter what the cost to the world’s economy.

According to a Semiconductor Industry Association (SIA) study, dated April 5th, the US semiconductor industry actually relies on global supply chains and overseas markets.

Developed over the past three decades, it has enabled the industry to deliver continual cost reductions and performance gains that ultimately has made possible the explosion in end user adoption of info technology and digital services.

That’s a fancy way of saying people like you and me, who are dependent on technology in our everyday lives, in cars, computers and many other high-value products.

Let’s face it, semiconductors are highly complex products to design and manufacture. The need for deep technical know-how and scale has resulted in a specialized global value chain.

All countries, particularly key US allies, are interdependent in this integrated global value chain, relying on free trade to move materials, equipment, IP, and products.

And here comes the punch in the gut …

According to the SIA study, a hypothetical alternative with parallel, fully “self-sufficient” local semiconductor supply chains in each region to meet its current levels of semiconductor consumption would require at least US$1 trillion in incremental upfront investment and would result in a 35 to 65% overall increase in prices.

Clearly this hypothetical alternative is a non-starter — but if the Pentagon and the Five Eyes intelligence group has its way, that’s where we’re heading.

Asia Times columnist David Goldman, recently interviewed Peter Cowhey, Dean of the China Center at UC San Diego, chair of the Working Group on Science and Technology in US-China relations and co-author of Meeting the Challenge: A New American Strategy for Technology Competition.

What the report endorsed was the fact that “the United States should use technology licensing controls, and look at the possibility of financial support for semiconductor manufacturing in the US to keep us at that leading edge,” Cowhey said.

“(However) that is not the same as saying that you should radically divorce the AI, technology innovation system between the US and China.

“And it’s not to say that the semiconductor industry can’t have bounds of interdependence,” Cowhey continued. “For example, for a lot of commodity chips, it’s hard to see why having supplies out of China could necessarily be a problem.

“And more importantly, it’s hard to see why the US, if it had a secure base for advanced control of the leading edge of semiconductors, would want to restrict chip sales to China.

“And in fact, in our report, we said, with the proper set of controls and financial support for the US semiconductor industry, the US should have a relaxed policy about the sale of chips to China.

“Now, there may be specific use cases that would call that into question, but as a broad policy stance, I think that that’s a good starting point.”

In other words: No sophisticated equipment for Chinese chipmaking — but let them make all the older stuff they want.

Meanwhile, China in its latest 14th 5 Year Plan is clearly attempting to generate a self-sufficient design and production capacity partially in response to technology and trade frictions, but also due to their aim for “secure and controllable” indigenous supply chains.

But the process of researching, designing and manufacturing semiconductors — including the specialized materials and equipment contributing to each step in the process — is so complex, that no one country or one company can do it alone.

In a perfect world, the US could very well capture the next increment of semiconductor investments to help re-balance global production capacity into the US and regions with better political and environmental stability.

But what about the consequences?

Continuation of these bilateral tensions could have profound negative impacts for the chip industry and the entire world, according to the SIA study.

Both US semiconductor companies and unique raw material manufacturers, and also foreign vendors that rely on technology developed in the US, may be blocked from selling to at least some significant Chinese customers, if not to any Chinese company at all.

This could lead to a significant reduction in revenue for leading US semiconductor companies across the supply chain as well as global non-US companies.

— With files from