There is something going on here that I am not understanding. Not that that's new. But this almost feels like a staged play. And I'm not sue why....
From Philip Pilkington's Macrocosm substack, October 17:
Expect the consequences to be grim
A fever has caught on in Washington DC. It started out as a war fever, sparked by the Russian invasion of Ukraine. But it has been building on itself as the global order turns away from the United States. The last straw was the Saudi rejection of the Biden Administration’s request to delay oil cuts. This sent the Beltway buck wild, as the southerners say. In its frenzied state, DC is lashing out in ways that gravely threaten the future of the American economy.
Enter the Dragon
Washington is now looking for a fight. And it has found one it can pick with China over semiconductors. While the fight is an economic one, it is being portrayed by the White House as an existential battle between good and evil. National Security adviser Jake Sullivan was sent out to the podium to deliver the message and he pulled no punches.The Peoples’ Republic of China’s assertiveness at home and abroad is advancing an illiberal vision across economic, political, security, and technological realms in competition with the West. It is the only competitor with both the intent to reshape the international order and the growing capacity to do it.
To counter this threat, the White House has passed legislation banning the export of American semiconductors to China. The justification for this is national security. Sullivan again:
These restrictions are premised on straightforward national security concerns. These technologies are used to develop and field advanced military systems, including weapons of mass destruction, hypersonic missiles, autonomous systems, and mass surveillance.
Yet semiconductors are not used in key military technologies that give China the edge over the US in the pacific theatre. The key weapon in this respect is the Chinese hypersonic anti-shipping missile, the YJ-21. The YJ-21 gravely threatens the carrier battle groups in the South China Sea that would be depended on if there were ever conflict over Taiwan. Recently The Washington Post has claimed that American chips are used in Chinese hypersonics, and this seems to be the driving motivation behind the recent chip ban.
It is unclear that this matters, however. Why? Because Russia seems perfectly capable of building hypersonic missiles without access to American technology. The 3M22 Zircon was first successfully launched in mid-2017 and looks pretty similar to the YJ-21. And while there have been reports that the Russian hypersonics are using Western technology, this seems highly unlikely. The Russians have been sanction-proofing their economy since 2014. If they are still reliant on unreliable external sources for the semiconductors needed to make key munitions they would be highly irrational. It seems much more likely that the Russians have worked out a go-around.
The evidence too seems to point in the direction that they do not need access to American technology. Since the start of the war in Ukraine, there have been report after report of the Russians running out of missiles due to the sanctions. Yet time and again, Russian hypersonic cruise missiles rain down on Ukraine.
If the Russians have figured out a way to build hypersonics without direct access to American technology, it should not be hard for them to share the needed the process with the Chinese. This is assuming that the Chinese even need external help with the technology. They probably do not.
Finally, imagine that the United States can, in fact, ban Russia and China from buying the semi-conductors needed for their hypersonic missiles. What will obviously then happen is that a black market will form. Russian and Chinese buyers will simply enter foreign markets and buy the semiconductors there under the pretext that they are being used for something else.
Suicide by Sanctions
The sanctions placed on American chip exports is going to wreak havoc on the American chip industry. There are a number of reasons for this. The first is simply that the ban will destroy Chinese demand for these products. China is currently the biggest market for American semiconductor exports, making up nearly 15% of the total market. With a large amount of revenue destroyed, expect CapEx in the industry to fall. The economist David Goldman has estimated that for every $1 the US government provides in subsidies to the semiconducter industry, $5 will be lost in revenue due to the bans....
....MUCH MORE
