52 The Economist January 29th 2022
International
AglobalcontestoversemiconductorsGame of chiplomacy
D
uring donald trump’s presidency
many people looked afresh at China’s
technological prowess. Some concluded
that it posed a threat to Western econo
mies, and perhaps even to global security.
In news headlines Huawei, a brilliantly
successful manufacturer of telecoms
equipment, became the face of that threat.
America accused the firm of acting as a
conduit for Chinese government surveil
lance and control. In 2018 America clob
bered Huawei. It banned the export to the
Chinese firm of American microchips es
sential for its products. This seems to have
had the desired effect. Last year Huawei’s
revenues shrank for the first time in a de
cade, by almost a third.
It was unprecedented for a state to sty
mie so huge a tech company. Huawei’s rev
enues were about as big as Microsoft’s. But
the feat was not without costs. Because the
Trump administration acted without co
operating closely with America’s friends, it
prompted investors from far and wide to
add missing links to parts of the semicon
ductor supply chain that are beyond the
reach of American law. Japanese firms, among others, have
started quietly marketing their products in
such a way as to evade America’s Export
Administration Regulations, qualifying
them as “earfree”. American firms, many
of which sell billions of dollars of equip
ment to China every year, began looking
for neutral territory from which they might
continue to export supplies. Singapore and
Malaysia led the way. “Who would willing
ly sign up to be restricted by the us govern
ment?” chuckles a lawyer in Washington,
who has been navigating tech clients
around the new restrictions.
Meanwhile, Chinese firms, spurred on
by billions of dollars of investment by the
state, have redoubled their efforts to devel
op their own versions of chip technologies
they had previously imported along supply
chains linked to firms in America. The way
things began to go, it looked as if the Amer
ican government would steadily lose its
grip over the chip supply chain. To avoid
that outcome, and to keep a modicum of
control over what technology flows into
China, it must build a consensus with
friendly countries. Since Joe Biden took office a year ago,
his officials have been raising the issue of
chip controls whenever they talk to foreign
allies. A lobbyist in Washington says that
in 25 years he has never seen semiconduc
tors so consistently top the diplomatic
agenda. Governments and companies have
been setting up forums to align policy over
the trade in chips and the equipment and
material used to make them.
Some see a parallel with the Organisa
tion of the Petroleum Exporting Countries,
better known as opec. For decades its
members, all oil exporters, have clubbed
together to try to control how much oil
reaches the world market, in order to influ
ence prices. Today’s new forums mark the
first steps towards creating a similar setup
to control the export of semiconductors, in
the hope of retaining a technological edge
over China. It could be called the Organisa
tion of the Semiconductor Exporting
Countries: osec.
Diplomatic bodies dedicated to forging
multilateral agreements over the export of
technology already exist. But they are poor
at governing the trade in semiconductors.
In 1996 the Wassenaar Arrangement was
created, among other things to oversee
trade that may have a military use. It is the
successor to the Coordinating Committee
for Multilateral Export Controls, known as
cocom, the coldwar body that in effect
kept a Western embargo on trade with the
Soviet bloc. Officials pay lip service to the
idea of updating Wassenaar so that it might
help control the trade in semiconductors.The West and its allies are trying to set rules for the world’s most complex supply
chains—without China dominating the show. It isn’t easy