Analysis & Opinions - The National Interest

Biden’s War on Chinese Computer Chips Harms Americans

| June 12, 2022

A less confrontational approach towards Chinese chipmakers would reduce inflation and stem the escalatory spiral of economic warfare between the United States and China.

The shortage in microelectronics is increasing prices in addition to stunting economic growth in the United States. Inflation has reached a forty-year high as a result of pandemic-driven distortions in demand and disruptions in supply chains for key inputs like semiconductors. Treasury Secretary Janet Yelled estimated this week that “a third of U.S. inflation is new and used cars and … it is all due to a shortage of semiconductors.”

U.S. foreign policy is making the chip shortage worse, thereby fueling inflation. The Biden administration has sanctioned more than twenty major Chinese chip companies, opting to lengthen and expand Trump’s trade war. This has helped reduce China’s production of semiconductors: in 2021, China’s share of the global semiconductor market fell for only the second time this century. Restricting the growth of China’s semiconductor industry is the single best way to reduce the number of semiconductors that are produced as China assembles more chips than any other country.

The economic costs of this hawkish stance toward China are significantly greater than its illusory geopolitical benefits. Brian Deese, the director of President Joe Biden’s National Economic Council, made a startling admission in April: “The best estimates are the lack of available semiconductors probably took a full percentage point off of [U.S.] GDP in 2021.” The United States and Taiwan control key chokepoints in the global semiconductor supply chain, meaning that China’s chip industry poses few national security risks to the United States. Biden should reverse America’s counterproductive offensive against Chinese chips not only to slow inflation but also to moderate America’s worsening economic war with China.

Semiconductors are an essential component of various technologies, ranging from scannable credit cards to intercontinental ballistic missiles. The pandemic caused a surge in demand for semiconductors since consumers bought new electronics as they began working from home. Even after the initial coronavirus wave waned the rupture in supply chains due to shutdowns at plants and ports continued. Consequently, U.S. companies have only a five-day excess supply of chips, down from a forty-day surplus before the pandemic.

The semiconductor shortage has been one of the core drivers of inflation in the United States. According to an analysis of over 200 American manufacturing sectors by the St. Louis Fed, prices in sectors that rely on chips were six percentage points higher than in other manufacturing sectors. The chip shortage also caused carmakers to produce 7 million fewer cars in 2021, driving up U.S. prices for new cars by 8 percent and used cars by 40 percent.

For more information on this publication: Belfer Communications Office
For Academic Citation: Klyman, Kevin.“Biden’s War on Chinese Computer Chips Harms Americans.” The National Interest, June 12, 2022.

The Author