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Microchips are key to understanding Trump’s trade war with China

October 30, 2018

The Trump administration has launched a new salvo in its escalating trade war with China by adding Fujian Jinhua Integrated Circuit, a state-backed company, to a list of businesses that may not buy components from US firms.

The move highlights the significance of integrated circuits for global trade. It also betrays two key motivations for Trump’s trade strategy: punishing China for intellectual-property theft and curbing its technological ascent.

New rules: The US Commerce Department said in a statement issued yesterday that Jinhua’s increasing capacity to produce memory chips threatens the long-term economic viability of US suppliers. The company also stands accused of stealing proprietary information from a US company, Micron Technology. 

Take that: The ban will most likely cripple Jinhua’s business. In April, the Trump administration banned the Chinese telecommunications company ZTE from importing US microchips over the illegal export of technology to Iran and North Korea. ZTE was almost sunk by the ban, until Trump dramatically reversed course.

Bargaining chips: Integrated circuits have become a central theme of the trade war, partly because China is so dependent on importing them from the US. China imports more chips, by value, than oil, and the US accounts for around half of that supply.

Rising fears: Besides seeing microchips as a powerful weapon in the trade war, the Trump administration fears that China’s growing expertise in chipmaking could eventually challenge one of America’s biggest export industries. Microchips are also crucial for things like advanced weapons systems and supercomputers, and the administration is worried that as China’s chip-building prowess grows, so too will its military might.

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