Competition of the Systems

Before the virtual conference between Biden and Xi, the United States seeks a balance between competition and confrontation in dealing with China. The technology sector, and with it Taiwan, lie at the center of the global race between world powers.

The virtual conference between U.S. President Joe Biden and Chinese President Xi Jinping continues the American diplomatic attempt to find common ground in global challenges and to responsibly manage the competitive relationship between China and the United States in a manner that will not cause a big stir.

The American government no longer has any illusions about China. Gone is the idea that China could develop into an open, free society thanks to its integration into world trade promoted by the United States. The viewpoint that China could limit itself to expanding its sphere of influence as a soft power with friendly, diplomatic initiatives has also disappeared. China’s military actions on the Indian border, its harshness in dealing with Japan and its undeclared trade war with Australia show, according to the assessment of Biden’s foreign policy advisers, that China is ready to present itself as an aggressive and assertive power when it suits its interests.

Unlike in the Cold War between the Western powers and the Eastern Bloc, questions of armament and nuclear arsenals are not in focus. According to an assessment by Kurt Campbell, Asia coordinator of the White House National Security Council, questions of armament are still important, as he recently clarified in a meeting. However, the true field of conflict is technology.

A Global Race in the Technology Sector

“It is increasingly clear to most observers that China is pursuing a robust, state-backed effort to displace the United States from global technology leadership,” said Rush Doshi, director for China of the White House National Security Council, in a congressional hearing. The attempt mainly has a geostrategic motivation. Beijing, Doshi elaborated, believes that the competition for the best technology will determine not only which company dominates a particular market, but also which country is best situated to become the most important world power.

In American perception, China now sees a historic once-in-a-lifetime chance to achieve global hegemony by strengthening the next generation with all means of key technologies like artificial intelligence, biotechnology or the internet. Xi and his advisers are motivated by the idea that the United States has its best years behind it. America’s hesitant response to the pandemic is an indication for China that the political model of the democratic market economy is not inevitably superior. The country’s political division, which culminated in the storming of the Capitol and the Black Lives Matter protests, gave the Chinese leadership further arguments for the analysis that the United States is beginning to weaken. Against this backdrop, Biden is pushing for political unity — usually in vain — so that other countries recognize the vigor of democracy.

Taiwan plays the central strategic role in the plans of both countries. One important reason is microchips. Taiwan is one of the most important producers. According to Stephen Ezell, vice chief of the think tank Information Technology and Innovation, the country possesses not only 22% of the global production capacity, but it is also specialized for the most recent and simultaneously most important generation of logic chips. In this case, Taiwan claims a market share of 92%.

American corporations like AMD, Nvidia or Qualcomm mainly use the highly qualified Taiwanese contract manufacturers for their microchips. Apple is one of the most important customers of the market leader for highly developed chips, TSMC. Value chains of both countries are very tightly linked. While the Americans provide equipment for the factories and chip designs, the Taiwanese provide the microchips. The significance of TSMC could become even greater for the United States if the corporation realizes its promise to build new microchip factories in Arizona. That is one comfort that compensates Biden’s advisers somewhat for the shock that Intel, the last significant manufacturer in America, plans to halt its production capacity and instead cooperate with Taiwanese contract manufacturers.

Back to Old Strength

China, on the other hand, is doing everything to increase its capacities and its production know-how. It views microchips as essential to its plans to achieve technological hegemony. This explains not only the massive subsidies in this sector, but also the increasing efforts to tie Taiwan more closely to itself. The United States wants to prevent this through military aid and other support, but in order to appease China it is making it clear that the U.S. does not support the country’s independence. An indisposed Biden had given a different impression with confusing comments and unsettled China.

The American government generally believes that it can beat China in competition through superior innovation. For this purpose, legislative initiatives are underway that are meant to reinvigorate the research, development and production of microchips in the United States with billions of dollars in investments. However, the legislative procedure is stalling in Congress.

Attempts to convince industries to reestablish production in America are also part of the considerations. They are driven by the idea that innovation is strongly tied to manufacturing. That’s why Biden not only left most of the tariffs on Chinese goods from the Trump era in effect, but also wants to promote the production of wind turbines, solar panels or 5G internet technologies. Some of his advisers are calling for the United States to quadruple its spending on research and development and dramatically increase immigration of qualified individuals.

The country wants to find its way back to its own strength. From this position, global problems like the pandemic, climate change or the proliferation of nuclear material can be more easily combated in cooperation with China.