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Political analyst Viktor Pirozhenko on the effort by the U.S. to squeeze China out of global and regional supply chains.
The U.S. is taking its strategy to contain China to a whole new level. Washington is now trying to entangle the Asia-Pacific region in a web of trade and economic agreements, obliging the signatories to limit their cooperation with China. The restrictions will push China to the margins of the global market by squeezing it out of the regional supply chains of important goods. In particular, the agreements focus on U.S. competition with China in the semiconductors market.
The U.S. has given the Asia-Pacific countries the humiliating role of a battering ram aimed at the Chinese economy. The ultimate goal of the Biden administration is obvious — to economically weaken Beijing.
As part of this policy, the U.S. created the Indo-Pacific Economic Framework in May and held its first ministerial meeting in Los Angeles, California, last week. The IPEF intends to involve 14 countries in the region, excluding China.
In reality, this American initiative has little to do with economics. In fact, it serves as an instrument of geopolitical competition with China in the Indo-Pacific region, disguised as international economic cooperation.
Washington has identified four IPEF themes: Trade, labor and digital economy; infrastructure, clean energy and decarbonization; supply chain resilience; and tax and anti-corruption. At the same time, the agenda excludes the discussions of tariff reductions on regional exports to the U.S. As a result, access to the U.S. market, which many members of the Association of Southeast Asian Nations and IPEF sought for a while, will remain problematic for those countries. Hence, it is doubtful that the U.S. initiative will bring significant economic benefits to its participants.
Meanwhile, the U.S. is imposing its own standards regarding labor conditions and decarbonization without considering the technological specifics of the industry, hindering stable economic development. Thus, Chinese experts note that the U.S. is offering its partners a stick without a carrot.
The fundamental goal of IPEF is to stop any real economic integration in the region. That integration currently takes place in the format of the Regional Comprehensive Economic Partnership where China is a full-fledged participant. RCEP is based on a regional free trade agreement, balancing the interests of all member countries.
It is no coincidence that both RCEP and IPEF contain almost the same members. Of the 15 RCEP members, 11 countries took part in the U.S.-led IPEF. And among the IPEF countries, in addition to the U.S., India and Fiji, the remaining 11 countries are RCEP members. Indeed, the Biden administration’s aim is clear — to persuade or force other countries to move away from the Chinese industrial supply chains and create closed supply routes from a limited number of countries subordinate to the U.S.
In the IPEF agenda, the U.S. focuses on displacing China from the world supply chain of semiconductors and intends to establish its own control over their production. Hence, under the guise of populist nonsense about ensuring high security standards, the U.S. is actively putting together an alliance known as Chip 4. This alliance is set to include Japan, South Korea and Taiwan, alongside the U.S.
The strategy of this alliance is actually outlined by the CHIPS and Science Act signed into law by President Joe Biden in early August to increase the production of semiconductors in the U.S. One of the objectives of the law is to eliminate the heavy dependence of the U.S. on imports of semiconductor materials for the electronics industry, which was discovered during the COVID-19 pandemic.
However, the U.S. will solve this problem by forcing the world’s leading chip manufacturers to end cooperation with China. For example, according to this law, American and non-American companies are prohibited from expanding their production of semiconductors in China using advanced technology. This ban is imposed on a given company for 10 years after receiving subsidies and tax incentives for establishing production sites in the U.S.
The situation is very ambiguous for Washington. Both well-known U.S. companies and Asian manufacturers are unhappy with the law because they will suffer significant and irreparable damage in severing relations with China. Leading chip manufacturers, such as Apple, Intel, Samsung and Taiwan’s TSMC, will not be able to expand their production in China. Therefore, they will be unable to manufacture affordable products and incur massive losses despite colossal investment.
For example, about 30 companies involved in Apple’s supply chain have factories in Shanghai. This includes Foxconn — one of Apple’s key assembly sites. In addition, China-based factories import semiconductors from other countries and regions and install them into ready-assembled products that are then exported worldwide. South Korea’s Samsung Electronics exemplifies the scale of the interdependence of Asian companies in this industry. Its Chinese enterprises in 2021 yielded $7.98 billion — 13% of the company’s total revenue.
In general, Washington’s plans are as monumental as they are challenging to implement. But, in consequence, implementing them will destroy the existing division of labor in Southeast Asia. This destruction will aggravate the growth of global prices and may drive entire industries in developed countries, including the U.S., into crisis.
The author is an expert from the Intercultural Research Center at Huzhou University (China). The author’s opinion may not reflect the views of Izvestia’s editorial board.