Biden slaps new chip restrictions on Beijing as exports fail to stem slide in profits

(Originally published Jan. 14 in “What in the World“) Even a record trade surplus isn’t enough to turn China’s deflating fortunes around.

With domestic demand for goods—and prices for them—falling, China’s companies began earlier this year flooding the world with products they can’t sell at home. The result? A record, $990 billion, trade surplus.

Despite that staggering trade imbalance, China’s companies haven’t been able to revive profits. According to the latest government data, companies with more than 20 million yuan ($2.7 million) in annual sales saw profits drop by 4.7% on average in the first 11 months of last year, with sales growing just 1.8%. That compares with 5.9% growth in profits in 2022 as the nation bounced back from Covid in 2022, when profits dropped 4%.

Manufacturers are still burdened with massive oversupply and cannibalistic price-cutting that the world just can’t absorb. News of the record trade surplus won’t help: incoming U.S. President Donald Trump is already promising to jack up tariffs on Chinese imports to 60% from 20%.

And the White House’s current occupant continues to tighten the protectionist screws. Outgoing Pres. Joe Biden on Monday imposed new restrictions on exports of the most advanced U.S. semiconductors to prevent China from buying them for its military. U.S. chip makers, led by Nvidia, decried the new licensing rules, saying they would only help their competitors. The policy also appears to overlook the likelihood that it will spur China to accelerate development of its domestic chip industry under companies like Huawei and SMIC to reduce its dependence on Western technology.

China last month retaliated against Biden’s earlier restrictions on U.S. chip sales by restricting its exports of rare-earth minerals to the U.S. Biden’s latest moves will also likely support Beijing’s narrative that behind Washington’s security concerns lays a neocolonial urge to prevent China from regaining the global stature it enjoyed before Western powers imposed unequal trade treaties and territorial concessions on it in the mid-19th century.

Long memories aside, China remains well behind the U.S. and its allies in chips used to drive the massive data centers behind developing AI and cloud computing. The goal in this race is to pack more transistors onto a single chip, thereby multiplying each chip’s computing power. While the most advanced U.S.-made chips (most made under contract by a company that is technically also Chinese, the Taiwan Semiconductor Manufacturing Co.) use transistors that have been shrunk to just 3 nanometers and even 2nm, Chinese companies are still struggling to make chips with 7nm transistors.

That makes Taiwan an even more valuable chip (pun intended) in the Cold War chess match China and the U.S. are playing. Whether China is plotting for an inevitable invasion or merely preparing for one to discourage Taiwan from declaring independence is up for debate. Either way, preparations continue. In the latest evidence, China appears to be building mobile landing piers that could be used to invade Taiwan.