These choke points represent an intolerable situation for China. If the West can block off China’s access to cutting-edge technology, then it can block off China. So China’s intention is to approach chip self-sufficiency. America’s intention is to become more chip self-sufficient than it is now and to create a global chip alliance that excludes China.
American foreign policy has been rapidly rearranged along these lines. Over the last two administrations, the United States has moved aggressively to block China from getting the software technology and equipment it needs to build the most advanced chips. The Biden administration is cutting off not just Chinese military companies, but all Chinese companies. This seems like a common-sense safeguard, but put another way, it’s kind of dramatic: Official U.S. policy is to make a nation of almost a billion and a half people poorer.
I’m even more amazed by how the new cold war is rearranging domestic politics. There have always been Americans, stretching back to Alexander Hamilton’s Report on Manufactures in 1791, who supported industrial policy — using government to strengthen private economic sectors. But this governing approach has generally been on the margins.
Now it is at the center of American politics, when it comes to both green technology and chips. Last year Congress passed the CHIPS Act, with $52 billion in grants, tax credits and other subsidies to encourage American chip production. That’s an industrial policy that would leave Hamilton gaping and applauding.
Over the next years and decades, China is going to pour immense amounts of money into its own industrial policy programs, across a range of cutting-edge technologies. One analyst from the Center for Strategic and International Studies estimates China already spends over 12 times as much of its G.D.P. on industrial programs as the United States does.