Following the collapse of the trade talks between the US and China in May,
Washington moved to ban Huawei, China’s top telecommunication company, from buying American-made software and semiconductors, followed by threats that more technology firms may be blacklisted.
The decision not only led to a further deterioration in the bilateral relationship, but also inflamed nationalist sentiment among the Chinese public, with many calling for a boycott of products from American tech firms such as Apple.
In response, the Chinese government said it would create a blacklist of “unreliable” foreign firms and individuals. According to Ministry of Commerce spokesperson Gao Feng, the entity list would include those who “do not comply with market rules,” deviate from a contract’s spirit or disrupt supplies to Chinese enterprises for “non-commercial purposes,” and seriously damage the legitimate rights and interests of Chinese enterprises.
In the meantime, as Chinese President Xi Jinping paid a visit to a major rare earth minerals company in Jiangxi Province, it led to speculation that China may be considering using rare earth minerals as a potential retaliation measure. It is estimated that the US relies on China for upwards of 80 percent of its rare earth imports.
But as the confrontation between the US and China looks set to further escalate, the Chinese government should be cautious in choosing its retaliatory measures. What China needs least is to close its door again. After decades of globalization, the supply chain of many industries has become highly integrated. In the 1990s, finished products accounted for about 70 percent of the total volume of global trade. But in 2018, the ratio has declined to 30 percent, with the rest being trade in parts and components.
This is particularly true in the semiconductor sector. For Huawei, American companies alone account for about one-third of its suppliers. For some parts, such as RF chips, 95 percent of its supply relies on foreign companies. Punishing foreign companies could easily backfire and hurt supplies in key industries. Even Ren Zhengfei, Huawei’s founder has warned against such an approach. Speaking to Chinese media in late May, Ren said he thanked American companies for their support along the way, stressing that it is American government policies, not American companies that are to be blamed.
While there are concerns that the US is trying to disengage from China and cut China from the global supply chain, China should be confident in its ability and potential to remain at the center of the supply chain.
Instead of adopting a nationalistic approach to supporting Chinese companies, China should focus on further fostering both domestic and cross-border cooperation in technology to counter the unilateral approach of the US.
By opening up to the world, China has achieved great economic success in the past four decades, and China’s future continues to rely on opening to the outside world.
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