Chethana Janith, Jadetimes Staff
C. Janith is a Jadetimes news reporter and sub-editor covering science and geopolitics.
The maximalist US approach to deterring China's digital competition may not be fully effective through economic measures alone.
A week prior to finalizing a deal, US President Donald Trump proposed $500 billion worth of Ukraine's critical minerals as compensation for American support following Russia’s full-scale invasion in February 2022. This proposal, rejected by Ukraine’s President Volodymyr Zelensky, was coupled with threats to cut Starlink's satellite communication services if no agreement was reached. Underlying this pressure is the US government’s intention to reduce dependence on a nation controlling nearly half of the world’s critical mineral reserves vital for technological advancements: China.
Just 12 days into Trump’s second term, the administration imposed new 10% tariffs on Chinese imports, which were soon raised by an additional 10%. In response, China launched retaliatory measures, including antitrust probes into US tech firms, 10-15% tariffs on agricultural products, coal, crude oil, and farm machinery, alongside extending export controls on critical minerals integral to manufacturing items ranging from smartphones to F-35 fighter jets and solar panels.
Trump’s urgency in securing Ukraine's critical minerals - despite the country lacking current production and easy wartime access - highlights the question: How prepared is the US to face economic and trade pressures from China, particularly in high-tech industries? Can the US quickly adapt to disruptions in critical supply chains underpinning sectors like defense and technology? And ultimately, how effective have its economic deterrence strategies been in curbing China's technological ambitions?
China’s Response: A Full-Spectrum Digital Competitor
Washington is contending with China’s emergence as a formidable digital competitor. Dominating both global digital goods manufacturing and the rare-earth material supply chain, China holds a commanding position in tech development.
Despite US efforts to block China's access to critical technologies in AI supply chains, Chinese companies and their government have proven resourceful. The release of DeepSeek’s R1 model, with lower training costs, demonstrates that China’s tech ecosystem could become resilient to export controls sooner than anticipated. After years dominated by Apple’s iOS and Android, Huawei’s HarmonyOS has started gaining significant traction domestically, potentially paving the way for international reach. To secure access to advanced technologies, Chinese firms have pursued diverse strategies, including stockpiling high-end chips before export control enforcement and circumventing restrictions on banned NVIDIA chips (A100 and H100) via a growing underground market.
In stark contrast to earlier years, the Chinese government now responds to US tariffs with remarkable speed and decisiveness. Within days of new tariffs from Washington, Beijing expanded export controls on critical rare earths and minerals while levying retaliatory tariffs on US imports such as coal, oil, gas, and large-engine vehicles.
Furthermore, Chinese regulators are intensifying their measures against US businesses. Competition authorities have launched investigations into Google’s Android operating system and US chipmaker NVIDIA over alleged anti-monopoly violations, with reports suggesting a potential probe into Apple’s App Store. China’s Ministry of Commerce has also expanded its Unreliable Entity List - a countersanctions tool established in response to the US adding Huawei to its Entity List in 2019. Previously, the list primarily included US defense companies with minimal or no business operations in China. Now, it features companies like apparel conglomerate PVH and biotech firm Illumina, signaling a shift from symbolic to more impactful actions.
The Limitations of US Economic Tech Deterrence
Sanctions typically aim to achieve two objectives: denying specific capabilities to their targets and deterring certain behaviors. Over recent years, US tech sanctions against China have broadened significantly. Initially targeting companies like Huawei and ZTE, they now encompass the entire nation, extending from high-end semiconductors to sales channels and equipment manufacturers in third countries.
The effectiveness of these sanctions in capping Chinese semiconductor development - and, by extension, its progress in cutting-edge applications like AI - remains hotly debated. Huawei has managed to advance its mobile phone chip development despite lacking access to advanced manufacturing facilities, albeit at a slower pace and higher cost. Despite being labeled a national security risk, DeepSeek’s R1 model has spurred a nationwide adoption push across local governments, public services, and private companies like Tencent, which integrated it into the WeChat app. Even international firms, such as Amazon Web Services, now offer DeepSeek’s AI models.
Competence demonstrated by Chinese firms or authorities often elicits accusations of intellectual property theft, trade rule violations, or semiconductor smuggling. While such claims may hold merit, they should not overshadow the determination of Chinese policymakers and the growing expertise of their scientists, engineers, and business leaders.
Both the Biden and Trump administrations have employed various economic deterrence tools - sanctions, export controls, tariffs - to curb China’s tech dominance. However, these measures have yielded limited results and, in some cases, backfired. They have galvanized Chinese businesses to align with policy initiatives aimed at indigenizing high-end technology capabilities. The emergence of DeepSeek exemplifies this trend, as well as the innovative responses to constraints like funding shortages and technology sanctions. These challenges have driven developers to explore alternative technological paths, resulting in products like DeepSeek that rival American counterparts while being more efficient in terms of inference and training costs.
At the policy level, technological advancement remains central to China’s domestic development goals and its global strategy to compete with the US, which Beijing perceives as fundamentally opposed to its rise to near-peer status. Efforts to deter China from these objectives are likely to only strengthen its resolve.
US Domestic Challenges
US policymakers must increasingly consider the domestic political ramifications of sanctions against China, as their costs begin to hit closer to home. TikTok serves as a prime example: it remains one of the most popular apps among Americans, many of whom are less concerned with great power politics. Sensing a political opportunity with this demographic, Donald Trump granted the company a temporary reprieve, delaying the enforcement of a law mandating its divestiture or ban by 75 days.
However, TikTok is far from the only issue with domestic implications. Both the Biden and Trump administrations have aimed to bolster domestic AI supply chain production to reduce reliance on China and other nations by incentivizing and relocating fabs to the US. Yet, these strategies have yielded incremental and mixed results.
Former President Biden’s CHIPS Act sought to address the Taiwanese semiconductor manufacturing chokepoint by encouraging TSMC to relocate to Phoenix, Arizona. However, the initiative has fallen short of expectations. Production costs are projected to remain at least 50% higher when fabs eventually open after significant delays. Additionally, a shortage of skilled US workers for chip manufacturing threatens the pace and sustainability of TSMC’s operations in the US. Furthermore, while onshoring aims to mitigate risks of a semiconductor supply chain crisis in the event of a Chinese invasion of Taiwan, it inadvertently reduces the strategic protection that market concentration provides to Taiwan. Any disruption to TSMC - such as a China-driven blockade - could have catastrophic consequences for the global economy, including China itself.
Returns on investment in the domestic chipmaking industry are expected to take longer than anticipated. Trump’s unpredictable policymaking could further hinder the growth and resilience of the AI supply chain. For instance, while Trump recently announced Stargate - a $100 billion private joint venture led by OpenAI, Oracle, SoftBank, and others to build AI infrastructure in Texas - he simultaneously threatened to terminate the CHIPS Act after significant onshoring efforts by TSMC, which relies on the North American market for 70% of its revenue.
These contradictory policies come at a time when the US can ill afford missteps in the AI competition. In 2022, the US accounted for less than 1% of global fabrication capacity in advanced logic chip manufacturing. Although projections suggest this could rise to 28% by 2032, the outlook remains uncertain. US chipmaker Intel Corp has struggled to fulfill its commitments to boost domestic semiconductor manufacturing, facing a revenue decline in the fourth quarter and the abrupt resignation of its CEO in December.
Moreover, Trump’s heavy reliance on tariffs is a short-term strategy that risks exacerbating inflation and cost-of-living challenges - issues that played a significant role in his return to the White House. Tariffs on Canada, Mexico, and China are expected to increase annual costs for middle-class US households by $2,500 to $3,900, a policy arguably at odds with the “America First” agenda.
The use of tariffs as a political tool since Trump’s first presidency has contributed to a decline in China’s share of total US imports, making China more resilient to additional tariffs and better equipped to adapt its supply chains. Tariffs also create disincentives for global supply chains and drive up prices for US goods. Given that consumer electronics account for 27% of China’s exports, the US remains selective and hesitant to target this sector. Furthermore, diversifying imports away from China does not necessarily reduce exposure to Chinese industries. Since the early days of the trade war in 2018, Chinese manufacturers have relocated production lines to Vietnam, a country that has significantly benefited from the rerouting of US imports. This underscores that derisking involves not only reducing direct reliance but also addressing indirect reliance through other trading partners.
The Road Ahead
If Trump’s hawkish stance on China continues, it risks either backfiring or losing momentum unless supported by a well-balanced assessment of both domestic and international ramifications. During his previous administration, US pressure on EU member states regarding China led the bloc to label it a ‘systemic rival’ in 2019. However, threats to impose tariffs on EU goods and the US decision to initiate ‘peace talks’ with Russia were poorly received in Brussels. The EU remains divided on its approach to China, with some nations, like Spain, advocating for pragmatism: "Europe must make its own decisions, and on its own. And we have to decide when China can be a partner and when China is a competitor."
At the heart of the US deterrence strategy lies its maximalist ambitions, which render it unfeasible. The strategy aims not only to prevent harmful uses of technology but also to limit China’s economic growth potential. As China approaches a critical phase in its development, it is likely to intensify its focus on technological innovation as a driver of future prosperity. For those accustomed to the post-Cold War notion of US technological dominance, accepting that this primacy may no longer be sustainable can be challenging. However, economic deterrence alone is neither a comprehensive solution nor a viable long-term strategy - domestically or internationally - without supplementary measures.
Eventually, Washington will need to acknowledge China as a near-peer power. Isolating China could further its independence from US-linked technology supply chains (or shift reliance to indirect channels) and encourage it to strengthen partnerships with Global South countries, as seen in its Belt and Road Initiative infrastructure projects. As Australia’s former cyber and tech ambassador noted, if China "redefines cost structures by offering AI at a fraction of Western subscription costs," technologies like DeepSeek could disrupt existing AI business models and reshape market expectations.
The US technology policy must shift focus - not to outright deny technological diffusion but to recalibrate long-term economic deterrence objectives and collaborate on curbing harmful uses of emerging technologies, particularly consumer-facing AI models. Recognizing the inevitability of technological dissemination and working towards shared global frameworks could yield more sustainable outcomes for all stakeholders.
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