Tensions in US-China Trade Relations Decimate Bilateral Tech Investment
Tensions between the United States and China have grown to a point where bilateral tech investments between the two countries have disintegrated to almost nothing.
Bain and Co.'s 2021 technology report revealed that the foreign tech investment between the U.S. and China had gone down by 96% in 2020 - from US$62 billion in 2016 to US$16B in 2020, a trend that seems to be irreversible at this point.
The report explains that the drop in investment was due to the ongoing trade war between the two countries, most notably when U.S. President Donald Trump was still in office. His successor, President Joe Biden, seems to have continued this trade war with China. The U.S. Commerce Department added 14 Chinese companies to its trade blacklist for national security concerns and their involvement in enabling the Chinese government's campaign against Muslim minorities in the Xinjiang Province.
The U.S.'s desire to become independent of China's semiconductor industry also contributed to the drop in investment. You may remember President Biden met with CEOs of various industries to talk about how the U.S. can mitigate and rise above the effects of the global semiconductor shortage through the infrastructure investments of the American Jobs Plan.
Additionally, the U.S. Senate approved the U.S. Innovation and Competition Act, a piece of legislation signed into law in June 2021, which the Bain and Co. report cited, to facilitate the growth and manufacturing of the U.S.'s semiconductor industry. The passing of this law marks one of the country's definite steps towards its independence from China's semiconductor industry.
Other countries and regions are also working to become self-sufficient in the manufacturing of semiconductors or increase their production at the very least. The report cites South Korea's US$450 billion investment to become the world's largest semiconductor manufacturing base by 2030. Meanwhile, the European Union invested US$150 billion to double its share of global semiconductor production by 2030.
China has also not been idle when it comes to decoupling its economy from the U.S. The report states that the country is spending US$1.4 trillion on infrastructure technologies like artificial intelligence, 5G networks and, most notably, semiconductors. China also increased its spending on research and development to US$378 billion in 2020. However, the country is yet to expand its semiconductor manufacturing because it lacks key process technology and critical equipment, the report stated.
Although the decoupling is irreversible, the report lists a few uncertainties that could affect the world in the same way the global semiconductor shortage does in the future. These uncertainties include whether the U.S.-led coalition against China succeeds, what will become of Europe if they choose to become self-sufficient, join the U.S.'s coalition or become a battleground for the ongoing trade war, and other similar scenarios.
To plan ahead of these uncertainties, Bain and Co. partner Anne Hoecker, who also led the research behind the 2021 technology report, told Nikkei Asia that tech companies would have to understand the particular "pinch points" of their supply chains. She also suggested tech companies try to qualify new suppliers to add resiliency and regularly review their long-term plans, in addition to becoming comfortable with constant adaptation.
Written by John Paul Joaquin