Global Courant
There was a time when government spending to support certain industries was widely deplored as wasteful interference with free markets.
No longer. China, the United States and the European Union have massively increased government subsidies to industries, often supporting the development of advanced technologies. These subsidies are sometimes supplemented by policies designed to deny technological innovations to competitive economies.
A Global Trade Alert report found that the three economic powerhouses introduced 18,000 industry subsidy programs in the years following the 2008 financial crisis, roughly evenly split.
Now on the order of $361 billion a year, the industrial subsidy programs of the big three collectively exceed the GDP of four-fifths of the world’s countries. As the international institutions argued, these huge programs pose a particular problem to smaller economies, which cannot match them.
Unlike previous protectionist programs for import-competitive domestic industries, current subsidies are more likely to support industries that target a global market, especially high-tech companies.
Grant programs are increasingly mired in national security concerns, often justified by a stated demand to maintain an edge over rival countries or become independent of them in new technologies.
While WTO agreements discipline certain subsidies when a detrimental effect on competitors can be demonstrated, the new subsidies often fall outside the scope of international agreements.
The costliest and most spectacular example of the new subsidies is the fierce battle between the United States and China for advanced chips. Beijing has long been determined to catch up in chip technology, while Washington strives to stay ahead.
Joe Biden’s CHIPS bill aims to bring more production to the US. Image: Twitter/Screengrab
Both China and the United States now generously support the development and production of advanced chips, although neither produces advanced chips in commercial quantities on their own territory.
Under programs announced in October 2022, the United States has adopted a dual policy of subsidizing advanced chip manufacturing domestically while agreeing with security allies to restrict China’s access to advanced chips and advanced chip-making machinery. to deny.
Since the United States does not currently make advanced chips or the machines to produce them, it relies on Taiwan to refuse to make advanced chips for Chinese companies and the Netherlands refuse to deliver them with advanced chip making equipment.
At the same time, Washington is paying billions of dollars to the Taiwan Semiconductor Manufacturing Company (TSMC) and South Korea’s Samsung to establish advanced chip factories in the United States.
China currently produces 16% of the world’s chips, more than the United States. But it can’t yet mass-produce the advanced chips that the United States is trying to deny.
Although presented in the May 20, 2023 G7 Communiqué as a denial of one of the “limited set of sensitive technologies”, the US goal is widely believed to be to block China’s advancement in artificial intelligence technologies.
These technologies are already widely used in military applications such as eavesdropping and self-piloting drones, but more importantly, they offer the potential for large-scale commercial transformation. As CSIS expert Greg Allen explained in 2022, US strategy has shifted from slowing the pace of China’s advance to actively trying to reverse it.
China is not far behind the United States in the number and quality of artificial intelligence research publications. But Chinese companies face serious difficulties in training large language models of the quality developed by their US counterparts due to the shortage of advanced chips.
While it is widely believed that China is 10 years behind in chip production, there are plausible signs that Chinese companies can now design advanced chips. Despite having a slightly smaller economy than the United States, the value added of Chinese manufacturing is about the same as that of the United States, Germany, Japan and South Korea combined.
The new intensity and lavish scale of industrial subsidies among the economic powerhouses, coupled with the entanglement of these programs in national security reasons, pose problems for lesser powers.
Australia, for example, cannot begin to comply with the new levels of industry subsidies. There is also significant risk of being sucked into what is essentially commercial competition on the US side, to the detriment of Australia’s much larger economic relationship with China.
There are already signs of that in the mineral pact between Australia and the United States, signed in May 2023. There are thousands of research collaboration agreements between China and Australia, some of which are under threat, especially if the United States extends its chip denial to others frontier areas of technology, as predicted by the Biden administration.
China is doubling down on its own chip-making capabilities, but it may not work. Image: Twitter
Once dominated by corporate interests and economic bureaucrats, large parts of industrial policy are now shifting to the realm of national security. Australia’s Office of National Intelligence Director-General Andrew Shearer noted in March 2022 that technology is “at the center of gravity in this new geopolitical battle”.
The policymaking apparatus in Canberra has been recast to allow a national security lens to look at what used to be economic policy decisions.
This is evident in departments such as the Treasury, the Foreign Investment Review Board, and the Department of Foreign Affairs and Trade, the increased importance of the Office of National Intelligence and the Department of Home Affairs, and the changing focus of the Five Eyes intelligence sharing group. .
John Edwards is a Senior Fellow at the Lowy Institute and an adjunct professor at the John Curtin Institute of Public Policy at Curtin University.
This article was originally published by East Asia Forum and has been republished under a Creative Commons license.
Similar:
Loading…
