KURE - Yellen visit to China aims to defuse tensions with Beijing

2023-07-05 07:07:31 ET

Call it a trade war, a tech war, or even a chip war, but the fight between the world's two largest economies is ratcheting up to the next level. China has unveiled a set of national security restrictions that are likely to further disrupt the global supply chain by placing export controls on metals like gallium and germanium. The ingredients are key to semiconductors, electric vehicles and aerospace manufacturing, with shares of rare element players like AXT ( NASDAQ: AXTI ) and MP Materials ( NYSE: MP ) rising about 9% on the news premarket. Any broadening of the restrictions could be even more problematic, with China stepping up counter-measures if the U.S. imposes more tech curbs.

Backdrop: Last summer saw the passing of the CHIPS ACT , which allowed the federal government to pour billions of dollars into the semiconductor sector to "lead the world in future industries and protect national security." The Biden administration followed up with serious export controls to prevent American firms - or any global company that uses their tech - from selling chip designs, software and equipment to Beijing (it also prohibited U.S. nationals from working with Chinese chip companies to slow their technological advances). As it looks to isolate country, the U.S. even lobbied the Netherlands and Japan to curb exports of certain advanced chipmaking equipment, though some analysts still believe that time is on China's side (also read how semiconductors play into the situation in Taiwan ).

Chips are used in just about everything today, making the modern economy possible, but the bigger concerns here are those used in sensitive military technologies. The most advanced integrated circuits let nations stay far ahead of their rivals in terms of weapons systems and intelligence gathering, and more broadly, are a statement of geopolitical power. As China grows its influence, the country has been making strides towards producing its own advanced chips, and has even surprised the U.S. with its latest military developments. Remember the Chinese hypersonic missile test that went around the world in 2021?

To the rescue? Treasury Secretary Janet Yellen, the top U.S. economic policymaker, will head to China tomorrow, just weeks after Secretary of State Antony Blinken visited the country. Ahead of the trip, Chinese leader Xi Jinping said he wanted to work with other nations to "reject the moves of setting up barriers, decoupling and the severing supply chains." "We should make the pie of win-win cooperation bigger," he added, and "ensure that more development gains will be shared more fairly by people across the world." Things are increasingly turning sour, however, with the U.S. considering curbs on Chinese companies' access to cloud-computing services , as well as a new advisory that warns Americans to reconsider travel to Mainland China.

ETFs: FXI , KWEB , CQQQ , MCHI , ASHR , YINN , TDF , CHIQ , GXC , EWH , KBA , YANG , CXSE , CAF , CWEB , PGJ , KURE , CHIX , CYB

More on China

• Yellen describes model for U.S.-China economic relationship
• Jamie Dimon comments on JPMorgan's business in China

For further details see: