US-China trade talks end in more chip war salvos

Top US and Chinese trade officials have resumed trade talks but both sides continue to threaten each other with semiconductor industry-related sanctions. 

China’s Commerce Minister Wang Wentao and US Secretary of Commerce Gina Raimondo had “candid and substantive discussions” in a meeting in Washington on May 25, according to news reports quoting official statements.

But on May 27, Raimondo announced the conclusion of negotiations on a landmark Indo-Pacific Economic Framework for Prosperity (IPEF) Supply Chain Agreement that irked Chinese officials.

According to the agreement, 14 IPEF member countries including the US, Australia, India and Japan will create a new IPEF Supply Chain Crisis Response Network that can serve as an emergency communications channel when one or more partners face an acute supply chain crisis.

They will also create an IPEF Supply Chain Council to oversee the development of sector-specific action plans designed to build resilience and competitiveness in critical commercial areas.

“Regional cooperation frameworks, in whatever name, need to stay open and inclusive, rather than discriminatory or exclusive,” Mao Ning, a Chinese government spokesperson, said on Monday about the IPEF.

“Disrupting the function of the market, politicizing normal trade activities and setting barriers to hinder industrial cooperation such as semiconductor cooperation is the biggest risk to supply chain stability.” 

Mao said Japan and the US should not undermine other countries to perpetrate hegemony or protect what she characterized as “selfish” interests.

Chinese state media on Monday also criticized Raimondo for pushing forward an agreement expressly created to suppress and contain China. The state reports said Beijing will fight back if the US imposes more technology curbs on China.

“Fourteen IPEF countries led by the US have reached a consensus to improve the resilience and security of their supply chains of semiconductors and key minerals,” Xin Bin, a commentator, wrote in an article published by the Communist Party-run Global Times on Monday, “But this will only hurt the stability of the world’s supply chain.”

“The purpose of the Biden administration’s foreign economic policy is not to ensure the interests of the US’s allies, but to use the allies to strengthen the US’s own supply chains and contain China,” the Global Times report said.

Investment curbs

China had been unwilling to talk to the US for months after bilateral tensions spiked due a Chinese spy balloon that was spotted in North American airspace in late January.

The situation was poised to deteriorate further in April after reports indicated US President Joe Biden would soon sign an executive order to restrict US companies and private equity and venture capital funds from investing in China’s high technology sectors.

The US has not yet unveiled the investment curbs but it successfully persuaded other G7 countries to join hands to “de-risk,” rather than “decouple,” from China during the G7 Summit held in Hiroshima, Japan, from May 19-21.

Tit for tat, Beijing announced on May 21 that China’s key national infrastructure operators are barred from purchasing products from Micron Technology because the US chip maker reputedly poses network security risks. 

On May 23, the Japanese government officially said it will add 23 items, including advanced chip-making equipment, to its list of regulated exports to China. The new measures will take effect on July 23.

China’s Ministry of Commerce said Monday that Wang had expressed its diplomatic discontent to Japanese Minister of Economy, Trade and Industry Yasutoshi Nishimura during a recent meeting over the matter.

“Japan ignored China’s strong opposition and insisted on introducing semiconductor export control measures, which seriously violated international economic and trade rules and severely damaged the foundation of industrial development,” Wang told Nishimura during an APEC ministerial meeting held on May 25-26. “China is strongly dissatisfied with this and urges Japan to correct its wrong practices.”

“We hope that Japan will correct its perception of China and truly promote the stable development of economic and trade relations between the two countries with a constructive attitude,” he said.

Wang also said China firmly opposes the G7 Leaders’ Statement on Economic Resilience and Economic Security, which called for adopting a common approach to de-risk and diversify the West’s economic ties with both Beijing and Moscow.

Meanwhile, in a May 25 meeting with Wang in Washington, Raimondo raised concerns about the recent spate of actions Beijing has taken against US companies operating in mainland China.

She said in a media briefing on May 27 that the US government “firmly opposes” China’s ban on Micron and “won’t tolerate” the restrictions, which she characterized as “plain and simple economic coercion.”

China’s countermeasures

Similarly, Beijing expressed concerns about US trade policy, semiconductor sanctions, export bans and outbound investment screening against China at the meeting, a Shanxi-based writer said in an article published by Paitou Observe, a social media account operated by the state-owned Defense Times, on May 28.

“The US wants to resume dialogues with China but it keeps stepping up its efforts to contain China,” the columnist wrote. “Perhaps the US is now feeling guilty. It tries to use the term ‘de-risking’ to describe its decoupling with China.”

He wrote the ban on Micron’s products is likely only the first round of countermeasures to be imposed in retaliation against the US’ tech curbs. He says China will cooperate with the US only if it can show more sincerity.

Before meeting with Raimondo, Wang chaired a meeting with major US companies including Johnson & Johnson, 3M, Dow, Merck and Honeywell in Shanghai on May 22. The American Chamber of Commerce in Shanghai also attended the meeting. 

The Shanxi-based writer said in an article on May 25 that by holding a meeting with top American firms, Wang wanted to emphasize that China is still committed to high-level opening of the economy and continues to place high importance on attracting foreign investment. 

The same writer also noted that some US officials have described the Micron ban as “retaliation,” making some US firms worry that they will be targeted by China in the same way.

“Actually, China did not ban all Micron’s products, but only those used in key information infrastructure, such as government departments, state-owned enterprises and financial institutions,” he wrote. “China’s ban on Micron is a preliminary warning: only naughty children will be punished.”

He wrote that China is confident that Micron’s current market share in the country will be absorbed by Chinese chip makers such as Yangtze Memory Technologies Co and ChangXin Memory Technologies.

Matthew Miller, a US State Department spokesperson, said on May 22 that Beijing’s action against Micron is inconsistent with China’s assertion “that it is open for business and committed to a transparent regulatory framework.” 

Read: With Micron ban, China says no to ‘de-risking’

Follow Jeff Pao on Twitter at @jeffpao3