China Will Respond in Kind to US Chip Export Restrictions 

If the United States imposes more investment restrictions and export controls on China’s semiconductor industry, Beijing will respond in kind, according to China’s ambassador to the U.S., Xie Feng, whose tough talk analysts see as the latest response from a so-called wolf-warrior diplomat.

Xie likened the U.S. export controls to “restricting their opponents to only wearing old swimsuits in swimming competitions, while they themselves can wear advanced shark swimsuits.”

Xie’s remarks, made at the Aspen Security Forum last week, came as the U.S. finalized its mechanism for vetting possible investments in China’s cutting-edge technology. These include semiconductors, quantum computing and artificial intelligence, all of which have military as well as commercial applications.

The U.S. Department of Commerce is also considering imposing new restrictions on exports of artificial intelligence (AI) chips to China, despite the objections of U.S. chipmakers.

Wen-Chih Chao, of the Institute of Strategic and International Affairs Studies at Taiwan’s National Chung Cheng University, characterized Xie’s remarks as part of China’s “wolf-warrior” diplomacy, as China’s increasingly assertive style of foreign policy has come to be known.

He said the threatened Chinese countermeasures would depend on whether Beijing just wants to show an “attitude” or has decided to confront Western countries head-on.

He pointed to China’s investigations of some U.S. companies operating in China. He sees these as China retaliating by “expressing an attitude.”

Getting tougher

But as the tit-for-tat moves of the U.S. and China seem to be “escalating,” Chao pointed to China’s retaliation getting tougher.

An example, he said, is the export controls Beijing slapped on exporters of gallium, germanium and other raw minerals used in high-end chip manufacturing. As of August 1, they must apply for permission from the Ministry of Commerce of China and report the details of overseas buyers.

Chao said China might go further by blocking or limiting the supply of batteries for electric vehicles, mechanical components needed for wind-power generation, gases needed for solar panels, and raw materials needed for pharmaceuticals and semiconductor manufacturing.

China wants to show Western countries that they must think twice when imposing sanctions on Chinese semiconductors or companies, he said.

But other analysts said Beijing does not want to escalate its retaliation to the point where further moves by the U.S. and its allies harm China’s economy, which is only slowly recovering from draconian pandemic lockdowns.

No cooperation

Chao also said China could retaliate by refusing to cooperate on efforts to limit climate change, or by saying “no” when asked to use its influence with Pyongyang to lessen tensions on the Korean Peninsula.

“These are the means China can use to retaliate,” Chao said. “I think there are a lot of them. These may be its current bargaining chips, and it will not use them all simultaneously. It will see how the West reacts. It may show its ability to counter the West step by step.”

Cheng Chen, a political science professor at the State University of New York at Albany, said China’s recent announcement about gallium, germanium and other chipmaking metals is a warning of its ability, and willingness, to retaliate against the U.S.

Even if the U.S. invests heavily in reshaping these industrial chains, it will take a long time to assemble the links, she said.

Chen said that if the U.S. further escalates sanctions on China’s high-tech products, China could retaliate in kind — using tariffs for tariffs, sanctions for sanctions, and regulations for regulations.

Most used strategy

Yang Yikui, an assistant researcher at Taiwan National Defense Security Research Institute, said economic coercion is China’s most commonly used retaliatory tactic.

He said China imposed trade sanctions on salmon imported from Norway when the late pro-democracy activist Liu Xiaobo was awarded the Nobel Peace Prize in 2010. Beijing tightened restrictions on imports of Philippine bananas, citing quarantine issues, during a 2012 maritime dispute with Manila over a shoal in the South China Sea.

Yang said studies show that since 2018, China’s sanctions have become more diverse and detailed, allowing it to retaliate directly and indirectly. It can also use its economic and trade relations to force companies from other countries to participate.

Yang said that after Lithuania agreed in 2021 to let Taiwan establish a representative office in Vilnius, China downgraded its diplomatic relations from the ambassadorial level to the charge d’affaires and removed the country from its customs system database, making it impossible for Lithuanian goods to pass customs.

Beijing then reduced the credit lines of Lithuanian companies operating in the Chinese market and forced other multinational companies to sanction Lithuania. Companies in Germany, France, Sweden and other countries reportedly had cargos stopped at Chinese ports because they contained products made in Lithuania.

When Australia investigated the origins of COVID, an upset China imposed tariffs or import bans on Australian beef, wine, cotton, timber, lobster, coal and barley. But Beijing did not sanction Australia’s iron ore, wool and natural gas because sanctions on those products stood to hurt key Chinese sectors.

Adrianna Zhang contributed to this report.