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anchor: it is the latest source of tension between the united states and china. joe biden is accused of weaponizing tech knowledge he. what is behind this decision? this is inside story. welcome to the program. technology is the latest sector to be affected by the u.s. and china. washington has imposed controls

on exports of semiconductors to beijing. american companies will be restricted from selling and supplying. the department of commerce says it is to prevent sensitive technologies from falling into the hands of the china military. the u.s. has been trying to boost its own industry. in august, president joe biden approved subsidies for new manufacturing plants and research. >> china is trying to move ahead of us in manufacturing. the chinese communist party actively lobbied against chips and science act i have been pushing in the united states congress. the communist party china was lobbying against passage of this legislation. some of our friends on the other team bought it.

the united states has to leave the world and producing these chips. this law will make sure it will. anchor: china has accused it as a political weapon. >> u.s. abuses export control measures to block and suppress chinese companies. it deviates from the principal of fair competition and trade rules. it will damage american interest. anchor: let's take a closer look at why semiconductors are important. semiconductors are needed to run nearly anything that has an electronic component from smartphones, cars and military. the market was valued at about $595 billion in 2021 and is expected to become a trillion dollar industry by 2030.

countries producing the most are china, india and the u.s.. technologically, all trail taiwan. that is the most advanced. 65% of chips and 90% of the most advanced. let's bring in our guests. we have an associate fellow in the asia-pacific program, from shanghai, the chief economist at hang seng bank, and from london, a senior analyst at a global to elegy market system. good to have you with us. what is the thinking behind this decision? >> once you look at the

historical perspective when these export controls have been used, dating back to the cold war. you have export controls targeted in the 1950's, 1960's and 1970's aimed at stemming any advances the soviet union could make in the arms race that was underway. the geopolitical context has changed and the primary u.s. motivation comes with other positions taken in the last two to three years, recognition by administrations that we are in a technological race and a component of that is an arms race.

developing his advanced computing capabilities of which semiconductors are enablers of these technologies. whoever is able to master this will have a technological edge over the competitor. in this case, the u.s. is thinking mainly of china. we see narratives that export controls are somewhat new, that is not new. if you look at the perspective of a nationstate trying to protect its technological edge, the u.s. is well within its rights to enforce these controls. in the sense that u.s. allies who have access to these technologies will not be able to transfer them to china. that is the technical trade conception of why this is being

designed the way it's being designed. there is a huge geopolitical context. taiwan is the hub for global semiconductor production area any country that is able to predict its home to make sure technologies do not get transferred to china. the second element is to make sure the taiwanese manufacturers of semiconductors lean more towards the u.s. side than the chinese side, and this is going to be a delicate dance as it unfolds over the next five years. anchor: how do you expect china to react? they have said the u.s. is throwing its weight around in the market by using it as a political weapon.

how do you expect china to respond? >> china has been well aware. it has been redoubling efforts to be self-sufficient in chip manufacturing. from this point on, we can expect on financing, they already got huge financial support from the city and provincial government, supporting a large fund trying to develop the sector. the second one is talent. in the past decade, china has been hiring aggressively from taiwan to replenish its talents in terms of entrepreneurs and engineers to develop the domestic sector. at this point, there has been a bottleneck. in the past three years, the

labor inflow into china has been significantly slowed and the economics have been much dimmer than before. there has been some shaken confidence about where china can go from this point. if they can keep up, there is a chance china can develop quite fast to produce chips. anchor: do you that perspective? the intention is to try and set chinese chipmakers back. they do that? >> i think the measures, you can see the rationale behind the u.s. administration. you look at this from an angle from not just the measures last week but policies in recent

years, start with what we call the tech war, equipment and more recently, severe curbs on the chinese tech industry. more recently, restrictions on the export of u.s. semiconductors, and in the policies from last week, this one includes the sale of semiconductor manufacturing equipment as well as restrictions on personnel exchanges. we can say the policies have been consistent in the u.s. is flexing its muscle and looking deeper into where the values lie.

one could say they are landing the punches as well, the purpose is ensuring supremacy of u.s. technology and manufacturing, but also to me cap development. anchor: is there a danger this move could unite tensions further? >> that is the baseline expectation that this is a continuing saga that is going to unfold. it's the greatest drama in town attempting to gain technological supremacy in these new areas. machine learning, advanced capabilities. the question is, are there

global rules of the world which will enable the u.s. and china to come together like a trade agreement on items. that seems very limited. , there is little consensus to come to any kind of agreement on global rules of the world. they've tried many times and they have not succeeded. it's difficult to see anyone to finding these as constituting normal trade in the u.s. is using its sovereign exception in this case. tensions are going to rise in

this field and will have ripple effects elsewhere. taiwan aggravated after the nancy pelosi visit. anchor: let's talk about taiwan. taiwan has essentially corner the markets on semiconductors. what is taiwan's role going to be given the close relations it has with the united states and the fact china considers taiwan a renegade province, but there is an understanding china does not want to put too much pressure on taiwan because of the dependence it has. >> when it comes to chip manufacturing, china relies on imports, taiwan has been a

source of advanced chips from mn china. women look at the competition between the u.s. and china, everyone is very clear about what the endgame is. it's basically transformative technology and china wants to transition its economy to a consumer-based economy. things like e-commerce, smartphones, online payments, digital money has become very important. chips would be essential in this transition. recently, we have seen more restrictions from the u.s. and that is partly triggered by some breakthrough of the chinese company because some chinese companies has been able to make

its own seven nanometer chips. previously he was able to make 14 not ohmmeter had a reasonable scale. one can anticipate more restrictions on china, right now the biden administration is very clear on getting more aligned with its allies including europe, taiwan in order to curb the chip exports to china. it's going to happen next and depends on how much more the administration is willing to do. on the china side, the only thing we can anticipate is it will provide more financing, policy support and more talent for its semester chip industry. anchor:anchor: what is your take

on the implications of all this? >> taiwan is in a tough spot. we have seen geopolitical tensions and due to covid, there were some ripple effects of the supply chain. covid disruptions at some huge impacts to the industry, case in point, car manufacturers were running half of their normal capacity. globally, there is a huge demand for the products in taiwan. tsmc is a global company. the reason it exists is because it has dried to take a neutral stance and collaborate. the value chain is extremely long.

it is a specialized area from materials, ip, manufacturing. the reason tsmc has succeeded is in an open collaboration that it had with customers. we are looking at tsmc and some supply chain companies really being squeezed from nonmarket sources. they have to take difficult decisions in order to align with policies as well as catering to the markets. being located close to some of the biggest customers benefited them. if they had to move some assets to other places, it could be a

logistic challenge for them. not saying they would not do it, but is one concern. anchor: as yang was saying, there are interconnected parts. and if the policy will be effective, it needs everybody to do their part. means other countries allied with the u.s. to go along with what the u.s. is trying to do. how essential is that? >> the u.s. has introduced a framework which would make the decoupling a reality. i am referring to the indo pacific economic raymore, digital cooperation is one of

the pillars. the american position is they would like to share the advanced capabilities with allies. on strict conditions on access to information. embedded in this, as not only focused on intellectual property and digital issues, there is a trade pillar whether it morphs into a trade agreement, it's a bit early to speculate on that. the u.s. position on this ms. to rally and mobilize a group of allies in asia and europe in

order to build this coalition which has many planks, semiconductors being one of them. it is this broad strategic approach the u.s. hopes will help it gain an edge over a period of time. i they are taking a cohesive approach. anchor: luksika step back because a lot of people are wondering what this is going to mean for things like personal devices, phones and other electronic devices. we talked about military hardware, but is this going to

affect our daily use of these devices in getting the most advanced one year? let me put that to you, yang. >> certainly is a concern given we have a development of two different standards. in terms of the consumer market, i would say in the short to medium-term that it's not as big of an issue because in the short term, looking at the industry, we are in a downturn. as you can see from the environment, inflation and spending being squeezed, energy prices increasing. we have seen some key consumer electronics companies coming out with earnings revisions, cuts

and hiring frictions -- raises the point to the market is heading for a downturn. semiconductors being the -- and very global filled again. in the short term, what we're looking at, we are faced a more rapid reduction in demand. in the short to medium-term, we are unlikely to see a significant change or at least what we experience in covid times. in the medium to long-term, that would be somebody think about. as i mentioned, if companies are having to make decisions to move assets, capacity and personnel around, so must a break from the

current ways of doing things. there will be financial and operational costs involved in this. by the nature, it's a long chain and a lot of things need to go right and a lot of things could go wrong. we can have higher risks. anchor: what effect will this have on consumers? >> we have to remember the u.s. did not deny china access for all chips, only when it comes to the most advanced that will go in smartphones or self-driving vehicles. at this point, china is able

increase global sale and share of chips. anchor: what effect will this have? >> new will be focused on hardware. i agree on hardware, things probably will not change. on digital standards and software, we're going to be seeing a decoupling between chinese standards and the rest of the world. that's going to have a profound impact in the way we consume technologies in the way chinese use technologies. both of these competing systems will be built on cutting-edge hardware and software, but they will have different philosophies and operating systems that

reflect why the u.s. and china are involved in tensions in the first place.e. decoupling means the world we have lived in over the past four years has been seamless, frictionless, you can go from one country to the other with a single operating system. that is going to break down. this is what the american moves suggest. anchor: on that we will have to leave it. thank you very much. thank you for watching. you can see this program again anytime. for further discussion go to our facebook page. join the conversation on twitter. for me and all team, goodbye for

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