Do Export Controls Pay Off in the Long Term? A Study of Trade Bans in Great Power Crises

Introduction

On July 3, 2023, China’s General Administration of Customs and Ministry of Commerce, based on national security considerations, jointly issued a notice of export controls on gallium and germanium,¹ two important semiconductor materials, which went into force from August 1, 2023.² This means that exporters dealing with gallium and germanium must apply to the Ministry of Commerce through the provincial competent authority of commerce in accordance with regulations before the Ministry of Commerce will issue export licenses upon examination and approval. It is widely believed that this move is a Chinese countermeasure against the ban on chip production equipment exported to China imposed by the United States, the Netherlands, and Japan.

The intensifying confrontation between China and the United States in the semiconductor field began in 2022. In October 2022, the U.S. Department of Commerce unveiled a key restrictive policy toward the Chinese semiconductor industry, imposing sweeping export controls on manufacturing equipment for functional chips, high-performance chips, and semiconductors.³ This action has created a huge impact on China’s semiconductor industry. The United States also began to coordinate with Japan and the Netherlands, in the hope that the latter two countries would join the U.S.-led regime of export controls. Dutch manufacturer ASML controls the market for EUV lithography machines, while Japan is home to such leading chip industry suppliers as Tokyo Electron and Screen Holdings. At the end of January 2023, the United States reached an agreement with Japan and the Netherlands in Washington, completing the process of forming a tripartite chip alliance.⁴

Since July 23, 2023, the Japanese Ministry of Economy, Trade and Industry began to implement export controls on 23 types of advanced semiconductor manufacturing equipment.⁵ These devices and raw materials are mainly necessary for the production of 10 nm to 14 nm chips. The Netherlands announced export control measures for chip manufacturing equipment on June 30, 2023, and the control measures went into force on September 1, 2023.⁶ The Dutch government’s restrictions also have a very distinct feature in that they block ASML from exporting not only new equipment but also equipment already exported. If the equipment is to be maintained or repaired, and the equipment being maintained exceeds the permissible specifications, license should also be requested.

The cooperation between the United States, Japan, and the Netherlands has squeezed the space for China to develop an advanced semiconductor industry. Wei Jianguo, former vice minister of the Chinese Ministry of Commerce, said in an interview with China Daily that China’s export controls on gallium and germanium in August 2023 were just the beginning of China’s countermeasures, and China had various means of sanctions. If the restrictions on Chinese high-tech industry continued to escalate, China’s countermeasures would become intensified accordingly. Any attempt to cause “decoupling and delinking,” including clamping down on Chinese companies, would only end up shooting itself in the foot.⁷ According to Wei, some countries have made the typical mistake of adopting a “sacrificing others to save one’s own” approach to resource-based materials. China’s export controls have been well thought out and the ball is in China’s court.

The paper is structured as follows. Section 2 summarizes the backdrop of the China-U.S. confrontation and the current situation of “decoupling and delinking” in China-U.S. economic exchanges. Section 3 reviews the impact of the oil embargo during the first “Oil Shock” on the achievement of OPEC countries’ political objectives. Section 4 examines the impact of the Russian gas supply cutoff on the EU during the Russia-Ukraine conflict. Through the analysis of Secs. 3 and  4, it can be preliminarily concluded that the use of natural resource denial as a means of sanctions is difficult to generate a positive impact on the realization of the political intentions of the sanctioners. The prices of natural resources will increase in the short term, but there are many factors that will affect the prices which, over time, will return to the normal levels in the relatively long run. Section 5 analyzes the possible effect of China’s implementation of resource export controls and predicts the prospect of the China-U.S. confrontation in the field of technology. Section 6 concludes the paper.

China-U.S. Tech Tussle: From Decouple to Derisk

The “decouple strategy” was first unveiled by the Trump administration in 2018 when it began to wage an unprecedented trade war against Beijing by imposing sweeping tariffs on imports from China. According to the policy logic, China’s huge trade surplus with the United States has put Americans in a disadvantageous position and hollowed out the manufacturing industry. In order to bring manufacturing back to the United States and make America great again, decoupling from China is necessary. In fact, the Trump administration’s trade war was not just against China, it has launched trade wars with almost the whole world. The difference was that economies such as the European Union and Japan immediately made significant concessions with the United States. However, the isolationist tendencies of the Trump administration, not echoed by the other Western countries though, have undermined the unity of the Western camp.

When the Biden administration took office, it inherited Trump’s China policy framework, moderated his Republican predecessor’s hawkish rhetoric, and focused on securing the key aspects the Democrats deemed critical to long-term U.S. economic interests: supply chain, capital, and technology.

First, in terms of supply chain, the United States has started to move the supply chain out of China since the very beginning of the trade war. This is a slow process, and the U.S. companies started this process by looking for supply chain backups, implementing the “China Plus One” strategy. This strategy was later gradually developed into a “China Plus N” policy. During the COVID-19 pandemic, the production of almost all countries was affected due to the epidemic. Only China’s prevention and control measures had worked, and its export performance had been so impressive that it prolonged the reshuffle of global supply chains. In June 2023, China’s exports fell by 12.4% year-on-year.⁸ In the first half of 2023, for the first time in 15 years, China fell behind Mexico and Canada to become the third largest exporter to the United States.⁹

Second, in terms of foreign investment withdrawal from China, China has adopted a series of measures to accelerate the decoupling process. On April 26, 2023, the Standing Committee of the National People’s Congress passed an amendment to the Anti-Espionage Law, which came into effect on July 1, 2023. The newly revised law expands the scope of sensitive documents and data, adversely affecting the entire circle of foreign investors and executives.¹⁰ In early 2023, China cracked down on the four biggest foreign accounting firms, requiring state-owned enterprises not to sign or renew their contracts with the said accounting firms. In March 2023, Chinese police raided American due diligence firm Max Wise and detained five local employees at its Beijing office.¹¹ In late April 2023, Shanghai police raided Bain Consulting.¹² There is no doubt that China now needs foreign investment and both accounting services and consulting services are playing a decisive role for foreign investment to enter the Chinese market. If these consulting service enterprises, including the accounting industry, cannot run smoothly, no foreign enterprises will be able to land the Chinese market, because multinational companies with an intention to invest in China may not get positive advice from those consulting service enterprises. Whether it is to safeguard national security or in retaliation for the Biden administration’s trade restrictions, these actions will surely have a chilling effect on foreign investment. The benefits China has gained by restricting sensitive information will be dwarfed by the reputational costs to Beijing.

Third, in the field of technology, the United States has adopted a policy of “small yard, high fence” to protect America’s basic technologies.¹³ The export control of high-tech is limited to a relatively narrow scope, but the rules are extremely strict. The recent series of decoupling moves in the semiconductor industry well exemplifies this policy.

“Derisk” was first proposed by the President of the European Commission Ursula von der Leyen. On March 30, 2023, two think tanks, the Mercator Center for China Studies and the Center for European Policy, held an event in which von der Leyen was asked about the EU’s China policy. In this speech, von der Leyen proposed a strategy of “derisk.” According to von der Leyen, decoupling from China is neither feasible nor in Europe’s interest. “Our relations are not black or white — and our response cannot be either. This is why we need to focus on derisk, not decouple.”¹⁴

On the one hand, “derisk” is intended to lessen China’s control over the global supply chains, to carry out the shift thereof, and to prevent China’s economic coercion. On the other hand, it is necessary to maintain the basic functioning of the existing economic globalization and to reduce the costs of the confrontation with China. The strategy of “derisk” is based on two facts. The first fact is that China is still, by far, the world’s factory, the largest trading nation across the globe. In 2021, China accounted for approximately 30% of the global manufacturing output.¹⁵ It is unrealistic to eschew “made in China,” especially for the developed countries in the West. If the West chooses to decouple, it will pay a huge price. This is the lesson drawn from the Russia-Ukraine conflict. The second fact is that China is the only country capable and willing to change the current world order. For the West, this is unacceptable. The West cannot tolerate China challenging its leadership in the existing international order.

The strategy of “derisk” was immediately endorsed by France and Germany as well as by the United States. On April 27, 2023, U.S. National Security Advisor Jake Sullivan delivered a speech at the Brookings Institution on the topic of “Renewing American Economic Leadership.”¹⁶ Sullivan pointed out in his speech that the United States seeks to derisk, not decouple. Derisk, fundamentally, means a resilient, time-efficient supply chain that is free from coercion by any country. The United States does not intend to decouple its economy from China, nor will it cut off its trade with China. The U.S. export control only targets technologies that may affect the military balance between China and the United States. It is not a technology blockade, nor does it target emerging economies.

As a commentator pointed out, “derisk” gives the appearance of a decoupling in disguise, with the U.S. approach not deviating from its morbid obsession with maintaining its position as the world’s dominant power.¹⁷ “Derisk” just sounds less bellicose, but the underlying hostility remains.¹⁸ “Derisk” may be more tactful than decoupling, but only phrased in a much smarter way.¹⁹ To achieve this goal, both the United States and its allies need to do better planning for their companies to allow some of them to stay in China. On the part of China, it is groping its own way toward self-sufficiency.²⁰

Here are the effects of the strategy of “derisk.” On the one hand, this strategy has been very successful. Derisk is a lot lighter than decouple, and it is less difficult to put into practice. In the meantime, it would be much easier to enlist more allies’ help. To unite as many countries as possible is a success in itself. This would help create an economic NATO where all the members could act against China if it sanctioned one of them via trade coercion. On the other hand, derisk can not only reduce the intensity of confrontation, but also allow for more supporting policies. It may help build the resilience of the supply chains and implement the “China Plus One” and “China Plus N” strategies to ensure the supply of manufacturing products. This strategy may do greater harm to China while incurring less costs to the West.

China’s export controls on gallium and germanium are a counterattack against the above measures, a means of retaliation using resource commodities. Retaliation like this came only after the rise of global trade, and how effective it is a question worth studying. There are two typical cases that can be referred to, one is the “Oil Shock” in the 1970s, and the other is the European gas crisis in the context of the Russia-Ukraine war.

The Impact of the “1973–1974 Oil Shock” on the Realization of Political Objectives

Ever since Israel declared independence in 1948, there has been constant conflict between Arabs and Israelis in the Middle East, including several wars. From October 6 to 25, 1973, a war broke out between Israel and a coalition of Arab states led by Egypt and Syria, which was called the Yom Kippur War.²¹ In this conflict, the United States provided Israel with about 2.2 billion dollars worth of weapons.²² On October 20, 1973, Saudi Arabia²³ placed a total embargo on oil shipments to the United States, to be joined by all of the other oil-producing Arab states except Iraq and Libya.²⁴ In March 1974, amid disagreements within the Saudi-led Organization of Arab Petroleum Exporting Countries (OAPEC) on how long to continue the punishment, the embargo was officially lifted.²⁵

The effects of the embargo were immediate. The embargo ceased U.S. oil imports from participating OAPEC nations, and began a series of production cuts that altered the world price of oil. The oil production cuts nearly quadrupled the price of oil from 2.90 dollars a barrel before the embargo to 11.65 dollars a barrel in January 1974 (see Fig. 1).²⁶ The crisis eased when the embargo was lifted in March 1974 after negotiations at the Washington Oil Summit, but the effects lingered throughout the 1970s. The oil embargo ended the long period of prosperity in the West that had begun in 1945, throwing the world’s economy into the steepest economic contraction since the Great Depression.²⁷ Life for people in the West suddenly became slower, darker, and chillier as gasoline was rationed.

The control of oil was known as the “oil weapon.” It came in the form of an embargo and production cutbacks from the OAPEC member states. The weapon was aimed at the United States, Great Britain, Canada, Japan, and the Netherlands. These target governments perceived that the intent was to push them toward, a more pro-Arab position.²⁸ In addition, there has been a long-running struggle between OAPEC members and U.S. oil companies, whose ultimate goal is to control the international oil market.²⁹ The OAPEC members also saw this weapon as a way to gain greater leverage in their relationship with Western oil companies.³⁰

Crude oil prices per barrel in U.S. dollars, 1861–2014 (1861–1944 WTI, 1945–1983 Arabian Light, 1984–2014 Brent). The red line is adjusted for inflation, blue not adjusted. Source: Wikipedia, Jashuah, data from BP workbook of historical data, https://en.wikipedia.org/wiki/1973_oil_crisis.

In the Oil Shock of 1973–1974, oil production was eventually cut by 25%.³¹ However, the affected countries did not undertake dramatic policy changes. The risk that the Middle East could become another site of superpower confrontation with the USSR was of more concern to Washington than oil. Further, interest groups and government agencies more worried about energy were no match for Kissinger’s dominance.

Higher energy prices contributed to the high inflation and subsequent stagflation of the 1970s, but they also helped move U.S. energy reliance away from OAPEC. In fact, several laws were passed in the mid-1970s to bolster domestic oil production and to establish strategic petroleum reserves to stockpile emergency supplies.³² The oil shock of 1973–1974 led to greater interest in renewable energy, nuclear power, and fossil fuels. It was during these years that many new alternative sources we know today were pioneered, and new legislation supported research and development, as well as installation of these systems.³³

The Impact of the Gas Crisis on the Realization of Political Objectives

On February 24, 2022, Russia launched military action in Ukraine. President Putin said it was a “special military operation” intended to protect the people of the Donbas and to “demilitarise and denazify Ukraine.”³⁴ He denied that Russia planned to occupy Ukrainian territory or to “impose anything on anyone by force.”³⁵ In late 2022, and with the onset of winter, Russian forces began increasingly targeting towns and cities and critical civilian infrastructure across the whole country. Residential buildings, medical facilities, and energy networks have been destroyed, and millions of Ukrainians were left without access to electricity, water, and heat. Western leaders, including NATO Secretary General Jens Stoltenberg, accused President Putin of seeking to “weaponize winter.”³⁶

In response to Russia’s unprovoked invasion of Ukraine, an “unprecedented” package of sanctions has been imposed on Russia by the United States and its allies and partners around the world.³⁷ Russia’s state-owned energy giant, Gazprom, halted all exports via Nord Stream 1 from August 31, 2022, citing maintenance work on its only remaining compressor.³⁸ The halt to supplies via the Nord Stream 1 pipeline, which connects Russia to Germany via the Baltic Sea, drove up European gas prices, raising fears that parts of Europe could be forced to ration energy through the winter.³⁹

Russia is traditionally the largest energy supplier for Europe which is heavily dependent on Russia’s natural gas supply. The halt to supplies has thrown Europe into its biggest energy crisis in decades. Russia claims that punitive economic sanctions imposed on it by the West are responsible for the indefinite halt to gas supplies via Europe’s main pipeline. European lawmakers have repeatedly accused Russia of weaponizing energy exports in an attempt to drive up commodity prices and sow uncertainty across the 27-nation bloc.⁴⁰

On the evening of Sunday, February 21, 2022, the Russian government officially recognized the declarations of independence made by the separatist “people’s republics” of Donetsk and Luhansk, in the Donbas region of Eastern Ukraine. In the days that followed, Russia moved troops into the separatist areas and international commodities markets braced for the prospect of war.⁴¹

On the morning of February 24, the Russian invasion of Ukraine began. Gas prices in Europe and around the world have jumped sharply following the invasion (Fig. 2). The rises seem to be driven by the market seeing a high probability of the partial or full curtailment of flows of gas from Russia into the European market, specifically along the Nord Stream 1, Yamal-Europe, and Ukrainian transit routes.

After Gazprom halted all exports via Nord Stream 1, European gas prices topped 345 euros per megawatt-hour at their peak in August 2022. There is a high correlation between the two. In addition to Russia’s supply restrictions, the summer heat, which pushed up demand, also contributed to the price peak. After that peak, however, European gas prices did not continue to rise, falling in September to levels last seen after Russia’s invasion of Ukraine. European gas prices fell sharply in the following months as European countries replenished their stockpiles after several cold snaps and temporarily gained the upper hand over supplies. In December 2022, the price of front-month gas futures at the Dutch Title Transfer Facility (TTF), Europe’s benchmark contract, plummeted to below 77 euros per megawatt-hour, the highest level before the war in Ukraine began in February 2022.⁴² On January 3, 2023, the benchmark price of gas on the Dutch Gas Exchange’s TTF was reduced to 73.51 euros per megawatt-hour. The share price was down about 80% from a peak of 345 euros per megawatt-hour in August 2022.⁴³ It could be safely said that European natural gas prices had returned to pre-Ukraine War levels.

The price drop is part policy and part good luck. European nations stockpiled significant amounts of natural gas from Russian sources before Russia shut down its key Nord Stream 1 gas pipeline to Europe. Norway, Algeria, Qatar, and the United States boosted exports of gas to Europe. A run of warm weather in the winter of 2022 in Europe reduced heating demand. In addition, the European Union also moved in December 2022 to institute price caps on wholesale natural gas prices if they exceed certain levels.

From the outbreak of the Russia-Ukraine War on February 24, 2022, until the end of 2022, Russia halted most of its gas supplies to Europe. Russian President Vladimir Putin once believed that natural gas was a trump card to subdue Europe, and he used the interruption of natural gas supply as a means of retaliation against Europe, in the hope that Europe would stop the punitive economic sanctions against Russia. Yet Putin overestimated the fragility of European societies and failed to deliver on his political intentions.

The European economy relied heavily on steady, affordable supplies of Russian natural gas to heat homes, illuminate cities, and power factories. Higher gas prices in Europe forced shutdowns among energy-intensive European industries, such as chemical and metal production, and sharply pushed up inflation across the continent. European countries nationalized utilities and spent billions to subsidize energy prices for households. While Europe paid a heavy price, neither did it lift the economic sanctions against Russia, nor did it pressure Ukraine into submission. The lack of storage facilities for liquefied natural gas is the main reason why the interruption of Russian gas supplies has put European countries in short-term distress. After surviving the winter of 2022, Europe has gained another year to build up storage facilities, thus further reducing its dependence on Russian gas.

The Prospect of China’s Export Controls on Natural Resources

Great attention around the world has been aroused by China’s announcement of export controls on gallium and germanium. A spokesperson from the U.S. Commerce Department said in early July 2023 that the United States strongly opposed China’s export controls and recognized the importance of a decentralized supply chain, emphasizing that the United States would work with allies to build resilience in critical supply chains.⁴⁴ China’s move is a wake-up call for countries that could be hit, many of which would consider Chinese supply chains risky. It is highly likely that China’s actions will prompt the affected countries to move their supply chains out of China and seek to make them diversified. For chip manufacturers that have adopted a multi-sourcing strategy, China’s export restrictions on gallium and germanium may not have a negative impact on them, because they can purchase gallium and germanium from different sources in different geographic locations.

Neither gallium nor germanium are truly scarce. Nonetheless, because all the key technology chains are in China, other countries cannot suddenly start their entire production processes from scratch for emergent situations. The impact of China’s export control measures on the semiconductor industry may be limited because if China controls exports for a long time, it will lead to higher prices, and other countries will have the economic benefit of increasing the production of gallium and germanium. It will take time to make up for China’s supply, but it is not impossible. The West could use the opportunity to further reduce its dependence on China’s raw materials. The downside to China’s restrictions on exports of gallium and germanium is that they could erode China’s market share.⁴⁵

It would be reasonable to anticipate that China’s announcement of export controls on gallium and germanium may be a test of fire to see how limiting exports of these two materials would affect the global semiconductor industry before considering a ban on rare earth exports. Since the 1990s, China has been the world’s largest rare earth-producing country. Over the past three decades, the Chinese government has had a strategic vision for the rare earth industry — to dominate the rare earth supply chain, because it is something the West lacks. From 2008 to 2018, China exported about 410,000 tons of rare earth, accounting for 42.3% of the world’s total. China’s exports amounted to approximately 8.1 billion dollars, taking up 46.3% of the global value (Fig. 3). In 2021, China’s rare earth production accounted for 60.6% of the world’s total output, much higher than that of the United States, Myanmar, and other countries in the world (Fig. 4). China accounted for 85% of the global supply of refined rare earth elements (REEs), followed by the rest of Asia at 13% and Europe at 2%.⁴⁶ In addition, China has a more than 90% share of the global production of downstream rare earth products and technologies, including magnets, according to consultancy Tahuti Global.⁴⁷

However, years of intensive exploration have also rapidly depleted China’s resources. According to the U.S. Geological Survey, China’s rare earth reserves were 55 million tons in 2016 but had fallen to 44 million tons by 2020. If calculated by proportion, the world’s proven rare earth reserves in 2020 were 120 million tons, and China’s proportion had dropped from nearly 50% to about 36%.⁴⁸

Although China has been the largest supplier and refiner of rare earths, rare earth metals are rather common. There are rare earth mining projects in almost every corner of the world. However, there are several key problems with the production of rare earths. First, all rare earth deposits are mixed together, so it is difficult and expensive for the processors to separate them by using their individual properties to extract the more valuable elements, such as terbium, from those that are not, such as lanthanum. Second, REEs are found in mineral deposits along with the low-level radioactive element thorium, exposure to which has been linked to an increased risk of lung and pancreatic cancer. Third, mining and extraction may also bring about many environmental problems. These barriers will pose a huge challenge for any Western company that wants to enter the industry.

The annual demand for rare earths has doubled in 15 years to 125,000 tons by 2021 and is be expected to reach 315,000 tons by 2030.⁴⁹ The mismatch between supply and demand has already caused rare earth prices to soar and is likely to get worse in the coming years as newly mined supplies fail to keep up with the surging demand. If prices continue to climb or stabilize at high levels, other countries with proven reserves will have a strong incentive to start mining and processing. The Russia-Ukraine War has shone a light on the resource security issues surrounding the supply chains. The U.S., EU, and Australian governments are now investing heavily in rare earth production. Even more, exploration is underway, and investments in processing and separating REEs are increasing.⁵⁰

Over the next decade, the Western economies will remain heavily dependent on China for rare earth mining and refining, but that dependence is expected to decline as new mines come onstream in other parts of the world. China’s dominance in natural resources such as gallium, germanium, and rare earths is not set in stone. The stranglehold effect of China’s export controls on natural resources in the West will work effectively in the short term, but it may produce little effect in the long run.

China’s export controls on gallium and germanium, in retaliation for a U.S. ban on chip exports to China, marked the starting of the next round of trade dispute between the two sides. The spread of the U.S.-China technology war and the further expansion of the scope of regulation will add variables to the supply chain and industrial development.

The U.S. export restrictions on high-performance AI chips (mainly GPUs, but also some CPUs) to China began in August 2022. At that time, China’s commercial high-performance computing systems (such as the data centers and cloud computing servers of the Internet giants such as Alibaba and Tencent, as well as commercial supercomputing systems) were experiencing rapid development, and the core processors in these systems were mostly high-performance GPUs and CPUs from American manufacturers. In September 2022, the U.S. government ordered that high-performance GPUs, represented by the A100 and H100, must be licensed by the government before they can be exported.⁵¹ The U.S. restrictions on China in the field of chips and artificial intelligence have never stopped since then. When Nvidia was ready to export a downgraded version of the chip A800 to China, the U.S. government required Nvidia and Micron not to sell any chips for artificial intelligence to China.

In addition, the U.S. government has been preparing to restrict the use of American cloud computing services by Chinese companies, with the intention of closing all the regulatory loopholes in artificial intelligence chips. It is possible that China would circumvent the ban on chips for artificial intelligence by purchasing U.S. cloud services online. The use of the U.S. cloud services means indirect access to the U.S. artificial intelligence. The new U.S. government rules, if adopted, would likely require U.S. cloud-service providers, such as Amazon and Microsoft, to seek U.S. government permission before they provide cloud-computing services that use advanced artificial-intelligence chips to their Chinese customers.⁵²

On August 9, 2023, U.S. President Joe Biden signed an executive order banning new U.S. investments in key technology industries that could be used to enhance Beijing’s military capabilities, further escalating the confrontation between the two countries.⁵³ The order would prohibit venture capital and private equity firms from putting more money into China’s efforts to develop semiconductors and other microelectronics, quantum computers, and certain artificial intelligence applications. Administration officials stressed that the move was aimed at protecting national security. However, China may see it as part of a broader campaign to contain its rise. The Biden administration’s China policy can be summed up as “managed competition.” However, the chip war and the larger technology war launched by the United States against China cannot be termed as competition at all, but a naked externalization of zero-sum Cold War mentality. What the United States is doing is containment and repression in disguise of competition, which will only push China and the United States into conflict and push the world into a new “Cold War” full of division and turbulence.⁵⁴

On May 19–21, 2023, the Leaders of the Group of Seven (G-7) met in Hiroshima for their annual Summit.⁵⁵ At this summit, the Western countries secured a unified strategy toward China. For the first time, the grouping put economic security at the top of its agenda and signaled a fundamental shift in investment and trade policy.⁵⁶ G-7 members would take individual and collective actions to address the challenges posed by China’s non-market policies and practices that distort the global economy, including illicit technology transfers and data breaches, by reducing some overdependence in critical supply chains. The members would also restrict the export of advanced technologies that may threaten their national security without unduly restricting trade and investment.⁵⁷

G-7 members launched a new initiative at the summit to work together against “economic coercion,” vowing to thwart attempts to weaponize supply chains. Not officially named though, the sword is clearly aimed at China. In a clear effort to isolate China economically, the summit specifically agreed to establish reliable supply chains aimed at reducing reliance on China and preventing the use of key technologies by the Chinese military.

At the same time, China held a summit of the five Central Asian countries in Xi’an, designed to hedge against the intense pressure of the Hiroshima Summit. The Chinese Foreign Ministry’s statement opposing the Hiroshima Summit⁵⁸ also reflects China’s awareness of the seriousness of the situation. In the era of a new round of strategic transitions and changes, global supply chains are bound to undergo major adjustments based on national security, and the nature of globalization has also undergone major changes. As mentioned earlier, the United States has persuaded its allies to jointly impose export restrictions on cutting-edge semiconductors to China, and meanwhile highlighted the important role of Japan and Taiwan in high-end chip production. After the Hiroshima Summit, the antagonism between China and the West was further entrenched. This means that the peace dividend of the post-Cold War period has since been exhausted, and the world has entered a new era of geopolitical rivalry.

Conclusion

Since the start of the China-U.S. trade war, the two countries have gradually entered the process of economic decoupling. Under the Biden administration, the United States has mended relations with allies, reestablished its leadership role in the West, and rallied regional partners to an emerging anti-Beijing bloc. The United States is building a globalization without China and the West’s intention to isolate China economically is clear. In the escalating technological confrontation between China and the United States, China has chosen export controls on gallium and germanium, two natural resources, as a means of retaliation against the U.S. export ban on high-end chips. However, whether it is oil, gas, gallium, germanium, or rare earths, export controls on these strategic natural resources can only have a visible effect in the short term and may not achieve the political objectives intended by the sanctioners. With the continuous development of resource extraction technology, the ongoing exploration of alternative resources, and the increasingly important role played by the price adjustment mechanisms, the export control on natural resources may not produce a sanctionary effect of stranglehold in the long run. After the G-7 Hiroshima Summit, global economic growth will face more uncertainties. Only multilateralism and global cooperation can promote the long-term prosperity of the world economy and the peaceful development of human society.

Notes