Fresh US-China trade war breaks over chips, ‘connecting economies’ like India could gain

China’s export ban on Tuesday of gallium, germanium, antimony and other key high-tech materials follows it’s earlier move to partly restrict exports of strategically important materials by asking exporters to apply for licences.

The Chinese Commerce Ministry announced the export ban after the US expanded its list of Chinese companies subject to export controls on computer chip-making equipment, software and high-bandwidth memory chips.

In a speech earlier this year, First Deputy Managing Director at International Monetary Fund (IMF) Gita Gopinath had said that evidence suggested that non-aligned countries (such as India) did not play an important role serving as connectors between rival blocs during the Cold War — likely because they had a much smaller economic footprint and global supply chains were not yet developed. But today these countries have greater economic and diplomatic heft and are much more integrated into the global economy and their role as connectors this time around can help attenuate some of the costs of fragmentation.

Gopinath had compared current trade fragmentation with that of the Cold War period stating that trade between the rival Western and Eastern blocs was significantly depressed during the Cold War, relative to trade within these blocs. “Thus far, today’s fragmentation is not significantly different from the initial years of the Cold War. However, compared to the average ‘between-bloc trade shortfall’ during the entire Cold War period, fragmentation so far is an order of magnitude smaller,” she said.

Explaining her cause of concern during the current period, Gopinath said, trade fragmentation is much more costly this time around because unlike the start of the Cold War when goods trade to GDP was 16 per cent, now that ratio is 45 per cent.

“Moreover, while back then countries within a bloc were taking off trade restrictions, now we are in an environment of growing protectionism with several countries turning inward. The potential role of non-aligned countries in the current trade frictions also makes the situation today different from the Cold War experience,” she said.

Notably, India is planning to increase the funding outlay for chip manufacturing incentive policy to $15 billion from the $10 billion it had committed for the first phase. Tata is building India’s first commercial fabrication plant along with its Taiwanese partner Powerchip Semiconductor Manufacturing Corporation (PSMC) for a cost of more than Rs 91,000 crore. The government has also approved three assembly and testing plants, which are called ATMP and OSAT in chip parlance.

The assembly and testing plants are less complex than the semiconductor fabrication plant. The first of these three plants was approved in June 2023, and is being built by US-based Micron Technology.

Tata is building an assembly plant in Assam while the third facility is being built by CG Power and Industrial Solutions of the Murugappa Group, in partnership with Renesas Electronics of Japan.