The recent invasion of Ukraine by Russia led to targeted sanctioning activity by the western countries. Led by the US, these sanctions were meant to hurt the backbone of Russia’s economy and act as a deterrence tool for the country to scale back its military operations in Ukraine. However, this did not work and the deterrence tool has now turned into a punitive tool instead.
An interesting aspect of the West’s response was the imposition of tech sanctions on Russia. This was the first time in history that a single state was targeted with specific technology related sanctions, such as export controls and import restrictions of critical technology components like semiconductor chips. A notable development was also the threat of secondary sanctions by the US on any state or private company violating the technology sanctions imposed on Russia itself. Apart from the US sanctions, there was also the unilateral response by major tech companies to withdraw their business operations from Russia due to the invasion.
The tech sanctions on Russia would have a devastating impact on its economy and affect the domestic market’s accessibility to basic technology goods. But if there is Chinese aggression against Taiwan in the near future, can these sanctions work? Will tech sanctions serve as a credible tool to deter or even punish the Chinese state from conducting their own military operations across the Taiwan straits? For a technologically advanced state such as China, will these targeted sanctions have any impact on its tech economy?
China is much more integrated into the global economy and supply chain. And, that makes it much more difficult to have broad-based sanctions against China unlike those against Russia; it also makes sanctions far more costly for China because it has much more to lose.
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A Robust Domestic Tech Economy
For a while, the Chinese government has gradually been trying to reduce its dependency on western technology firms. The ban on Google, Facebook and even the exit of LinkedIn from the Chinese market showcases the intent of the country to develop domestic alternatives for all technology services offered by the western companies. This has led to Chinese domestic technology companies rising up to the task and proving to be credible alternatives for the Silicon Valley companies.
From Alibaba (substituting for e-commerce giants like Amazon) to Huawei (substituting for telecommunication giants like Qualcomm and Cisco), China’s tech economy now plays host to a vibrant set of companies catering to the ever-growing domestic demand.
There is also the aspect of the size of the Chinese market itself. Most of the technology companies in China have grown due to the ability of the domestic market to provide them adequate business. Tech sanctions and preventing these firms from participating in the global markets would not result in a complete collapse. For example, Huawei has already been blacklisted in several countries including the ‘Five-Eyes’ countries. While this has had a massive impact on Huawei’s revenue, it still remains a force to be reckoned with in the telecommunications market.
China’s domestic tech economy has been built on a foundation that reduces external dependencies and relies on the existing infrastructure and domestic market. While tech sanctions and preventing accessibility of technology goods or services to the Chinese market can impede the firms’ ability to scale up operations, it would not hurt the economy in such a way that a military decision would be reversed.
An Established Sphere of Influence
Another of China’s advantages in the technology sphere remains the far-reaching impact it has had, especially in the developing world. The Chinese government has used their premier foreign policy projects such as the Belt and Road Initiative (BRI) to export domestic technology worldwide. This has resulted in many states, in regions such as Africa, Central Asia and Southeast Asia, adopting Chinese technology infrastructure due to its lower operation costs and easier process of setting up the network (due to Chinese technology giants’ involvement in the deal).
In the event of tech sanctions being imposed on Chinese technology giants, an additional dependency would be created in this case. The sanctions would effectively remove or prevent accessibility to many states which are currently using Chinese technology products and services. This would be a problematic situation for the sanction-imposing countries as the move might be detrimental to the overall conversation on technology penetration and accessibility.
Due to the Chinese technology ecosystem’s increased digital footprint across the world, the imposed sanctions will not achieve its outcome of technologically isolating China. Export controls or even import restrictions of critical high-tech components can prevent the access to crucial global technology supply chains for China. But there is the possibility of the Chinese state resorting to IP theft to create domestic alternatives and gray imports to suffice their needs.
In terms of Silicon Valley giants playing a role in the sanctions, there would be minimal impact as most of them have already either been banned or voluntarily pulled out of China. In the case of Russia, these companies’ responses played a major role in assessing the impact of the tech sanctions on its domestic economy. The same cannot be said for China.
So What Might Actually Work?
China’s tech companies have built significant resilience, but serious tech sanctions imposed multilaterally have the potential to cripple the Chinese tech sector and economy. China is not as insulated as we see. An example is to look at what has happened to Huawei’s profits and its handset business after the US and its allies imposed sanctions. One would have to think what sort of specific sanctions can be useful and which might be counter-productive, along with what sort of other sanctions can accompany tech sanctions. It has to be a basket case rather than just one. The goal is not to impede, for example, basic technology products in Africa or Southeast Asia. Doing that will alienate them from the West. The goal is to cripple Chinese firms’ operations and advancement which requires a wide array of sanctions accompanying the tech sanctions.
Tech sanctions on China by just the US will not act as a deterrence mechanism and has little possibility of inflicting massive damage to the Chinese economy on their own. But western countries must look at multilaterally imposing these sanctions, coupled with different economic blockades, to target and hurt the business models of large Chinese tech firms in the light of potential Chinese military aggression.
Arjun Gargeyas is a research analyst at Takshashila Institution. The views expressed in this article are those of the author and do not represent the stand of this publication.
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