The months of October and November have three major elections/conferences with global impact: the 20th People’s Congress in China, the Brazilian Presidential Election, and the U.S. Midterms. This could mean drastic policy shifts in three of the most powerful countries in the world. As expected, Xi Jinping just received an unprecedented third term as General Secretary, but tight elections in Brazil and the U.S. could end in unexpected ways. Pressure on candidates in key senate seat races has resulted in many campaigning for a hard-on-China approach, which could result in tougher policy and tariffs on Chinese exports, and more legislation on alleged Chinese human rights abuses.
Key Senate Seats Under Pressure
In the U.S. midterms, Democratic control is being challenged in both the Senate and the House of Representatives, with several key seats potentially flipping. In ten of the closest Senate races, candidates on both sides of the aisle are increasingly pressured to have a tough-on-China stance, and candidates’ past relationships with Chinese businesses and investments are being used as weapons from opponents. This pressure is coming from a voting base whose view of China is continuing to sour. According to a 2022 Gallup poll, 79% of Americans now have a negative view of China.
Without looking at independent candidates or third parties, of the twenty leading contenders, sixteen have either sponsored legislation against Beijing or expressed that they will be hard-on-China and hold Chinese businesses accountable to U.S. law. Three of the candidates have not officially mentioned China in their platform, but are focusing on other issues, like abortion, instead. The remaining candidate expressed the need to see China as a competitor but wouldn’t express their specific platform.
China has been a key focus of the Biden Administration and recent congresses, with legislation passed such as the CHIPS Act, The Holding Foreign Companies Accountable Act, and the Uyghur Forced Labor Prevention Act. President Biden has also chosen to keep many Trump-era tariffs on China to continue promoting “Made in America” goods. And on multiple occasions, President Biden has announced that the U.S. would militarily defend the island of Taiwan despite the current U.S. policy of strategic ambiguity. Promises made on campaign trails will likely see a continuance and intensification of these stances.
Tighter Export Controls
A key point in many political platforms is to tighten U.S. exports to China, and particularly exports that involve U.S. technological advancements, like semiconductors and computing chips. Before the release of the National Security Strategy, the Biden Administration banned exports to China of certain GPUs from Nvidia and AMD that are essential in developing artificial intelligence. Leading up to and after the Midterms, we can expect to see additional export bans on many technologically advanced components.
However, tightening exports has not always been effective in the past, and the current and future impacts remain in question as Chinese technological advances are also increasing. For example, despite U.S. control and sanctions on exporting foundries capable of producing semiconductor chips with a density of 10 nanometers (nm) or below, the Shanghai Semiconductor Company SMIC announced this summer that it had achieved a chip density of 7 nm. This is only one generation behind the 5 nm chips produced at TSMC. The U.S. will need to devote significant resources and attention to ensure that existing and new sanctions are being followed.
Shifts in Legislation and Policy
As the elections approach, we’re anticipating a shift in legislation, with tougher measures passed on China’s alleged human rights violations and supply chain controls, new support for “Made in America” products, and a new policy on Taiwan.
The Uyghur Forced Labor Prevention Act forces U.S. companies that have supply chains in the Xinjiang Province of China to prove that there is no forced labor or abuses of the Uyghur ethnic minority. This has affected many large companies and solar panel exports since several material components are sourced in Xinjiang Province for photovoltaic elements. We will likely see additional legislation forcing U.S. companies to have higher transparency and security on their supply chains in China and the region.
The CHIPS Act and the Inflation Reduction Act have authorized billions in subsidies and tax breaks to be spent on manufacturing capabilities in the U.S. The CHIPS Act has helped Intel to begin building a factory in the U.S. capable of producing millions of semiconductor chips domestically per year, in an effort to reduce inflation caused by the pandemic.
As additional key supply chains come under threat from geopolitical risk, the U.S. is likely to offer similar benefits to other companies in encouragement for them to bring some manufacturing back from China. Such areas could include the manufacturing of solar panels, photovoltaic elements, lithium-ion batteries, and similar batteries.
There has also been growing support in Congress for Taiwan and Taiwanese independence with House Speaker Nancy Pelosi visiting in August for bi-partisan support, along with several other delegations of representatives and senators visiting in 2022. These visits have been met with open opposition by the People’s Liberation Army (PLA) and the Communist Party of China (CPC). However, some recent wargames and analysts have concluded that it would be unlikely for China to defeat the U.S. in the defense of Taiwan, which has emboldened some leaders in the U.S.
While unlikely, these Midterms could lead to shifts in the U.S. policy for Taiwan. The U.S. has benefited from strategic ambiguity on the defense of Taiwan for decades, but now there are voices in the U.S. wishing for strategic certainty as a deterrence to China. Legislation could be proposed that would change the U.S.’s policy to reflect this. Another piece of legislation that is possible could preemptively allow the President of the United States to decide on the defense of Taiwan unilaterally, having already received permission from congress.
The post-Midterm U.S. is likely to reflect voters’ wishes to be harder-on-China in both legislation and trade policy. The platforms of candidates have already reflected this, and many candidates have promised to propose legislation that’s tougher on China as well. Ultimately, if we maintain the course we’re on, U.S.-China relations will continue to be strained regardless of which party wins the House of Representatives and the Senate.