Furious at U.S. efforts that cut off access to technology to make advanced computer chips, China’s leaders appear to be struggling to figure out how to retaliate without hurting their own ambitions in telecoms, artificial intelligence and other industries.

Chinese leader Xi Jinping’s government sees the chips — which are used in everything from phones to kitchen appliances to fighter jets — as crucial assets in its strategic rivalry with Washington and efforts to gain wealth and global influence. Chips are the center of a “technology war,” a Chinese scientist wrote in an official journal in February.

China has its own chip foundries, but they supply only low-end processors used in autos and appliances. The U.S. government, starting under President Donald Trump, has been cutting off access to a growing array of tools to make chips for computer servers, AI and other advanced applications. Japan and the Netherlands have joined in limiting access to technology they say might be used to make weapons.

Xi, in unusually pointed language, accused Washington in March of trying to block China’s development with a campaign of “containment and suppression.” He called on the public to “dare to fight.”

Despite that, Beijing has been slow to retaliate against U.S. companies, possibly to avoid disrupting Chinese industries that assemble most of the world’s smartphones, tablet computers and other consumer electronics. They import more than $300 billion worth of foreign chips every year.

Investing in self-reliance

The ruling Communist Party is throwing billions of dollars at trying to accelerate chip development and reduce the need for foreign technology.

China’s loudest complaint: It is blocked from buying a machine available only from a Dutch company, ASML, that uses ultraviolet light to etch circuits into silicon chips on a scale measured in nanometers, or billionths of a meter. Without that, Chinese efforts to make transistors faster and more efficient by packing them more closely together on fingernail-size slivers of silicon are stalled.

Making processor chips requires some 1,500 steps and technologies owned by U.S., European, Japanese and other suppliers.

“China won’t swallow everything. If damage occurs, we must take action to protect ourselves,” the Chinese ambassador to the Netherlands, Tan Jian, told the Dutch newspaper Financieele Dagblad.

“I’m not going to speculate on what that might be,” Tan said. “It won’t just be harsh words.”

The conflict has prompted warnings the world might split into separate spheres with incompatible technology standards that mean computers, smartphones and other products from one region wouldn’t work in others. That would raise costs and might slow innovation.

“The bifurcation in technological and economic systems is deepening,” Prime Minister Lee Hsien Loong of Singapore said at an economic forum in China last month. “This will impose a huge economic cost.”

U.S.-Chinese relations are at their lowest level in decades due to disputes over security, Beijing’s treatment of Hong Kong, and Muslim ethnic minorities, territorial disputes, and China’s multibillion-dollar trade surpluses.

Chinese industries will “hit a wall” in 2025 or 2026 if they can’t get next-generation chips or the tools to make their own, said Handel Jones, a tech industry consultant.

China “will start falling behind significantly,” said Jones, CEO of International Business Strategies.

EV batteries as leverage

Beijing might have leverage, though, as the biggest source of batteries for electric vehicles, Jones said.

Chinese battery giant CATL supplies U.S. and Europe automakers. Ford Motor Co. plans to use CATL technology in a $3.5 billion battery factory in Michigan.

“China will strike back,” Jones said. “What the public might see is China not giving the U.S. batteries for EVs.”

On Friday, Japan increased pressure on Beijing by joining Washington in imposing controls on exports of chipmaking equipment. The announcement didn’t mention China, but the trade minister said Tokyo doesn’t want its technology used for military purposes.

A Chinese Foreign Ministry spokeswoman, Mao Ning, warned Japan that “weaponizing sci-tech and trade issues” would “hurt others as well as oneself.”

Hours later, the Chinese government announced an investigation of the biggest U.S. memory chip maker, Micron Technology Inc., a key supplier to Chinese factories. The Cyberspace Administration of China said it would look for national security threats in Micron’s technology and manufacturing but gave no details.

The Chinese military also needs semiconductors for its development of stealth fighter jets, cruise missiles and other weapons.

Chinese alarm grew after President Joe Biden in October expanded controls imposed by Trump on chip manufacturing technology. Biden also barred Americans from helping Chinese manufacturers with some processes.

To nurture Chinese suppliers, Xi’s government is stepping up support that industry experts say already amounts to as much as $30 billion a year in research grants and other subsidies.

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