The new phase of the US-China tech war risks a whole lot of collateral damage

Both Joe Biden and Donald Trump look ready to risk unintended consequences as the US strives to contain China's technological ambitions.

• America is trying to squeeze China, again.
• The Biden administration wants to put new restrictions in place to stop China accessing Western tech.
• There's one problem: the measures might cause a lot of collateral damage.

No matter what the outcome in November, both leaders trying to stay — or move back into — the White House look ready to risk all kinds of collateral damage as America strives to contain China's ambitions for technological hegemony.

Signs of an ugly new phase in the US-China tech wars appeared on Wednesday after it emerged that the Biden administration was ready to put China in a full-strength chokehold by implementing "the most severe trade restrictions" available, Bloomberg reported.

Specifically, the restrictions would target companies far beyond US waters, such as Dutch firm ASML and Japanese firm Tokyo Electron, which provide high-value, specialized equipment for the chip industry that China is racing to advance in.

The targeting of ASML, in particular, offers a key look at why the measures might not squeeze those the US intends to squeeze.

The share price of ASML, known for being one of the few companies in the world capable of making lithography machines needed to mass-produce the chips vital to sectors like AI, slid more than 10% on Wednesday despite quarterly results that beat estimates.

Although the company doesn't sell its high-tech lithography machines to China, it does sell a whole lot of other products to Chinese companies. Almost half its second-quarter revenue, or about 2.3 billion euros ($2.5 billion), came from China.

It's unclear then if Biden's planned measures would cause more damage to China or ASML.

In the short term, new restrictions would mean Chinese companies buying up technology from ASML would need to find alternatives. That may be hard to do in a market in which a limited number of companies are involved.

It would also mean ASML loses a huge share of a customer base it is already careful not to sell high-grade lithography equipment to. Of course, this is the main piece of ASML tech that Washington wouldn't want China to have access to.

There is another problem here. More stringent restrictions won't change the fact that China has been busy trying to wean itself off Western tech since original export bans came into effect, as it has sought to build a self-reliant economy.

In March, Xi Jinping told then-Dutch prime minister Mark Rutte: "The Chinese people also have the right to legitimate development, and no force can stop the pace of China's scientific and technological development and progress."

This isn't mere conjecture. Eyebrows were raised last year when local firm Huawei released a new smartphone, the Mate 60 Pro, with an advanced, made-in-China chipset that would once have come from overseas vendors.

Meanwhile, Donald Trump has shared his vision of collateral damage in his potential dealings with Beijing by suggesting this week that Taiwan should pay for its own defenses against the threat of an invading China as "it doesn't give us anything."

His comments about stepping up tariffs and Taiwan sparked a big tech selloff on Wall Street on Wednesday.

Here's the thing. Trump, who is intent on delivering an "America first" agenda along with his Veep pick JD Vance, does not seem to realize that Taiwan is playing an outsized role in helping America build a key pillar of its future: AI.

Taiwan is home to TSMC, the chip manufacturer relied upon by US tech giants such as Nvidia to create chips that are fueling the growth of the AI industry and in turn the US stock market.

TSMC, which passed a $1 trillion market value this month and reported a 40% year-on-year jump in quarterly revenue on Thursday to just over $20 billion, is building a number of advanced chip plants in Arizona.

If China did, at some point, decide to take aggressive action in Taiwan, there would appear to be a clear risk to American efforts to build specialized chip plants on home turf.

That leaves the next President in a bind. Curbing China's access to Western tech is key if the US is serious about holding onto its technology leadership. It'll just have to work out how to ensure its own companies and efforts to progress are not hurt in the process.