In the geopolitical contest initiated by the United States against China, the former has employed various strategies to "contain" the latter. One such strategy is the "small yard, high fence" approach, first proposed in October 2018 by Sam Sachs, a senior fellow at the think tank New America. This strategy aims to curb China's high-tech projects and suppress China's technological advancements.
The "small yard" refers to specific technologies and research areas directly related to U.S. national security, while the "high fence" represents the strategic boundaries set around these areas. For core technologies within the "small yard", the U.S. should implement stricter and more robust containment measures. For other high-tech areas outside the "small yard", the U.S. could reopen to China. Chinese scholars, such as Yan Xuetong, interpret the "small yard, and high fence" strategy as aiming to limit China's high-tech development rather than broadly decoupling and breaking economic ties with China.
Since 2018, the U.S. has ruthlessly implemented the "small yard, high fence" strategy. This includes a nationwide effort to comprehensively crack down on Chinese tech company Huawei; systematic restrictions on the development of China's semiconductor industry, involving allied countries in banning the export of advanced lithography machines to China; and continuous escalation of restrictions and pressure on Chinese companies in various tech fields like semiconductors, AI, biopharmaceuticals, etc., while listing them on the U.S. Entity List. In the field of higher education, there have been significant restrictions on Chinese students, barring them from certain STEM programs in the U.S. Additionally, there are limitations on companies outside Mainland China exporting advanced processing chips, including various AI chips, to China. Legislative measures like the CHIPS Act have been introduced, guiding chip companies to invest in the U.S. while simultaneously attempting to contain the development of China's chip industry.
As the U.S. continues its relentless efforts to build the strategy against China and uses its hegemony to exert influence among its allies, it has indeed imposed certain restrictions on the development of China's technology and tech industries. Due to concerns over escalating U.S.-China geopolitical conflicts, foreign investors have adjusted their investment strategies in the Chinese market in recent years. Some multinational companies have begun to withdraw their R&D teams from China or reduce their technological investments in the country.
However, China is the world's second-largest economy, with a GDP of USD 17.89 trillion in 2023. At the same time, it is also one of the world's largest trading nations. In 2023, its total trade volume reached USD 5.94 trillion, including USD 3.38 trillion in exports, accounting for 14.2% of the global market share, maintaining its position as the world's top exporter for 15 consecutive years. China has maintained substantial trade relations with multiple countries and regions, including the U.S., the EU, and ASEAN. For such a vast economy, attempting to significantly restrict its development through the "small yard, high fence" strategy is extremely challenging. From recent breakthroughs in China's semiconductor industry, it is evident that when China mobilizes its national system to overcome technological bottlenecks, the resulting momentum is remarkable.
Against this backdrop, researchers at ANBOUND have observed that the U.S. is beginning to adjust its strategy for containing China. The strategy is shifting from the previous "small yard, high fence" approach, which focused on restricting China's development in high-tech fields, to a broader "large yard, high fence" approach, imposing restrictions in a wider range of areas. This change is typically reflected in the highly traditional area of trade sanctions, i.e. tariffs.
On May 14, 2024, the U.S. government imposed 301 tariffs on USD 18 billion worth of imports from China. This includes increasing tariffs on certain steel and aluminum products from 0-7.5% to 25% by 2024; raising semiconductor from 25% to 50% by 2025; as well as electric cars from 25% to 100% by 2024. It also significantly raises tariffs on batteries, battery components, and key minerals; solar panel from 25% to 50% by 2024; ship-to-shore cranes from 0% to 25%, in addition to some medical products. This tariff escalation by the U.S. primarily targets China's rapidly growing technology industry in recent years.
This is not the entirety of the tariff sanctions. On May 24, the Office of the U.S. Trade Representative announced that out of 400 products granted tariff exemptions, the American government would let approximately half of them expire; meanwhile, 164 exemptions would be extended until May next year. It is worth noting that terminating tariff exemptions on certain Chinese imports by the Biden administration is effectively tantamount to imposing tariffs on Chinese exports.
As a President from the Establishment, there was once hope in the market that Joe Biden would repeal or mitigate some of the high tariffs imposed by ex-President Donald Trump after taking office. However, Biden not only didn't reduce tariffs on Chinese goods during his term but instead deployed the tool of tariff escalation in the final year of his term. Researchers at ANBOUND believe that this move may be related to Biden's political maneuvering in the election year, but the more important reason might be that the U.S. government and politicians believe that when the "small yard, high fence" is insufficient to contain China's economic and technological development. Hence, it needs to expand its suppression of China into broader areas to restrict the latter's development. The result is that the American strategy of restricting China has shifted to "large yard, high fence". The fundamental logic behind the adjustment of this strategy is obvious: the primary task of U.S. national security strategy is to address the challenges posed by its long-term strategic competitors, and China is the foremost among them. As long as it serves the needs of this national security strategy, whether to adopt a "small yard, high fence" or a "large yard, high fence" is a tactical choice.
In our view, compared with the strategy of a "small yard, high fence", the characteristics of the strategy of a "large yard, high fence" are as follows:
Firstly, the scope of sanctions has expanded. The areas sanctioned or restricted by the "small yard, high fence" strategy towards China were selected limited core and key areas, focusing on some crucial technological aspects. The prohibition and restriction scope of the "large yard, high fence" strategy has expanded to a broader range, extending from high-tech fields to non-technological economic and trade fields. As for which areas are included in the prohibition and restriction scope, it depends on the actual needs of the American government.
Secondly, the "small court high fence" strategy's targets are limited, which to some extent also took into account international trade rules, hoping to strike a balance between restricting China and maintaining the American economic interests. In short, its purpose is to contain China's technological development while also hoping to gain economic benefits from the Chinese market. However, the goal of the "large court high fence" has changed. It no longer considers balancing interests but instead primarily pursues the effectiveness of striking China irrationally, disregarding international rules with its double standards.
Thirdly, the "small yard, high fence" strategy mainly involves the U.S. imposing sanctions, joined by allies, against China in related core areas. Due to the narrower scope of sanctions, allies are more likely to accept and participate, making it easier to form a sanction alliance. For example, the joint efforts of the U.S., the Netherlands, and Japan to restrict the export of advanced lithography machines to China exemplify this. The "large yard, high fence" strategy, on the other hand, differs because of its broader scope, leading to greater impact on commercial interests. On one hand, the U.S. needs more allies to participate for its sanctions to be effective. However, on the other hand, these countries may hesitate to participate in extensive sanctions due to commercial interests and international rules, and may even disagree with the U.S.
Finally, the "small yard, high fence" strategy attempts to confine the impact to the technology field, similar to controlled nuclear fusion. It does not aim to spread the impact to the broader economic and trade areas, nor to trigger a widespread "decoupling" between the U.S. and China. However, the "large yard, high fence" strategy is different. Once this strategy is implemented, its subsequent effects may become uncontrollable, turning what was originally intended to contain China's technological development into a widespread "decoupling" between the two countries. This is similar to uncontrolled nuclear fusion, which may ultimately evolve into an economic and trade sector nuclear explosion.
Final analysis conclusion:
To achieve the goal of containing its long-term strategic competitors, the U.S. strategy of restricting China's development is undergoing a shift from the previous focus on limiting technological development with a "small yard, high fence" approach to expanding to a broader spread of technology and economic domains with "large yard, high fence". As for China, it needs to remain sufficiently vigilant about such a change and take early measures to study and respond to them.
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He Jun is Director of China Macro-Economy Research Center and Senior Researcher at ANBOUND, an independent think tank.
