It's the brains of electronic devices,

laptops, smartphones, TVs,

and certainly the device

you're watching this video on right now.

Almost half of these chips sold globally

by American firms like Qualcomm and Intel.

But now China is racing to change that.

The country has added almost $30 billion

into its own semiconductor companies,

like Chinese manufacturer, SMIC.

- SMIC is China's hope to win this tech race with the US.

- [Narrator] SMIC is one of many

little known Chinese tech companies

that have seen their stocks rise

as the Trump administration announced a number of moves

to effectively shut Chinese tech giants,

including TikTok and Huawei out of the US market.

- Huawei is something that's very dangerous.

- I mean, Washington's attitude toward China,

particularly when it comes to technology

is that the two countries need to separate.

We could wind up with two different ecosystems

when it comes to technology.

- [Narrator] This separation process

has been called decoupling.

So how are the US and China

trying to become more self-sufficient?

And what does it mean for tech giants in both countries?

- We cannot take the security risks

of any of those companies,

including Huawei, which as you know, we put a halt to.

- [Narrator] Huawei and the hugely popular video app, TikTok

have both been accused of being potential tools

for Chinese espionage,

and have been labeled by the US as a security threat.

- We wanna see untrusted Chinese apps

removed from US app stores.

President Trump has mentioned impending action on TikTok,

and for a good reason.

- [Narrator] Both Huawei and TikTok

vehemently denied those allegations

and said they operate independently from Chinese government.

- And this administration has broadened

the notion of what national security is

way beyond any other administration.

And when it comes to China,

they define national security as data,

all Chinese technology is suspect,

according to this administration.

- [Narrator] As TikTok received threats

of being outright banned in the US

and the US government said Huawei would be barred

from buying chips from the US and other countries,

investment from China has almost ground to a halt.

- Chinese investment in the US is down 90 some odd percent.

- [Narrator] The restrictions have also startled

a number of American companies,

which have been lobbying hard against the changes.

Huawei is a big client for corporations,

including Qualcomm and Intel.

The likes of Microsoft's Bill Gates,

and Alibaba's Jack Ma have said the recent escalations

are counterproductive for both sides.

- American companies supply parts to Huawei,

that may all go away, all of it.

I mean, the Trump administration's message

to American companies and European companies

that wanna do business in China is don't do it,

come to the US.

- [Narrator] So how is China responding?

Beijing announced it would no longer allow

its own artificial intelligence tech,

think facial recognition and data processing,

to be exported without new licenses.

While Washington and Beijing

are fighting on a number of fronts,

from Hong Kong to Taiwan and the South China Sea,

tech has emerged as a strategic priority.

That's where companies like SMIC come in.

- China has had a long standing desire

to reduce Chinese companies dependence on foreign supply.

However, it's really not until the Trump's trade war

that the Chinese leadership realized

that this is really serious,

we really need to put our act together now.

- [Narrator] China launched its own version

of the NASDAQ last year, the STAR market,

and stocks there are soaring.

It reflects how much investors think companies can benefit

from the country's quest for self-reliance.

- Under Xi Jinping, there's a new slogan,

it's called domestic circulation.

This esoteric slogan means that China going forward

is going to prioritize its own companies,

its own markets and Chinese consumption.

- [Narrator] Chips are particularly important.

China is the world's biggest consumer of chips.

It spends more on chips than it does on oil,

and imported $300 billion worth of chips last year.

- Policy makers are using SMIC as a role model

for other companies with similar ambitions,

they're basically telling those companies,

we're willing to invest in you, we're willing to help you,

but as long as you adhere to the policy agenda.

- [Narrator] Beijing is already touting

a number of successes.

China's economy is forecast

to be the only major economy to grow this year.

And that's benefiting it's tech giants.

Huawei, which is already a global champion in 5G technology

became the number one smartphone seller in July,

mostly, thanks to its domestic market,

where it sells over 70% of its phones.

But ending its reliance on US technology

remains complicated.

- We have a lot of really smart engineers and scientists

on both sides of the Pacific.

If they are not working together,

that will clearly retard innovation.

- [Narrator] Huawei announced in 2019

that it can produce a phone without US chips.

Still, those substitute parts of themselves made

with American technology and tools,

and the administration has taken steps

to close the loophole.

And if US regulation doesn't allow Huawei

to buy key components made with US tech,

Huawei may simply not be able to produce its hardware.

Analysts estimate that Huawei stockpile of US components

will only last one or two years.

Huawei has declined to comment on its inventory.

Huawei situation is seen as a confirmation

that despite heavy investment,

Chinese chip companies like SMIC are still lagging behind.

China is said to be about four years

behind the US and Taiwan.

SMIC, which also uses a lot of US technology,

has said it aims to accelerate the development

of its own chip making capability.

- China has been here before.

It has been trying to catch up with the US for decades.

And it's not the first time it has invested so heavily

in semiconductor industry.

However, it still has a huge gap to fill,

and now time is running short.

- [Narrator] And the US is also making moves.

Legislation is making its way through the US Senate

that could pump an additional $37 billion

into American semiconductor manufacturing

and research and development.

And whether or not Trump is reelected,

US actions aren't likely to stop.

- I don't think that a Biden administration

would take a fundamentally different view toward China.

China would still be the number one competitor.

There would still be issues, you know, on human rights,

national security, technology.

- No matter who's next in the White House,

this kind of inward turning policy China has

is here to stay.

China's leadership realizes

the US is no longer a reliable partner.

- [Narrator] So after years of escalating tensions

between the US and China,

the decoupling of their tech industries

will now likely continue.

- I mean, what the US at the moment is doing

is saying to the rest of the world, choose,

you know, you're gonna go with us

or you're gonna go with them.