China’s Chip Industry Set For “Deep Pain” From U.S. Export Controls

Two years after the US hit Huawei with harsh sanctions, the Chinese technology group’s revenue has dropped, it has lost its leadership position in network equipment and smartphones and its founder has told staff that the company’s survival is at stake, Financial Times reported. Now, China’s entire chip industry is bracing for similar pain as Washington applies the tool tested on Huawei much more broadly.

Recently, the Biden Administration imposed new export restrictions on advanced semiconductors and chip-manufacturing equipment in an effort to prevent American technology from advancing China’s military power. Those restrictions require licenses for exports of many advanced technologies to Chinese entities deemed to be working against the U.S. national security interests.

Financial Times also reported that Washington is barring US citizens or entities from working with Chinese chip producers except with specific approval. The package also strictly limits exports to China of chip manufacturing tools and technology that Chinese companies could use to develop their own equipment.

The controls on semiconductor equipment are also a potent weapon against mainstream manufacturers and leading-edge chip producers, Financial Times reported. According to analysts at the Bank of America, the equipment restrictions will affect logic chips designed in the past four to five years and Dram chips designed after 2017.

Bloomberg reported that since advanced semiconductors power information-age societies, the U.S. is seeking to hinder Chinese economic dynamism and military alike. Washington’s new policy is a warning to Beijing about the long reach of U.S. power in a globalized economy. It also reflects a sobering recognition that the US can’t win its competition with China simply by running faster; it must also slow Beijing down.

According to Bloomberg, this isn’t the first time Washington has used its influence on semiconductor supply chains as a geo-economic weapon. Beginning under President Trump, Washington sought to kneecap the Chinese tech behemoth Huawei Technologies Co. by denying it the cutting-edge chips it needed to dominate the world’s 5G telecommunications networks.

But that was a very targeted denial campaign meant to cripple a specific company that represented an extraordinary national security threat. The new approach is broader: It is technological containment, pure and simple.

Overall, it sounds like China is going to have a difficult time obtaining the chips it needs for manufacturing, which is the intended purpose of the U.S. exports restrictions. The Biden administration appears to be taking things much farther than the Trump administration did. I think Bloomberg got it right when stating that the U.S. can’t win against China by running faster – it needs to slow Beijing down.