Recent months have witnessed some landmark measures from the technology giants, with the United States (US) enacting one of the harshest targeted updates to its export controls against the Chinese tech sector. Semiconductors are at the centre of this Sino-US technology war. While the US majorly curbed exports of its semiconductor-related technology and services to China, Beijing, following much public agitation, finally retaliated by announcing a security review of a US semiconductor firm and barring the export of rare earth metals required for microchip manufacturing.
Though the two countries have been in a tech war for around four years, China has not been able to retaliate much against the US actions. The latest restrictions from the US came in October when the US Department of Commerce announced new rules to amplify the export controls on microchips made using American tools from being shipped to China. The current bar’s objective is also to keep Beijing away from the design software and equipment required to fabricate high-quality microchips that have military uses. Per the document released on 7 October 2022, the targeted updates to the US export controls will restrict China’s “ability to both purchase and manufacture certain high-end chips used in military applications”.
In case the West keeps on imposing increasingly wide-spectrum bans on China pertaining to the semiconductor industry, the bilateral competition can exacerbate and lead to broader detrimental effects for the wider international technology arena.
Semiconductors are the foundation of advanced technologies, including big data, artificial intelligence, cloud systems and quantum computing. The semiconductor domain has three significant areas: design, manufacturing, packaging, and testing. While the US stands incomparable in semiconductor design and technology, Taiwan and South Korea are prominent manufacturers, while Japan has the upper hand in materials. However, advanced microchips are particularly for military use. China does own microchip factories. However, they do not produce high-end processors. Furthermore, the US has ostracised various Chinese microchip manufacturing companies, including Yangtze Memory Technologies Co Ltd. With the latest document, the US has restricted chip equipment manufacturers from furnishing services or tech assistance that could allow Chinese firms to make advanced microchips with artificial intelligence applications. The recent limitations are one of the toughest to be enacted till now.
Washington’s measures have led to wide-range repercussions for China. Likewise, countries like Netherlands and Japan have also aligned their trade controls with the US. The countries have limited the provision of such technology to China that might be employed for producing weapons. Moreover, international businesses are reluctant to engage with the Chinese chip industry. For instance, until September 2022, Apple intended to incorporate economical Chinese microchips for its locally-made cellular sets. The prospective development was considered a major success for the Chinese semiconductor domain since it could allow the country to showcase the capacity to provide top-notch products for international labels. Yet, increasing geopolitical strain and US policies caused the American multinational to retract.
Given the rather one-sided US actions over the years in the technology domain, primarily the semiconductor sector, a reactionary measure from Beijing was long awaited. However, Beijing refrained from acting in that direction. The country has been investing huge amounts to facilitate microchip growth and subdue the reliance on external technology. However, in March 2023, President Xi Jinping blamed the US for attempting to bar China’s progress with a drive for “containment and suppression.” He motivated the masses to “dare to fight”.
Subsequently, on 31 March 2023, China advanced on the tech war frontier by calling for a security probe of Micron Technology, a major US memory-chip firm. The country’s cyberspace regulatory body will carry out a cyber security review of Micron’s products available for sale in China. The firm generates about 11% of its revenue from the country. However, it is to be seen whether the review will have an impact on the firm’s business with non-Chinese buyers within China. Some suspect that the scenario might end up with China showing Micron the exit door. Still, Chinese representatives from the foreign ministry maintain that it is a standard procedure to ensure “national security”.
Beijing’s retaliation presents a considerable risk for the US multinational firms. The recent measures by China make it clear that the states siding with the US in the technology war might face pressing consequences. Besides, China is the market leader in “indispensable technologies and materials” for manufacturing semiconductors. China may react to the US restrictions by stopping exports of the necessary materials and technologies that it leads. Beijing is contemplating putting an embargo on particular rare-earth magnet technology to offset the US position in the high-technology sector. Discussions are underway to amend the restriction list for technology export 2020. The changes in the Chinese export restrictions list would limit or completely bar the export of technology to the US for refining and processing rare-earth elements.
Given the switch to remote work following the onset of the pandemic, there has been a massive increase in demand for microchips leading to the semiconductor firms growing and accruing profits over the last three years. The market has kept becoming increasingly competitive. Still, with US-imposed trade limitations, increasing wages and interest rates, the initial growth might be hampered. In case the West keeps on imposing increasingly wide-spectrum bans on China pertaining to the semiconductor industry, the bilateral competition can exacerbate and lead to broader detrimental effects for the wider international technology arena.