Early in September, Nvidia and AMD were asked to adhere to new guidelines as the US restricts chip exports to China. At the time, the current administration had cited worries about China misusing the chips for military purposes. On October 7, the US government put sweeping chip export restrictions in place, a measure designed to cut China off from being able to export semiconductor chips made anywhere in the world using US equipment.
The announcement has raised Beijing’s ire and fanned the flames of an economic cold war between US and China.
US restricts chip exports to China
The official reason why the US restricted chip exports to China is to prevent the South Asian nation’s misuse of advanced computing and artificial intelligence applications, which require semiconductor chips. The sweeping new rules are also aimed at limiting Beijing’s ability to develop advanced military systems.
China and the US have always had a complex bilateral relationship that has become more and more strained in the past few months. US export controls on China strike at the heart of Beijing’s efforts to build its own chip-making industry. “This is the US salvo against China’s efforts to build its domestic tech capabilities,” Dylan Patel, chief analyst at SemiAnalysis, told Bloomberg. He estimates the restrictions could reduce global technology and industry trade by hundreds of billions of dollars. “It’s the US firing back, making clear they will fight back.”
The new rules also prevent the sale of US semiconductor manufacturing equipment to any Chinese firm. Amid a bearish economic climate, the US sanctions caused European and Chinese chip stocks to tumble while manufacturers worried over how it will affect their bottom line amidst a tight economy.
Chinese chip stocks bore the worst with some companies losing as much as 20% of their value on Monday, October 11.
The US sanctions on chip imports to China is just the beginning, say experts. The current administration might evaluate the effect of these restrictions before moving ahead with tighter controls that will probably lead to an all-out economic cold war between US and China. Experts also revealed that the chip export restrictions need international support. Otherwise, it will be less effective. It also remains to be seen whether non-US manufacturers will take this opportunity to build up their market share.
The economic cold war between US and China
Chinese state media and authorities lashed out at the US for putting the country in a difficult position, possibly setting back its technological advancement by years, if not decades.
Chinese Foreign Ministry spokesman Mao Ning called the US export controls on China an abuse of trade measures. She added, “The US side is politicizing and weaponizing technology and trade issues, but it will not be able to stop China’s development. Its actions will backfire, hurt and isolate the US.”
Some experts opine that this shows that the US is ready to take an aggressive stance in containing China’s advances rather than simply leveling the playing field.
Globally, chipmakers are wrestling with the repercussions of the move as the US restricts chip exports to China. Unless other companies join hands with the US in placing controls, this could potentially harm America’s technological leadership.
The Semiconductor Industry Association, which represents chipmakers, said it was studying the regulations and urged the United States to “implement the rules in a targeted way – and in collaboration with international partners – to help level the playing field.”
Some US officials expressed concern over how successful the US campaign against China will be, as most Asian countries were reluctant to even go beyond verbally condemning Russia’s invasion of Ukraine. The point to note here is that even though Russia is not as economically interconnected or sought-after as China, the nations were wary of stirring up trouble.
It is not clear how other companies will react to the chip export restrictions. The South Korean ministry said that it would not face disruptions in equipment supply for its home brands, which have chip production facilities in China.
Japan has not made any formal announcements about its position. The country has many manufacturing facilities in China and might be uneasy about getting caught between the economic cold war between US and China.
“Many countries are not ready for sanctioning China,” an official from a US Asian ally told Reuters. Only time will show how Beijing reacts to the US export controls on China. According to the country’s top newspapers there is no possibility of reconciliation and China will now focus on building its own semiconductor manufacturing facilities and becoming more self-reliant.
