America Is trying to Ban Korea, Taiwan and China (!) From Selling Chips to Huawei If They’ve Been Made With US-Made Tools

Buy a tool from a US company, be told later on by Trump you can't sell what you make with it to who you want to

Editor’s note: In the long run why would anyone continue buying American machine tools?

South Korea has told Washington that restrictions on semiconductor sales to Huawei and other Chinese companies are “unacceptable,” according to industry sources.

Seoul is trying to mediate between Beijing and Washington following the US Commerce Department’s May 18 announcement that sales of computer chips to companies on its “entity list” will require a license if they are produced with US technology, even if they are produced overseas by foreign companies.

After the US temporarily banned exports of high-end smartphone chips to China’s ZTE Corp in April 2018, Huawei began a crash program to design its own chips.

The Commerce Department’s new rules are designed to close what it calls a loophole in US export restrictions, the fabrication of Chinese-designed chips in Taiwan.

The extraterritorial assertion of control over third-party sales of products made with US equipment is unprecedented, and has no basis in international law, South Korea has remonstrated with Washington. China bought almost twice as much from South Korea during the last 12 months as the United States.

Sixty percent of all Asian trade stays within Asia, due to tight integration of industrial supply chains. The Korea Times in a May 27 editorial denounced “Washington’s egocentric actions and Beijing bashing,” warning that “a  new Cold War and a trade war will deal a severe blow to Korea.”

President Trump bet the farm on the Huawei chip ban, I argued in a May 22 analysis. The US presently has a monopoly on some key chip-making technology, in part because the R&D cost of challenging US companies is huge compared to the size of the equipment market.

If the US uses its advantage to suppress technology elsewhere, China and other countries will put the resources required into breaking the US monopoly. China may not be able to buy chips made with US companies, but Chinese companies can hire anyone they want, and Chinese electrical engineers are conducting most of the research in the field.

The US may extract short-term advantages, but at the cost of losing one of its last remaining advantages in high tech.

China may also retaliate against US tech companies, but it is unlikely to take any action until the details of the Commerce Department’s restrictions are clarified.

South Korea may be the odd man out in Washington’s strategy. Industry analysts say that a deal is possible under which Huawei would spin off its smartphone division, a major consumer of chips fabricated by TSMC, leaving a much larger market share to Samsung.

Samsung sold 59 million handsets in the first quarter of 2020, compared to 49 million for Huawei, 40 million for Apple, and 30 million for Xioami. In return, Samsung would continue to provide memory chips for China as well as fabricate Chinese-designed logic chips that are now produced in Taiwan.

Huawei executives say that the smartphone division has low margins compared to its core telecommunications equipment business.

The Commerce Department ruling is intended to stop Taiwan Semiconductor Manufacturing Corporation from fabricating its state-of-the-art chips for Huawei’s HiSilicon division.

TSMC and South Korea’s Samsung are the only fabricators in the world that can produce top-of-the-line 7-nanometer chips containing more than 10 billion transistors, the powerhouse for high-end smartphones and artificial intelligence applications.

Fear of retaliation

South Korea fears Chinese retaliation if the US compels Samsung to stop selling chips to Huawei and other “entity list” companies. [Not to mention the loss of business.] Samsung is a major supplier of memory chips to China, but it has the capability to fabricate the custom-designed logic chips that power smartphones and AI servers.

South Korea relies on Beijing to keep North Korea in check, and the consequences of a rupture in relations with China would be dire.

The semiconductor industry is lobbying furiously with the Commerce Department to interpret the new rules flexibly. In the worst-case scenario, the Commerce Department would ban all chip sales to Huawei from Taiwan and South Korea.

That would cripple a large part of Huawei’s business. A looser interpretation would allow a large volume of products to flow to the Chinese telecommunications giant.

The Commerce Department is expected to announce the details of its rules in mid-July.

Virtually all the world’s major chip fabricators buy equipment from American firms like LAN, Applied Materials and KLA. If a foreign chip foundry were to violate the ban, the US could shut off its access to US machinery. The semiconductor equipment makers are working flat out to accelerate shipments, semiconductor industry sources report.

The US no longer makes the most sophisticated chip-making equipment, though. The Dutch firm ASML, a spinoff of Philips NV, is now the world’s only produce of Extreme Ultra-Violet (EUV) lithography machines that etch impossibly small patterns on 5- and 7-nanometer chips. At the request of the US government, Holland canceled the sale of an ASML machine to China late in 2019.

It is hard to tell what would happen if the Commerce Department attempted to enforce an absolute ban on chip sales to Huawei and other “entity list” companies. Huawei buys chips from Taiwan not only for its smartphones, but for the base stations that power China’s $170 billion rollout of 5G mobile broadband.

It is unlikely that any US action could stop China’s 5G plans. Huawei reportedly has enough inventory to last through the end of 2020.

Chinese chip foundries, of which Semiconductor Manufacturing International Corp (SMIC) is the largest, produce older 14-nanometer chips.

With some rapid redesign, mainland Chinese chips could be adapted to replace the newer Taiwanese chips in Huawei’s radio frequency devices. SMIC also claims that it will have 7-nanometer capability by year-end.

SMIC uses American semiconductor manufacturing equipment, and presumably would be subject to a ban on purchases of US machines if it sold to Huawei.

Samsung uses a variety of American, Japanese and Dutch equipment. According to one industry expert, Samsung’s foundries could run without American machines. It would be difficult for the United States to prevent Holland’s ASML and Japan’s Tokyo Electron from selling chip-making equipment to South Korea.

China also could enlist Sweden’s Ericsson, the world’s second-largest telecom equipment maker after Huawei, to increase its role in China’s 5G buildout. Ericsson last month won a contract for 11.4% of the new 5G network under construction for China Mobile and China Unicom.

Ericsson’s largest and newest plant is in Nanjing, and it is capable of scaling up production rapidly. The Swedish company has almost 15,000 employees in China vs. 9,000 in the United States. It has a plant in Texas, but it has only 100 employees, a token concession to American demands that Ericsson produce 5G equipment in the United States.

Chinese telecom industry executives insist that nothing will stop China from rolling out its 5G network, and building a range of Fourth Industrial Revolution applications, including tele-medicine, autonomous vehicles, self-programming industrial robots, and smart cities.

An important unknown is the speed at which China can come to speed in chip production. SMIC, its national champion in chip fabrication, just increased its annual R&D budget to $4.3 billion from $2.3 billion, with an injection of government aid.

Dr Yohann Tschudi, an analyst for the French semiconductor consultancy Yole Développement, wrote May 28 that SMIC is the “potential final winner” in the chip wars. “TSMC is doing around $6 billion business per year with Huawei, and it seems difficult to turn down that money.

However, if it happens, SMIC will be the beneficiary as China will accelerate the move to autonomy at the highest nodes and SMIC will get Huawei’s orders,” Tschudi argued at

Missing element

A missing element in Washington’s campaign to stave off Chinese dominance in Fourth Industrial Revolution technologies is research and development at home.

The Trump Administration presented TSMC’s decision to build a $12 billion chip foundry in Arizona, but that is a qualified success for several reasons. From a national security standpoint, a Taiwanese company that makes chips for sensitive US defense applications will never be entirely secure.

By the time the projected plant comes on line in 2024, moreover, the 5-nanometer chips that it builds will have been superseded by 3-nanometer chips, leaving the United States with what will by then be an antiquated product. And the plant’s output of a projected 20,000 wafers per month will meet only a fraction of US demand; Apple alone uses twice that much.

After spending nearly $6 trillion between the US Treasury and Federal Reserve on income protection and market stabilization, no additional funds were allocated for basic R&D in a vital industry that changes by the month.

During the Reagan years, federal subsidies for basic R&D amounted to 1.4% of GDP, nearly double today’s level. Washington wants to throw its weight around without spending the money required to bulk up. That could end badly.

Source: Asia Times

  1. brian niziol says

    He is wasting his time. China will take over the chip industry shortly. The nations that buy into Trumps plan will be on the wrong end of lawsuits from China since the American 5g networks are stealing tech from China . While Americas cities burn China is full steam ahead on r&d. See you later.

  2. cechas vodobenikov says

    creeping amerikanism is infecting Western Europe as Heidegger feared—putrefaction as he wrote—the disease of money worship and the religion of anti-communism—-of course it was Lenin, Stalin, Mao, Ho Chi Minh that despised imperialism and western colonialism most—both Ho and Mao admired Stalin…but of course the distorted perverted lies that the anglosphere admires are now accepted as reality–some may actually wish to read Vltcheck’s essay at Neweasternoutlook….not mentioned is that in the USSR where salaries were minimum 200 R per mo, rent was not allowed to exceed 40R per month—-today in USA London, etc it is common to pay 1/3 of one’s income for rent

  3. itchyvet says

    America is not the only source of such tools. Yesterday I sought to purchase new tires for my car, I usually buy Coopers an American brand for my 4 W.D. but was advised fully manufactured in America Cooper tires were no longer available in Australia. BUT, I could buy COOPERS tires under the original American brand/warranty, but MADE IN CHINA. So here we have in a nutshell, the hypocrisy being spouted by Americans blaming China for their economic collapse, yet American companies are still, OUTSOURCING manufacturing to China. Then turn around and blame/accuse China of stealing their intelectuall property ?
    Hypocrits, this word is far to mild to describe what the Americans are.

  4. Rowdy-Yates says

    America has gone Cuckoo for Coco puffs crazy

    1. disqus_3BrONUAJno says

      Long before any of us were born.

  5. Bob avlon says

    All based on some unnamed US security law. Accusations of spying. Could be true or false.The biggest known spy country is the US. The biggest known war country. Biggest known sanctions country for their own economic gain. List goes on.

    1. itchyvet says

      There’s nothing FALSE about the spying accusations. Pray tell what do you think those electronic bases are in Ozz for then, if not spying on everyone, and communications link for the U.S. military ? B.T.W. you do realise, the Yanks have been caught spying on foreign leaders already, again it’s FACT. Every electronic communication today is sifted thru by them, and if an algorithem picks up certain words, the whole communication is flagged for closer scrutiny, then if considered serious, it’s passed up the chain of command. Why do you think countries participating in this SPYING call themselves the FIVE EYES openly?????????

      1. disqus_3BrONUAJno says

        It is a shame that more of those who read the disinformation about Snowden didn’t read any of what he gave to Wikileaks.
        They call themselves Five Eyes because they all have a patch over one of them.

  6. cechas vodobenikov says

    as the US economy becomes 4th world, an immoral society plagued with crime, rape, poverty, homelessness this stock market continues to thrive and soar—-when the crash occurs, the rich will take their bank accounts in the Cayman Islands and relocate to Patagonia

  7. AriusArmenian says

    The US is its own worst enemy. The more it squeezes China to more it goes to alternatives the US cannot control. At this rate the end of the US Empire of Insanity is a near bet.

  8. ke4ram says

    Sorry,,, if there was no limitations upon the sale of the equipment then the US is out of luck, legally. Of course the US cares less about legalities lately.

    The US corporations WITH US GOVERNMENT approval and even funding gleefully offshored the US industrial complex. As the old saying goes,,, Sow the wind,,, Reap the whirlwind.

    The US is like a screaming tyrannical two year old that in the end will lose the argument.

    1. disqus_3BrONUAJno says

      And the two year old is screaming because it is a poster child for all of the FDA/CDC vaccine schedule and autism.

  9. mijj says

    the traditional US method of breaking the legs of the opposition may fail this time

  10. voza0db says

    This is why I’ve been writing since 2016 that mutTrump is the BEST PRESIDENT the E.C. ever elected!

  11. disqus_3BrONUAJno says

    We would deserve to have the rest of the world refuse to sell us anything we need to have an economy. The cellphone market in Asia is the biggest on the planet and the Japanese lead that, having had all of the smartphone generations before the US. If China goes after Taiwan after it gets Hong Kong under control, the TSMC foundry in Arizona will turn to dust. China is centralizing its product at home way ahead of any other high tech producer, and it will be in a position to command the world’s high tech markets after it rolls out the gold-backed yuan.
    After China, Russia,and Iran are all on gold backing, and the petrodollar is in the toilet, the only market we’d still command are pre-EPA muscle cars. Boeing is toast if it doesn’t get its sorry 373 MAX back in the air, because the airplane graveyard at Tucson doesn’t have enough room for them.

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