Biden Set to Double Down on Empire’s Chips Embargo Against Chinese Tech Giants

Back in the 1940s it was oil embargo against Japan

China’s hunger for technology has been on full display during the current Two Sessions meeting in Beijing. On Mar. 5, Premier Li Keqiang confirmed sharp increases in state spending for frontier areas such as semiconductors, as his administration grapples with crippling U.S. restrictions on Chinese tech companies.

Meanwhile, U.S. President Joe Biden launched a review of supply chain resilience last month, pledging a brisk 100-day rethink of semiconductor policies. One outcome is obvious: those in Beijing hoping the U.S. will ease its tech war will be disappointed. Instead, Biden is likely to push forward with an evermore Chinese-style industrial policy, as he seeks both to cajole global chip suppliers to shift to the U.S., and deny China access to that industry’s most advanced products.

Global chip shortages give this review extra impetus, with U.S. automakers forced to stop or slow production. There is not much Biden can do about that, with supply delays reflecting a post-COVID bounce-back in chip demand. In the longer term, though, the U.S. faces dilemmas as it decides how to revitalize its own chipmaking sector and slow China’s technology advance.

Around half of global semiconductor sales are still controlled by U.S. companies, although their technological lead is mostly confined to research and design. Over recent decades chipmakers like Intel outsourced much of their production to Asian giants including Taiwan Semiconductor Manufacturing Co. (TSMC), alongside the likes of Apple, who design but do not make their own chips. U.S. strategists now view this as a mistake that leaves global chip manufacturing dangerously concentrated in Taiwan and South Korea, and thus vulnerable to Chinese interference. [“Chinese interference” such as being a good buyer and the US in the future perhaps not being able to stop the sales.]

Former President Donald Trump persuaded TSMC to set up what was originally slated as a $12 billion facility in Arizona, although media reports suggest it now could end up many times larger. [The much-touted plant won’t be capable of printing the newest  3nm chips.] Samsung Electronics is planning a $17 billion plant too, taking advantage of hundreds of millions of dollars worth of tax breaks. More money is set to follow. Recent legislation offered up to $3 billion to any company planning a new U.S. fabrication plant. Senate Majority leader Chuck Schumer has promised tens of billions more.

This financial splurge has its risks. Just as happens in China, the more the U.S. spends in sops, the more it is likely to waste, hence the downside of running an increasingly Chinese-style industrial policy. Even successful subsidies will take time. The new TSMC and Samsung factories are not likely to open until 2023. Any further new facilities would take even longer.

Biden then faces the more immediate problem of how to continue Trump’s moves to stop China from accessing chips its own companies do not know how to make. Behind the new U.S. plants lies an unspoken arrangement that TSMC and Samsung will make their most advanced products in the U.S., starting with 5-nanometer chips. [Nonsense. By 2022 TSMC will have moved onto 3nm which will be made exclusively in Taiwan.] This will help U.S. supply chain resilience by ensuring that, in emergencies, U.S.-made chips end up with U.S. companies. [LOL. What does the US even manufacture as to require chips? To desperately need chips you first need to be making stuff with chips in them.] But it is unlikely to satisfy those who worry about the security impact of China having those same advanced technologies.

The U.S. is now using its so-called entity list to deny sales to dozens of Chinese companies, including electronics giant Huawei Technologies and chipmaker Semiconductor Manufacturing International Corp., better known as SMIC. But Biden’s policy review looks likely to bring in more explicit measures aimed at sustaining his country’s chipmaking lead. Eventually, the aim will be what Eurasia Group analyst Paul Triolo calls separate “blue,” or U.S., and “red,” or Chinese, semiconductor supply chains, forcing the likes of TSMC to decide which to join. Rather than denying access to specific companies, it will seek to deny advanced chip technologies to the entire Chinese economy.

Delivering this is not going to be easy. Extra money for domestic manufacturing is widely backed by U.S. technology companies. Limiting chip sales to China is not, given so many chipmakers sell to Chinese buyers. In the long-run, the measures may also be self-defeating, given they will spur China into evermore desperate catch-up investments, which eventually will probably be successful.

The U.S. will also have to persuade reluctant friends in Asia and Europe of the need for new restrictions. This might mean demanding Asian chipmakers stop manufacturing in China, for instance, or even using Chinese engineers. A small handful of European companies also play an important part in advanced chip manufacturing equipment, at a time when the European Union seems at best ambivalent about new moves that will antagonize China.

Ultimately, though, the U.S. is likely to decide these costs are manageable. Its strategy of technological denial also has a good chance of succeeding, in the short term at least. Washington knows such actions can work, as Huawei’s damaged business model attests. Faced with the choice between easing up on China and doubling down, Biden looks ever more likely to choose the latter.

Speaking in December the new U.S. President declared that dealing with China required “leverage,” adding: “In my view, we don’t have it yet.” Semiconductors remain one of the greatest advantages Biden has over China’s President Xi Jinping. And in a new Cold War, you fight with the weapons you have to hand.

Source: Nikkei Asia

  1. GMC says

    And all of this was made possible by the Financial systems in the West , mainly Wall Street. Why not go after those who sold out the US, instead of China ? lol Never happen, because it’s still just a Game gone wrong. Or has it ?

    1. tobi999 says

      the bank always wins….no matter who loses the war…..

  2. Mark says

    Probably a good thing, then, that China imported almost $400 Billion worth of chips and equipment in 2020, wasn’t it? The long-term result for Korea and Taiwan will be the loss of the Chinese market. The Chinese assess it will take them ten years to catch up, but they are both patient and determined; ten years is an eyeblink for China.

    China would probably have been content to rely on traditional chipmakers forever, had the US government not put on its bossy pants, because it is expensive and complicated to build a chipmaking industry from the ground up. But when that is achieved – and it will be, Silicon Valley is not ground zero for smart people – China will depend to the extent it is possible on domestic industry. That means former partners who embrace Uncle Sam’s offers will be frozen out of the Chinese market, and will have to depend on America for sales. That’s just the sort of trade relationship the USA loves. And you know what? There’s a good reason for that. Because when they want to leverage your dependence against your interests, you’re helpless. By way of contrast, American leverage against China will dwindle each year until it is of no consequence at all. Then America will have no option against China short of war. And I’m pretty sure they don’t want to do that.

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