Photo by Vishnu Mohanan on Unsplash
In October, the Biden Administration restricted exports of advanced semiconductors and manufacturing equipment in a bid to prevent China’s access to high-end technology that can modernize its military and security abilities. Along with that, many ethnic Chinese individuals educated in the United States (US) have to seek permission from the US department of commerce to work in Chinese fabrication plants, leading to a loss of capable individuals in Chinese semiconductor companies. The policy can possibly impact China's military and technological ability, impact semiconductor firms in the US and impact US-China relations. In this article, I will explore the possible impacts of the policy.
Firstly, it might help the US gain an edge over China as China’s military and technological ability will be negatively affected. China is dependent on foreign chips, spending more on it per year than oil. With this policy, the US hopes to counter possible threats to its security, as it could set the Chinese military back. At the same time, other firms producing electric vehicles and robotics in China could be greatly affected. However, it seems that the effect towards vehicles and other technology would be more, because China already has the ability to produce chips, just not the ability to produce them at a large scale. Hence, for the production of military weapons systems, China might not be affected greatly. In addition, China’s response to the policy may undermine the negative effects, since China plans to attain self-sufficiency in semiconductors. As it does so, it might lead to China developing a stronger industrial base, increasing and amplifying its supply of semiconductors, becoming an even greater threat to the United States. As such, the overall impact to the US’s security from the policy greatly depends on China’s response to the export controls. With China’s recent 1 Trillion Yuan support package for its semiconductor industry, that includes subsidies and tax credits, it seems highly plausible that the US’ policy might simply lead to China improving its ability to supply semiconductor chips. Certainly, that would still depend on whether the subsidies and support from the government do lead to an increase in quantity and quality of chips produced.
Secondly, it can possibly boost the US Semiconductor industry. Along with gaining an edge over China, the local firms are expected to be funded with incentives, research and development and workforce training, all of which might make the domestic semiconductor industry become more vibrant. However, it does come with its drawbacks, considering how the manufacture of semiconductors requires many specialized inputs which new firms set up in Arizona and Ohio might not be able to acquire. Simultaneously, the US faces a shortage of graduates and workers who have the knowledge to manufacture semiconductors. In addition, tight competition from other subsidized asian semiconductor firms in Singapore, Taiwan and Japan. As such, again, the impact on the US Semiconductor industry depends on how much they can develop and overcome the difficulties present to out-compete other semiconductor firms. As for leading US electronic design automation companies exporting semiconductors to China, like Cadence design systems, they might suffer losses in revenue. For firms who are reliant on exporting semiconductors to China, they will likely suffer.
In conclusion, there are extensive repercussions from the US’s policy on the exports of semiconductors, with impacts to both US and Chinese firms, and also the entire global semiconductor industry. These impacts depend on the firm, as their responses to the policy. Also, it will further increase tensions between the US and China, possibly sparking more tensions that might escalate the trade war, as China launched a trade dispute against the US in the World Trade Organization. Though proposals on curbs on semiconductor chips were scaled back recently, the impacts will still certainly be extensive.
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