US sanctions on chips not to hamper China military capabilities
8 Min Read
The United States sanctions aimed at subverting Beijing may not have much effect on China's military capabilities.
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Chinese military vehicles carrying DF-17 roll during a parade to commemorate the 70th anniversary of the founding of Communist China in Beijing, Tuesday, Oct. 1, 2019 (AP Photo/Ng Han Guan, File)
The United States imposed back in October sanctions aimed at undermining China's flourishing semiconductors industry. Washington took the decision to ban companies from exporting chips to China, the equipment needed to manufacture them, as well as any sort of semiconductor expertise, RealClear Defense reported.
This was one of the Biden administration's most escalatory steps against China in quite a while, marking a pivotal step aimed at hampering the modernization of the Chinese armed forces.
Semiconductors, more commonly known as chips, are a highly pivotal component in the defense industry, especially as it shifts and takes a more modern approach that delves into the futuristic realms requiring advanced semiconductors, which are key in manufacturing many things, from computers to autonomous vehicles, and even hypersonic weapons. The Biden administration knew what it was doing with this step that jeopardizes China's advancement and pushes it back years into the past at a level not adequate with that of this time.
Washington's step will cause massive Chinese chip makers, such as Semiconductor Manufacturing International Corporation (SMIC), to lose access to machine maintenance and equipment replacement, causing China to struggle in keeping up with the strides being made in the artificial intelligence, quantum, and cloud computing sectors.
US giants within the chip industry, such as Lam Research and KLA Corporation, both of which make chip-manufacturing equipment, have suspended sales and services to Chinese chipmakers. Meanwhile, the pressure caused ASML Holding, a Dutch-based chip equipment supplier, to implore its staff in the United States to stop exporting equipment to China.
Check out: Netherlands in the middle of the US-Chinese chip war
Advanced Semiconductor Materials Lithography or ASML is a Dutch company that specializes in producing not the semiconductors, but the extreme ultraviolet (EUV) lithography machines that manufacture the chips.
ASML has a global monopoly on EUV production, being the only company in the world to make them, and supplies its products to the world's largest chip maker, Taiwanese TSMC.
However, according to CNBC, the US dissuaded the Netherlands from trading the machine with China for now, however, the latter does not seem excited to be cut off from one of the world's most demanding chip markets.
The US dissuaded the Netherlands from trading the machine with China for now, however, the latter does not seem excited to be cut off from one of the world's most demanding chip markets.
The restrictions are so immense that they require any and all US citizens, residents, and green-card holders, even those of Chinese descent, to seek permission from Washington before working in a Chinese chip-manufacturing plant, which could require US citizens working at Chinese corporations to choose between their citizenship and jobs.
This prompted Yangtze Memory Technologies Corp to ask core US staff to leave the company.
Not only China bears the brunt
Though the restrictions will be of great cost for China for the meantime, the economic giant will surely not be set back for too long, especially since chips are key for national defense. China has already begun pouring national resources into the pivotal industry as an investment in the protection of its sovereignty and standing as a global superpower.
China's whole of the nation approach is likely to assign thousands of engineers and computer scientists to design and manufacture semiconductors.
A RAND Corporation report issued back in February highlighted how China's current defense systems use less sophisticated chips made in China, meaning the US sanctions will not have an effect on Beijing's military capabilities, and the damage will be limited. And though costly for China and will cause strain on its resources, the PRC is fully capable of producing its own cutting-edge chips. However, production is projected to be just enough to fulfill its needs instead of it being for market consumption.
If anything, US chip firms will bear the brunt of their own country's decisions, especially as China serves as their largest market, accounting for 33%, 31%, and 27% of Applied Materials, Lam Research, and Intel, respectively.
Nvidia and Applied Materials will sustain heavy losses due to the sanctions, projecting a loss of $400 million next quarter, which will bring down revenue by 7% for the former and 6% for the latter.
The decision's time is far from fitting, as a staggering US economy took its toll on the semiconductor industry already experiencing a decline in revenue and an increase in input costs.
US President Joe Biden signed in September an executive order to carry out more thorough inspections of foreign investment in technology, particularly in semiconductors and supply chains.
The Biden administration has long acknowledged the fact that certain investments made by foreign individuals or parties, especially from competitors, could present a high risk to national security.
The priorities in question include preserving America's leading role in the tech industry, protecting sensitive data of US citizens, and bolstering the resilience of the domestic supply chain, the White House underlined.
The executive order did not specify Beijing, but it did come around a month after Biden signed legislation bolstering US semiconductor manufacturing to try subverting China.
Microchip shortage causes $240 billion loss for US economy in 2021
According to analysts earlier this year, a shortage of microchips in manufacturing processes in the US cost the US economy $240 billion last year, with electronics companies bearing the brunt of the impact.
According to CBS, disruptions were caused by the closure of key chip production sites in Asia owing to the epidemic.
The CEO of the Optimal Design company, Sajid Patel, told CBS that in some instances, production had to be scaled back because chips were unavailable, adding that "I think it's important for us to make this product in the United States. We're not making enough of it now. We have to make more of it. And the only way that you do that is to have more plants. And so this is the investment, frankly, in the future. It's not that far off."
The microchip scarcity has also hampered automobile production. Instead of driving immediately to the showroom, Ford vehicles were transported to parking lots from the assembly line where they waited for chips.
As a result, Ford lost $210 billion. The scarcity is predicted to worsen in the near future, but domestic chip manufacturing is expected to increase, with Intel announcing the development of a chip facility in the state of Ohio.
Meanwhile, as exports to China are banned, the United States underlined the importance of Taiwan, the island across the strait from the country, for the international chip market. US Secretary of State Antony Blinken said in October that any disruption of semiconductor production in Taiwan would throw the world into a global economic crisis.
"If Taiwanese production were disrupted as a result of a crisis, you would have an economic crisis around the world," Blinken said.
Taiwanese Minister for Economic Affairs Wang Mei-Hua underlined that Taiwan will uphold its relationship with the US and other nations on expanding semiconductor manufacturing in the face of worries regarding the global supply chain and increased tensions in the Indo-Pacific area.
The announcement followed heightened rivalry between Washington and Beijing in the Indo-Pacific region and across the semiconductor sector. In an effort to match Chinese gains in the field, US President Joe Biden signed legislation in August providing $52 billion in subsidies for domestic semiconductor manufacture.
All this means is that a war over Taiwan would be even more catastrophic for the US due to its reliance on one single supplier, Taiwan Semiconductor Manufacturing Company (TSMC).
The US crackdown on the sale of technology to China has already begun to have an impact, with the US chip designer Nvidia disclosing last week that it had been told by US officials to stop exporting two top computing chips for artificial intelligence work to China.
Global shortages of computer chips, prompted by the coronavirus pandemic and the conflict in Ukraine, have caused production delays on a global scale for technology companies and other manufacturers.
In addition, the industry has gained increased geopolitical prominence as China accused the bill of threatening global supply chains and hampering international trade.
