What could the consequences be of the US' new rules on chip exports?

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How are new US export controls on advanced semiconductor technology set to affect the trading relationship between Washington and Beijing?


The US has recently stepped up its competition with China by enacting a range of new export controls on technology items that have greatly restricted what can be exported to the Asian nation.

It has been suggested that the moves are part of a major effort by Washington to slow down the development of hi-tech and military technology in China, as they affect high-performance chips that Beijing is unable to produce domestically. 

However, the far-reaching measures do not stop at barring US manufacturers from exporting to China - they also impact any overseas companies with US ties from doing business in the region. So what have reactions been to the move and how will it impact the market going forward?

What restrictions have been imposed?

Enacted by the US Commerce Department in October, the new export controls prohibit US companies from shipping certain advanced semiconductors to China unless they have obtained a special license. These include those classified as high performance (those with at least 300 trillion operations per second, or 300 teraops) and fast connection speed (at least 600 gigabytes per second).

In addition to this, the controls also block the shipment of fabrication equipment that could be used to manufacture certain types of chip. Another factor is that the rules do not only apply to US-based companies, but also citizens and permanent residents as well.    

US under-secretary of commerce for industry and security Alan Estevez said: "We are appropriately doing everything in our power to protect our national security and prevent sensitive technologies with military applications from being acquired by the People’s Republic of China’s military, intelligence, and security services."

Among the major companies most likely to be affected by the move are Nvidia, who's A100 and H100 chips - intended for use in data centers and artificial intelligence applications - are among those affected by the rules.

How has China reacted?

The moves are likely to have a major impact on tech manufacturing in China. The Guardian reports that while producers in the country use more than three-quarters of semiconductors produced globally, it only makes around 15 percent of worldwide output. Experts also suggest that China's domestic manufacturing sector is around four to five years behind that of the US, making it difficult to replace the loss with locally-made products.

As a result, some commentators have forecast that it could set China's chipmaking sector back by up to a decade. Mark Williams and Zichun Huang, analysts at Capital Economics, wrote in a research report that the US has "chopped the rungs away" from China's technology ladder, as the rules will not only block access to advanced US materials, but also make it much harder for the country's domestic manufacturing sector to catch up.

Officially, China's reaction to the move has been muted so far, although a spokesperson for the country's minister for foreign affairs said the US is abusing export control measures to "maliciously block and suppress Chinese companies".

Experts have suggested, however, that Beijing has few tools in its arsenal to force the US to reconsider. One possible step would be to retaliate by blocking US access to critical rare earth metals, of which China is the world's largest source. 

While this would certainly impact key US tech firms such as Apple and Boeing, many of these companies also have major operations in China, so any economic damage would also likely harm Beijing as much as the US.

Could the dispute spread to other countries?

The new rules have already started to see an impact, and the consequences of the decisions are being felt beyond the US' borders. The US has acknowledged that over time, the impact of the moves is likely to weaken unless other allies such as the EU take similar steps. However, some European firms have already found themselves affected.

For example, Netherlands-based fabrication equipment maker ASML has told its US employees to stop serving Chinese customers. Dutch trade minister Liesje Schreinemacher has held talks with the US government over the impact of the rules, telling reporters in Brussels that her government is assessing the new rules, but would not be copying US export restrictions like-for-like.

Elsewhere, the decision of the UK government to order Chinese-owned tech firm Nexperia to sell its stake in a Wales-based chipmaking factory, and the intervention of the German government to prevent the sale of a similar factory in Dortmund to a Chinese buyer, have also been linked to the dispute.

Xiaomeng Lu, director of geo‑technology at Eurasia Group, told CNN that US pressure had almost certainly been behind the moves. However, she added that a growing sense of protectionism when it comes to semiconductor technology is also a contributing factor.

While the long-term impacts remain to be seen, it's clear from the moves that any hoped-for reset of US-China trading relations under the Biden administration is unlikely to happen, and a further "de-coupling" could come with a heavy price for both sides.