Kaizoft Analysis: US-China Semiconductor Restrictions

In recent years, the US BIS (United States Bureau of Industry Standards) has implemented a series of restrictions on China for semiconductors, particularly in response to concerns about national security and intellectual property theft. These restrictions, commonly referred to as the ‘China chip ban’, include limitations on the export of certain technologies and components, as well as sanctions on specific Chinese companies involved in semiconductor production. Recently, the Netherlands and Japan have also joined the US in imposing similar chip bans on China.

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Following is a summary of the US restrictions on China for semiconductors:

Actions taken by the U.S
  • Export Control Restrictions: The US has placed export control restrictions on certain technologies, components, advanced chip making equipment (EUV Lithography machines) that are critical to the production of semiconductors.
  • Entity List: The US Department of Commerce has placed certain Chinese companies on the Entity List, which limits their ability to buy certain products and technologies from US-based companies without a special license.
  • Sanctions: The US has imposed sanctions on certain Chinese companies involved in semiconductor production, such as SMIC, China’s largest semiconductor manufacturer, and its subsidiaries.
  • CFIUS Reviews: The US Committee on Foreign Investment in the United States (CFIUS) has increased scrutiny of Chinese investments in US-based semiconductor companies and technologies.
  • Defense Production Act: The US has used the Defense Production Act to prioritize the production and supply of semiconductors and related technologies for national security purposes, which could limit exports to China.

These restrictions could have a significant financial impact, estimated up to 6 billion USD, on the sales of semiconductor companies such as LAM Research, KLA Corporation, Applied Materials and other foundry equipment manufacturers. Although not quantified, the restrictions are also known to affect the revenue for leading chip designers such as Nvidia and AMD as well.

China has reacted strongly to the US semiconductor restrictions, which have been seen as a direct challenge to China’s efforts to become a global leader in semiconductor production and technology. Here are some examples of China’s reactions to the US semiconductor restrictions:

China’s retaliation
  • Criticism: Chinese officials and media have criticized the US restrictions as unfair and unjustified, and have accused the US of using the restrictions as a way to contain China’s technological development.
  • Retaliation: In response to the US restrictions, China has taken steps to reduce its reliance on US-based semiconductor suppliers and has increased investments in its domestic semiconductor industry.
  • Policy initiatives: China has also launched several policy initiatives aimed at developing its domestic semiconductor industry, including the “Made in China 2025” program and the National Integrated Circuit Industry Investment Fund.
  • Export controls: China has also implemented export controls on certain technologies and components related to semiconductors, in response to US restrictions.
  • Micron Technologies: In May 2023, China bans products made by US memory chip giant Micron Technology claiming they are a national security risk.

How to mitigate supply chain risk

The restrictions imposed by the US and other countries on China’s semiconductor sector has created a trade war that creates significant implications for supply chain managers and businesses that rely on these supply chains. To address these challenges, supply chain managers must first evaluate their entire supply chain, including upstream suppliers and subcomponents, to identify their risk exposure. Once the risk areas are identified, possibilities should be explored to diversify suppliers, re-evaluate inventory holding strategy, analyze risk and take proactive steps to prepare for potential disruptions. While these strategies may not entirely eliminate the impact of the restrictions, they can help to mitigate their effects and ensure that businesses are better prepared for potential disruptions.

In conclusion, while it is true that these restrictions will serve to challenge both the countries and the various companies (along with their extended supply chain) on their ability to meet the domestic semiconductor needs, it could also provide the incentive needed for both the countries to become more self-reliant and enhance partnerships with countries that have not been big players in the field so far. A longer-term impact is yet to be fully understood but both US and China will seek to stake their claim in the ever-advancing chip sector that is headed to become a $1trillion industry by 2030.

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