The US tightens its grip on semiconductors
On 7 October, the US Department of Commerce announced new controls on advanced computing and semiconductor exports to China. The restrictions are wide-ranging and rest on three main pillars:
- Export controls on advanced chips and semiconductor manufacturing equipment, particularly if be used or installed in China
- Restrictions on US individuals and legal entities’ ability to support the development or production of certain integrated circuits in China
- Additions to the Unverified Users List and the Entity List, which aim to flag doubts about the end use of dual-use items, potentially leading to export restrictions.
Beyond aiming to slow down China’s technological progress, the US has clearly extended its goals to ensuring it maintains global primacy in advanced technology.
From consumers to manufacturers of advanced chips and manufacturing equipment, the whole semiconductor universe could feel the effects of these new export controls. Chinese firms consume 40% of all chips made globally, with a large share contained in China’s electronic exports. These firms, especially those with government or military links, will now find it more difficult to source leading-edge products.
Some speculate that China could retaliate by restricting US companies’ operations in China or by resorting to export restrictions of its own on some strategic materials such as rare-earth metals. In our view, neither is likely, at least in the near term. Instead, Beijing will likely continue to invest heavily in R&D in the semiconductor sector in the hope of achieving technological autonomy.
The US government’s technology restrictions are part of broader “strategic competition” with China. The partial decoupling we are witnessing between the world’s two largest economies is contributing to deglobalisation. This which could lead to lower growth and higher inflation globally in the long run and does not bode well for world peace.