Sanctions can at best prevent China from taking the world lead in chipmaking. At worst, they will increase the chances of chip wars spilling over into a physical or economic sphere.
By: Prabir Purkayastha
The United States has bet big in its latest comprehensive sanctions against Chinese companies in the semiconductor industry, believing it can bring China to its knees and maintain global dominance. From the globalization and “free trade” slogans of the neoliberal 1990s, Washington has returned to the good old regimes of technology denial that the United States and its allies followed during the Cold War. While this may work in the short term to slow Chinese advances, the cost to the US semiconductor industry of losing China, its largest market, will have significant long-term consequences. In the process, the semiconductor industries in Taiwan and South Korea and equipment manufacturers in Japan and the European Union are likely to become collateral damage. It reminds us again of what former US Secretary of State Henry Kissinger once said: “It can be dangerous to be America’s enemy, but to be America’s friend is fatal.
The purpose of the US sanctions, the second generation of sanctions after the previous one in August 2021, is to restrict China’s ability to import advanced computer chips, develop and maintain supercomputers, and manufacture advanced semiconductors. Although the US sanctions are disguised in military terms – denying China access to technology and products that can help the Chinese military – in reality these sanctions target almost all major semiconductor players in China and , therefore, its civil sector as well. The fiction of “banning military use” is only to provide the fig leaf of a cover under the World Trade Organization (WTO) exceptions to the obligation to provide market access to all WTO members. Most military applications use older generation chips and not the latest versions.
Specific sanctions imposed by the United States include:
Advanced logic chips required for artificial intelligence and high performance computing
Equipment for 16nm logic and other advanced chips such as FinFET and Gate-All-Around
The latest generations of memory chips: NAND with 128 or more layers and DRAM with 18 nm half-pitch
The specific equipment prohibitions in the rules go even further, including many older technologies. For example, one commentator pointed out that the tool ban is so broad that it includes technologies used by IBM in the late 1990s.
The sanctions also encompass any company that uses US technologies or products in its supply chain. This is a provision of US law: any company that “touches” the United States when manufacturing its products is automatically subject to the US sanctions regime. It is a unilateral extension of the national legal jurisdiction of the United States and can be used to punish and crush any entity – a business or any other institution – that is directly or indirectly related to the United States. These sanctions are designed to completely decouple the supply chain of the United States and its allies – the European Union and East Asian countries – from China.
In addition to the latest U.S. sanctions against companies that are already on the list of Chinese companies sanctioned, 31 additional new companies have been added to an “unverified list”. These companies must provide full information to the US authorities within two months or they will also be excluded. Additionally, no US citizen or anyone domiciled in the US may work for companies on the sanctioned or unverified lists, not even to service or repair previously supplied equipment.
The size of the global semiconductor industry is currently over $500 billion and is expected to double to $1 trillion by 2030. According to a 2020 report by the Semiconductor Industry Association and Boston Consulting Group — “Turning the Tide for Semiconductor Manufacturing in the US” — China is expected to account for around 40% of semiconductor industry growth by 2030, overtaking the United States as the world leader. This is the immediate trigger for US sanctions and its attempt to prevent Chinese industry from taking over from the United States and its allies.
While the above measures are intended to isolate China and limit its growth, there is a downside for the United States and its allies in sanctioning China.
The problem for the United States, and even more so for Taiwan and South Korea, is that China is its biggest trading partner. Imposing such sanctions on equipment and chips is also destroying a good part of their market without the prospect of immediate replacement. This is true not only for China’s East Asian neighbors, but also for equipment manufacturers like the Dutch company ASML, the world’s only supplier of extreme ultraviolet (EUV) lithography machines that produces the latest chips. For Taiwan and South Korea, China is not only the main export destination for their semiconductor and other industries, but also one of their main suppliers for a range of products. The forced separation of the Chinese supply chain in the semiconductor industry is also expected to be accompanied by separation in other sectors.
US companies are also likely to see their bottom lines hit hard, including equipment manufacturers such as Lam Research Corporation, Applied Materials and KLA Corporation; electronic design automation (EDA) tools such as Synopsys and Cadence; and advanced chip vendors like Qualcomm, Nvidia, and AMD. China is the main destination for all these companies. The problem for the United States is that China is not only the fastest growing part of the global semiconductor industry, but also the industry’s largest market. Thus, the latest sanctions will cripple not only the Chinese companies on the list, but also American semiconductor companies, drying up a significant portion of their profits and, therefore, their future research and development (R&D) investments in technology. While some of the resources for the investments will come from the US government – for example, the $52.7 billion chip manufacturing subsidy – they do not compare to the losses that the US semiconductor industry will suffer in the future. following the sanctions imposed on China. This is why the semiconductor industry had suggested narrowly targeted sanctions against China’s defense and security industry, not the sweeping sanctions the US has now introduced; the scalpel and not the hammer.
The process of separating the sanctions regime from the global supply chain is not a new concept. The United States and its allies pursued a similar policy during and after the Cold War with the Soviet Union through the Coordinating Committee for Multilateral Export Controls (COCOM) (in 1996 it was replaced by the Wassenaar), the Nuclear Suppliers Group, the Missile Control Regime and other similar groups. Their purpose is very similar to what the United States has now introduced for the semiconductor industry. Essentially, these were technology denial regimes that applied to any country that the United States deemed an “enemy,” with its allies following – then as now – what the United States dictated. The targets on the export ban list were not only the specific products but also the tools that could be used to make them. Not only the countries of the socialist bloc, but also countries like India, have been denied access to advanced technologies, including supercomputers, advanced materials and precision machine tools. Under this policy, critical equipment needed for India’s nuclear and space industries has been placed under a complete ban. Although the Wassenaar Arrangement still exists, with countries like Russia and India under that arrangement now, it doesn’t really have any teeth. The real threat comes from the falling out with the American sanctions regime and the American interpretation of its laws which supersede international laws, including WTO rules.
The advantage of the United States and its military allies – in the North Atlantic Treaty Organization, the Southeast Asia Treaty Organization and the Central Treaty Organization – was that the United States and its European allies were the largest manufacturers in the world. The United States also controlled West Asia’s hydrocarbons – oil and gas – a vital resource for all economic activity. The current chip war against China is taking place at a time when China has become the world’s largest manufacturing hub and the largest trading partner for 70% of the world’s countries. With the Organization of Petroleum Exporting Countries no longer obeying American dictates, Washington has lost control of the global energy market.
So why has the US launched a chip war against China at a time when its ability to win such a war is limited? This may, at best, stunt China’s rise as a world counterpart military power and the world’s largest economy. One explanation lies in what some military historians call the “Thucydides trap”: when a rising power competes with a dominant military power, most such cases lead to war. According to the Athenian historian Thucydides, the rise of Athens led Sparta, the then dominant military power, to go to war against it, thus destroying both city-states; so the trap. Although such claims have been disputed by other historians, when a dominant military power confronts a rising power, it increases the risk of physical or economic war. If the Thucydides trap between China and the United States is limited to a single economic war – the flea war – we should consider ourselves lucky!
With the new round of US sanctions, one question is settled: the neoliberal world of free trade is officially over. The sooner other countries understand this, the better it will be for their people. And autonomy doesn’t just mean the false autonomy of supporting local manufacturing, but rather means developing the technology and knowledge to sustain and grow it.
This article was produced in partnership by Newsclick and Globetrotter.
Prabir Purkayastha is the founding publisher of Newsclick.in, a digital media platform. He is an activist for science and the free software movement.