US Sanctions Do Not Affect Chinese Semiconductor Industry

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American strategy will fail in its objectives.

Written by Lucas Leiroz, researcher in Social Sciences at the Rural Federal University of Rio de Janeiro; geopolitical consultant.

The US continues to maintain an international strategy based on sanctions and coercive measures. Washington recently announced that a package of sanctions is being prepared against Beijing, focused on controlling high-tech products. The objective is to target the Chinese semiconductor industry – one of the most strategic sectors for the Asian country. However, data indicate that these measures will not work well.

The new sanctions were announced on August 12 by the US Department of Commerce’s Bureau of Industry and Security (BIS). The aim is to ban the export of technologies that could be used in the manufacture of semiconductors in China. According to the Department’s spokespeople, these technologies could be used by China for “nefarious” purposes in the military and commercial spheres – thus, “justifying” the Department’s decision.

However, many experts believe that the American plan will not work well. Considering that China is focused on manufacturing 28 nm semiconductors, the American package of measures may fail, as it is imposing specific restrictions on materials used to produce newer semiconductors, such as 7 nm and 3 nm ones – which correspond to a small fraction of the world market, and whose technology will not be affected.

“[The US export restrictions] will not have much impact on the Chinese semiconductor industry (…) These restrictions are associated with the 3 nanometer (nm) technologies while China is now producing 28nm chips for the most part, which are previous generation technologies. The fact is that the 28nm chip technology is mature and the main demand is for chips manufactured in the [28nm lithography] process. Chip manufacturers receive their main income from this product”, said Professor Thomas Canhao Xu of Beijing Normal University (BNU).

In fact, the US is betting that with such measures it will be able to stop the growth of Chinese industry and thus obstruct the technological progress of the Asian country in sufficient time for Western companies to control the advanced semiconductor market. But this thought seems to be wrong on several points.

High-tech market transitions are gradual and require time to adapt. Currently, 28nm semiconductors are considered a mature, safe and consolidated technology, which will guarantee them market hegemony until the newer products are sufficiently tested, approved and demanded. In this sense, China will continue to have a favorable position in the market and the future of its industry will fundamentally depend on how it operates the technological transition.

“Breakthrough technologies are undeniably important, but they represent only a small fraction of the entire semiconductor industry (…) The long-term effect of these restrictions on China will depend on how China develops its own industry, including equipment for the production of chips. On the horizon of 10 to 20 years, significant changes may occur in the industry and fundamentally new technologies may appear” Xu says.

In addition, there is a central factor that needs to be mentioned, which is the resilience of the Chinese industry and its ability to seek different sources of materials around the world. Beijing has reached an advanced stage of technological development that allows it flexibility to evade virtually any sanction. In the same way that China overcame Trump’s trade war with virtually no damage, these new US sanctions are expected to be resolved with simple trade measures, seeking new short-term partnerships. Considering China’s status of importance to world trade, sanctions become truly useless, as there will always be solid alternatives to be sought.

In parallel, there are also US moves to accelerate a new trade agreement with Taiwan, focused precisely on the local semiconductor industry. Indeed, Taiwan is a more complicated case, as its advanced technology industry practically exists as a Chinese “concession”. Taipei’s manufacture of semiconductors is a consequence of the high volumes of sand that Beijing exported to the island. Not by chance, the first Chinese measure after Nancy Pelosi’s visit was to veto the bilateral trade of sand, depleting the island of essential raw material for the production of semiconductors.

Of course, Taiwan can also look for new suppliers, but the island does not have the same strength as Mainland China. Once again, everything will depend on Chinese goodwill. Recently, Beijing announced the start of new military exercises. If such drills continue for a long time, the flow of ships and aircraft in Taiwan will be almost completely blocked, obstructing the entry and exit of products, which will affect the entire local industry.

In other words, China does not depend on the US and will not be affected by sanctions, but Taiwan, an American ally, depends precisely on Beijing and needs Chinese “permission” for its industry to progress. Once again, the US harms its allies with its irresponsible provocations and fails in its plans to “neutralize” its adversaries. It urges Washington to adapt to an international praxis focused on dialogue and diplomacy rather than sanctions and conflict.

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