China-US Chip Trade War: How Will It Affect The Global Semiconductor Industry?

China-US Chip Trade

The trade between China-US Chip Industry companies has taken a new turn as the Biden Administration announced a set of export restrictions intending to slow down China’s advancement into technologies like artificial intelligence. These policies will cut off China’s chip industry from advanced semiconductors made using US tools, and limit US personnel from working with China’s semiconductor manufacturers. 

However, the export controls will affect more than just the US and China. They are expected to have an impact on the semiconductor supply chain of the entire world and have already begun to affect hundreds of companies that are part of it. Let’s find out what these new restrictions are and what they mean for the semiconductor industry.

What Are The Biden Administration’s New Rules That Affect Chinese Companies?

There are two key components to these new restrictions introduced by the US Department of Commerce. One is that high-performance semiconductor exports like the ones used in advanced AI chips and supercomputers can only be sold to Chinese companies after obtaining a special license.

This also includes not just advanced chips made in the US but also foreign-made ones that were designed and manufactured using American software and tools. Furthermore, the restriction also applies to chipmaking equipment and software that Chinese chipmakers can use to make their own products.

The second component is that US citizens and companies are also restricted from working with Chinese chipmaking entities to support the development of integrated circuits without prior approval. The Commerce Department restrictions are expected to have a drastic impact on the semiconductor supply chain, and the Chinese customers that rely on these critical technologies for their quantum computing and artificial intelligence ambitions.

What This Means For China’s Semiconductor Industry

China-US Chip

While the full impact of the current trade war isn’t clear yet, the export controls placed by the Department of Commerce on companies working with China are expected to slow down the country’s chipmakers from progressing. This will hit hardest for tech startups that try to innovate in this field. They will now have to rely on older hardware.

Manufacturers like Semiconductor Manufacturing International Co. (SMIC) which is China’s most advanced chipmaker are capable of producing logic chips and DRAM chips (memory chips) at the 14-nanometer scale. However, in order to produce more advanced models and scale up their production to match their growing demand, the company would need tools like the extreme ultraviolet lithography machine. This machine is designed by a Dutch firm that now cannot supply equipment to SMIC.

It will also hamper innovation from companies like Alibaba which recently unveiled a powerful cloud computing platform. This solution which provides customers access to AI algorithms to train chatbots and video analytics uses chips made by US companies Nvidia and Intel which will be affected now. Bytedance, the company that made TikTok, and Baidu, which is like China’s Google both use US hardware for their applications.

One of the main reasons why the US government put these new rules in place is to slow down China’s progress into artificial intelligence applications. The country has been utilizing these advanced chips made using American technology to power everything from autonomous vehicles to video analytics, and language applications. The same advancements could be expected to transform the next generation of China’s military applications as well. This is a major concern for Washington amidst rising tensions over Taiwan and various other geo-political issues between the two countries. 

What This Means For The US Companies

The shares of major US chipmakers like Nvidia and AMD went down following the news of these export restrictions which are already feeling the effects of stopping their sales to Russia since the invasion of Ukraine began earlier in 2022. Nvidia has stated that their products that will be restricted will be chips designed for machine learning applications, a key component of artificial intelligence. The company is expected to lose over $400 million if the licensing procedure is delayed or licenses are denied to supply semiconductor products to key Chinese customers.

With the new policies affecting US citizens from working at Chinese facilities, Americans currently employed in sales or technical support roles will need to be replaced as well.

While the US has lagged behind Taiwan and South Korea in terms of manufacturing, the country does have a plan to improve on this front. The US government has allocated $39 billion for manufacturing which will mostly go to major semiconducting players like  Micron, Samsung, TSMC, and Intel followed by smaller companies.

What This Means For Suppliers In Other Countries

Even though Taiwan’s TSMC (Taiwan Semiconductor Manufacturing Co) and South Korean companies including Samsung make up about 80% of semiconductor manufacturing, the United States is still one of the leaders in chip design software and tools. What this means is that companies like TSMC and Samsung will also be barred from selling their microchips to China if they have used US tools or software somewhere along their supply chain.

Companies in Japan and Europe that produce equipment needed for manufacturing chips will most likely be affected as well. Global semiconductor chip maker stocks have dropped following the news, and the loss is said to be worth US$240 billion. On the other hand, people familiar with the industry also predict that with Chinese chip manufacturers severely limited in terms of development, other chip makers like TSMC, Samsung, and Intel will be able to maintain their leading edge for longer.

What Does The Future Hold?

Semiconductor components are necessary for everything from self-driving electric vehicles to the latest smartphones. Advanced microprocessors are essential for China’s A.I. ambitions and Chinese chip manufacturers need the latest chipmaking equipment, software tools, and experienced personnel to progress further. 

This will set the tech industry in China back for years, and their domestic semiconductor manufacturers will have no choice but to opt for tools that will give lower yields and less reliability. China might even ignore intellectual property rights to reverse engineer the tools they need to ramp up their domestic production

For more news on the global semiconductor industry, check out Inquivix Technologies!


Does The US Rely On China For Semiconductors?

The United States does not need to depend on China for semiconductors. In recent years, Taiwan and South Korea have shown their strength in producing cutting-edge chips, while the U.S. excels in designing these products. Furthermore, Japan, the US, and the Netherlands are major players when it comes to manufacturing semiconductors, components, and related products.

How Long Will The Global Semiconductor Shortage Last?

According to a survey conducted by Nikkei analysts, the surplus of semiconductors used in phones, PCs, and other consumer electronics products might persist until fall 2023. The global supply chain is currently experiencing conflicting signals where some areas have critical chip shortages while others are suddenly flooded with excess components.

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