A chip on Biden’s shoulder |
The White House is considering new ways to curb China’s ability to produce high-end computer chips. The problem, according to the companies that would be subject to the rules, is that any apparent solution would also harm a major U.S. industry and possibly more than one.
Biden administration officials met last week to consider tightening rules that restrict the sale of equipment to China’s largest chipmaker, Semiconductor Manufacturing International Corp. Such a move would build on export restrictions President Donald Trump imposed on SMIC last year.
The meeting ended without an immediate resolution, and that left hawks in Washington dissatisfied. “No update to the SMIC licensing policy is a major mistake,’’ Michael McCaul, the lead Republican of the U.S. House Foreign Affairs Committee, said in a statement. “We cannot let the interests of one industry segment result in the Chinese military being able to make its own semiconductors.”
That “one industry segment” refers to U.S. companies that build equipment to produce chips. That group, led by Applied Materials Inc., Lam Research Corp. and KLA Corp., accounts for more than 40% of the global market for gear used to make advanced semiconductors.
The Trump administration figured that it could slow China down by withholding certain types of American machinery. There was an unintended consequence, according to executives at U.S. equipment makers. The export ban created an opportunity for foreign companies, including those in China, to fill a hole left by the Americans.
One apparent beneficiary of the U.S. policy is Tokyo Electron Ltd. The Japanese company got about 15% of its sales in fiscal 2018 from China. In the most recent financial year, it was 29%. The U.S. would need allies in Japan and Europe to implement similar bans for the strategy to be effective.
But even then, Chinese companies could figure out how to make the machinery themselves. Beijing-based Naura Techology Group. is on course to grow about 50% this year, according to estimates from analysts compiled by Bloomberg. That’s a strong growth rate for a company of any size and considerably faster than its U.S. rivals.
Executives from the U.S. companies argue that it would be safer to install their equipment in Chinese factories because the software could allow them to monitor what the chipmakers are doing. Otherwise, those facilities become a black box, they said, asking not to be identified discussing matters of national security.
Another factor to consider is possible retaliation. Chinese factories make hundreds of millions of phones and computers. They account for more than half of the chip industry’s $400 billion in sales. Without access to China, growth prospects for U.S. companies would be sharply curtailed.
While some in Washington are focused on curtailing China’s long-term capabilities, there’s probably an equal number of voices urging the U.S. to do whatever it can to increase output of chips worldwide. Shortages have left companies desperate for even the most basic semiconductors needed to build everything from the iPhone to the Ford F150. And at least for now, production from China’s biggest chipmaker would help. —Ian King