Biden’s chip battle with China exposes industry weaknesses.
The White House’s Trade War with China Takes a Toll on Global Companies
The ongoing trade war between the White House and China regarding semiconductor chip manufacturing is causing significant challenges for companies worldwide. As they navigate through a growing web of industry restrictions, the impact is becoming increasingly evident.
Escalating Restrictions and Their Consequences
Over the past year, the United States has implemented controls and license requirements related to the sale of advanced chips and chip components to China. In response, China has reciprocated by limiting who can purchase the necessary components for chip manufacturing. While the Biden administration justifies these escalating restrictions on national security grounds, they may be costing U.S. companies.
“Some of the most innovative and cutting-edge American companies, particularly in the chip space, are these kind of fabulous guys like Nvidia and others who make a lot of money in China,” said Scott Lincicome, director of economics at the Cato Institute. “And we might not like that as a foreign policy matter, but hurting some of the most innovative American companies is not a great thing when you’re trying to win a tech war.”
Nvidia, one of the world’s largest semiconductor manufacturers, has had to make significant adjustments to its business plans to continue selling in China. Initially, the company predicted a $400 million loss in sales due to U.S. regulations in August 2022. However, Nvidia quickly adapted its products to meet the criteria listed by the Commerce Department’s restrictions, only to be ordered by U.S. officials to stop selling in China altogether.
Other companies, such as Micron, estimated that China’s ban over national security concerns would cost them a “high single-digit” percentage of their annual revenue.
Not only American companies but also Chinese companies have felt the pressure. Yangtze Memory Technologies Co., a China-based company placed on the U.S. list of restricted companies, had to lay off about 10% of its workers and slash more than half of its orders for production tools.
Chinese chip manufacturers have been hit hard by the trade war as they strive to rebuild their own chip manufacturing capabilities. The Chinese government has provided financial support to these manufacturers, but they still face challenges in acquiring the necessary tools and resources due to U.S. restrictions.
The Origins of the Trade War
The trouble for the tech sector began when President Joe Biden and Commerce Secretary Gina Raimondo decided to limit Chinese innovation through tariffs and export controls. The Commerce Department implemented rules in October 2022, placing dozens of Chinese companies on an “unverified” list, which restricted their ability to acquire semiconductors or advanced technology from the U.S. without a license.
Over time, the “unverified” list expanded, including companies like Yangtze. The Commerce Department is expected to implement additional restrictions in August, including an executive order from President Biden himself.
U.S. pressure on China also increased with the implementation of the CHIPS Act, which provided subsidies to encourage the development of domestic chipmakers and suppliers. The law also offered incentives for U.S. companies to stop operating in China.
In response, China implemented restrictions on gallium and germanium, two metals essential for creating high-level chips, and banned the use of chips from Micron.
Looking Ahead and Industry Leaders’ Efforts
It may take years before the final results of the trade war become visible, but industry leaders are already taking steps to mitigate the long-term negative effects. CEOs from Intel, Nvidia, Qualcomm, and other chipmakers have met with federal trade leaders to discourage additional curbs on chip sales to China.
While Chinese restrictions on the U.S. have not had a significant impact yet, the relief provided by the CHIPS Act can only last for so long. Government subsidies are not a reliable long-term source of income, according to Lincicome.
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