The U.S. Semiconductor Strategy Hitting China Directly
On October 7, the U.S. Biden administration announced new export restrictions on advanced semiconductors to China.
This is a policy to decouple China’s related industries from the global supply chain as the risk of Taiwan contingency increases. The battle between the US and China over the “Technology supremacy “Techno nationalism is reaching its peak.
Decoupling policy of China on advanced semiconductors is a “carrot” and “stick”. The ” stick” is a measure that prohibits the export of related products and technologies that use US tools and equipment, including foreign companies. It also prohibited new investment by companies that have received US government subsidies, and banned the US citizens from increasing production capacity at cutting-edge manufacturing facilities in China.
Kevin Wolf, an expert on US export controls, said that the inclusion of foreign companies reflects insufficient sanctions against Huawei under China’s military-civilian fusion regime. In addition, it aims to avoid putting US companies at a competitive disadvantage with companies in other countries. However, the extraterritorial application of US domestic law and regulations to foreign companies poses a problem on international law. It is desirable to have a multilateral arrangement on military and civilian dual technology.
“Carrot” is a $52.7 billion subsidy included in the recently enacted CHIPS and Science Act, which also covers foreign companies that produce and develop technology in the US. Advanced semiconductors are strategic materials for economic security, but production is concentrated in Taiwan and South Korea, and it aims to attract them to the United States.
Japan’s semiconductor industry has about a 10% share of the global market, but it has a strong presence in the fields of semiconductor manufacturing equipment and materials. Subsidies to foreign companies, though they are accompanied by regulations on new investment, would be an opportunity for Japan to revive its semiconductor industry, although the issue of compliance with international rules remains.
Japanese companies are desperately trying to figure out which parts of the production process are using cutting-edge US technology in connection with the current export restrictions. In the semiconductor field, it is necessary to use the patents of other companies that are complementary to the company’s own technology. In addition, supply chains crossing borders are intertwined intricately, and the international interdependence of computer-related industries, including China, is extremely high. This time, the implementation of the export restrictions will significantly reduce China-related semiconductor and computer trade.
In addition, the Biden administration’s climate change and inflation-related legislation limited the subsidies for the purchase of electric vehicles (EV) to vehicles that were finally assembled in North America. South Korean companies get angry that the EVs they export are exempt from subsidies despite a free trade agreement (FTA) with the United States.The European Union (EU) is also concerned about the shift of EV production to North America.
The same related law prohibits relying on imports from “foreign entities of concern” for raw materials essential for battery production. China has an extremely large market share in the production and processing of raw minerals. Restructuring of the global supply chain is inevitable in this field as well.
EV subsidies that discriminate against foreign companies are highly likely to violate World Trade Organization (WTO) rules. We hope that the US will abolish the discrimination through consultations at “Indo-Pacific Economic Framework” (IPEF) with Asian countries and with European countries in the Technology and Trade Council (TTC).
(English translation of Morning Edition of the Nikkei with 2022/11/25)