Bullets prevent the United States from leaving China

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In May, Idaho-based chipmaker Micron Technologies suffered a serious blow in the US-China tech war. The Chinese government has banned companies that process crucial information from buying Microns chips, saying the company failed a cybersecurity review.

Micron said the change could destroy about an eighth of its global revenue. Yet in June, the chipmaker announced it would increase its investment in China by adding $600 million to expand a chip packaging plant in the Chinese city of Xian.

This proposed investment demonstrates Microns’ unwavering commitment to its China business and team, according to an announcement posted on the company’s Chinese social media account.

Global semiconductor companies find themselves in an extremely delicate position as they try to straddle a growing divide between the United States and China. The semiconductor industry has become ground zero for the tech rivalry between Washington and Beijing, with new restrictions and punitive measures imposed by both sides.

U.S. officials say U.S. products have fueled Chinese military and surveillance programs that run counter to U.S. national security interests. They have imposed increasingly strict restrictions on the type of chips and chipmaking equipment that can be sent to China, and are offering new incentives, including subsidies and tax credits, to chipmakers who choose to create new operations in the United States.

But building factories can take years, and trade ties between countries remain strong. China is a major market for chips, as it is home to many factories that produce chip-rich products, including smartphones, dishwashers, cars and computers, which are both exported around the world and purchased by consumers in China.

Overall, China accounts for about a third of global semiconductor sales. But for some chipmakers, the country represents 60 or 70% of their revenue. Even when chips are made in the United States, they are often sent to China for assembly and testing.

We can’t just flip a switch and suddenly say you have to pull everything out of China, said Emily S. Weinstein, a researcher at the Georgetowns Center for Security and Emerging Technology.

The industry’s reliance on China shows how a close but hugely contentious economic relationship between Washington and Beijing poses challenges for both sides.

These tensions were reflected during Treasury Secretary Janet L. Yellens’ visit to Beijing this week, where she attempted to walk a fine line in blaming some of China’s practices while insisting that the United States did not seek to sever ties with the country.

Ms Yellen criticized recent punitive measures China has taken against foreign companies, including limiting the export of certain minerals used in chipmaking, and suggested such actions were the reason the Biden administration tried to make American manufacturers less dependent on China. But she also said the US-China relationship was strategic and important.

I made it clear that the United States was not seeking a total separation of our economies, Ms Yellen said during a roundtable with American companies operating in China. We seek to diversify, not decouple. A decoupling of the world’s two largest economies would be destabilizing for the global economy, and it would be virtually impossible to undertake.

The Biden administration is about to start investing heavily in American semiconductor manufacturing to lure factories out of China. Later this year, the Commerce Department is expected to begin distributing funds to help companies build chip facilities in the United States. This money will come with strings attached: Companies that receive funds must refrain from expanding their high-tech manufacturing facilities in China.

The administration is also weighing new restrictions on the chips that can be sent to China, as part of an effort to expand and finalize sweeping restrictions it issued last October.

These measures could include potential limits on sales to China of advanced chips used for artificial intelligence, new restrictions for Chinese companies’ access to American cloud computing services and restrictions on American venture capital investments. in China’s chip business, according to people familiar with the plans. .

The administration also considered suspending licenses it granted to some U.S. chipmakers that allowed them to continue selling products to Huawei, the Chinese telecommunications company.

Japan and the Netherlands, home to companies that make cutting-edge chipmaking equipment, have also imposed new restrictions on their sales to China, in part because of U.S. insistence.

China has issued its own restrictions, including new export controls on minerals used in chip manufacturing.

Amid tighter regulations and new incentive programs in the United States and Europe, global chip companies are increasingly looking outside of China to choose locations for their next major investments. But these facilities will likely take years to build, meaning any changes in the global semiconductor market will unfold gradually.

John Neuffer, president of the Semiconductor Industry Association, which represents the chip industry, said in a statement that the continued escalation of controls posed a significant risk to the global competitiveness of US industry.

China is the world’s largest market for semiconductors, and our companies simply need to do business there to continue to grow, innovate and stay ahead of global competitors, he said. We urge solutions that protect national security, avoid unintended and lasting damage to the chip industry, and avoid future escalations.

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