Already struggling after years of disruption, the global semiconductor industry is bracing itself for “next level” chaos after the United States imposed draconian new export controls that ban US citizens from providing support to Chinese semiconductor manufacturers.
Flowing on from the US government’s recently passed CHIPS and Science Act of 2022 – a broad set of policies designed to bolster the country’s struggling sovereign semiconductor manufacturing capabilities – the new controls prevent US citizens and permanent residents from supporting the “development or production” of advanced chips at Chinese factories without explicit approval from US authorities.
The new policy – one of a suite of new measures implemented by the US Bureau of Industry and Security – is designed to prevent Chinese companies from using American semiconductor know-how to develop advanced weaponry, but the scope of its far-reaching consequences rapidly became clear after the policy’s 12 October implementation.
Within a day, reports say, companies with chipmaking operations in China were standing down their US staff, with companies like Chinese industry giant Naura Technology and Dutch firm ASML Holding NV telling American employees to immediately stop working on development projects or supporting their clients in any way.
Chinese authorities hit back at the moves, with pundits warning that the policy would take the countries’ trade war to a “dire next level” as Chinese Foreign Ministry spokeswoman Mao Ning slammed the US for “[abusing] export control measures to maliciously block and suppress Chinese companies.”
“By politicising tech and trade issue and using them as a tool and weapon, the US cannot hold back China’s development but will only hurt and isolate itself when its action backfires.”
Whereas previous export controls have been based on blocking China’s access to specific technologies, the new rule 15 (§ 744.6) targets individuals supporting the development of those technologies – putting executives and technologists in limbo as they are stood down from jobs helping Chinese companies develop semiconductors used in virtually every type of electrical device.
It is the “broadest China salvo yet”, observers have noted, for a Biden Administration that has used increasingly aggressive export control measures to choke China’s semiconductor industry and develop American sovereign semiconductor capabilities.
China “has poured resources into development supercomputing capabilities and seeks to become a world leader in artificial intelligence by 2030,” Assistant Secretary of Commerce for Export Administration Thea D. Rozman Kendler said in announcing the new rules.
“It is using these capabilities to monitor, track, and surveil [its] own citizens, and fuel its military modernisation. Our actions will protect US national security and foreign policy interests while also sending a clear message that US technological leadership is about values as well as innovation.”
Building US semiconductor capabilities
Hit hard by the COVID-19 pandemic, the semiconductor industry has struggled to right itself after chronic chip shortages that have continued through this year, leading some to lament the impact of ‘chipageddon’ as firms like Apple struggle to meet demand.
The ongoing shortage has created opportunities to grow Australia’s considerable expertise in semiconductor design, with the NSW Government recently establishing a Semiconductor Sector Service Bureau (S3B) to foster collaboration between semiconductor researchers and industry.
The US government has been far more aggressive in giving its industry a leg up, but was working to contain the fallout from the new regulations by issuing temporary authorisations for chipmakers in countries like South Korea.
Major chipmakers have responded to the tighter restrictions exactly as the government had hoped, with American chipmaker Micron this month announcing that it will invest up to $144 billion ($US100 billion) and employ tens of thousands of new staff in a regional New York manufacturing facility.
“To those who doubted that America could dominate the industries of the future,” he said, “you should never bet against the American people…. Together, we are building an economy from the bottom up and the middle out.”
Implementation of the CHIPS and Science Act is ramping up quickly, with this month also marking the first meeting of the CHIPS Implementation Steering Council – a high-level advisory group helmed by representatives of the National Economic Council (NEC), National Security Council (NSC), and Office of Science and Technology Policy (OSTP).
In directing the next phase of what analyst firm Fitch Ratings called “a transformation of the global semiconductor supply chain”, the council will tap the Act’s $76 billion ($US52.7 billion) war chest as it works to bolster domestic manufacturing capabilities.
It will also buffer against the impact of increasing tensions between China and Taiwan, where firms like TSMC account for two-thirds of the global semiconductor industry’s $185 billion ($US128.7 billion) in annual revenues.
TSMC is the only contract chipmaker capable of manufacturing chips with trace sizes of 7 nanometres (nm) and below, which are crucial to high-performance smartphones and integrated computer chips, graphics processing units (GPUs) that power artificial intelligence applications, vehicle automation systems, and more.
The new US export controls restrict the export of chips with architectures based on 16nm traces or smaller.
The Semiconductor Industry Association (SIA) has welcomed the new rules, noting that the US share of global semiconductor manufacturing has slid from 37 per cent in 1990 to 12 per cent today, “mostly because other countries’ governments have invested ambitiously in chip manufacturing incentives and the US government has not.”