U.S.-China Chip War: Sanctions and Semiconductor Supremacy

Quick Look:

• The U.S. signals new sanctions on China’s chip sector, deepening economic tensions.
• Huawei’s alleged ties with the Chinese government spark a semiconductor supremacy battle.
• U.S. adopts a “high fence, small yard” strategy, investing $52B to bolster the semiconductor industry.
• China counters with a $178B semiconductor surge, raising global alarms about a potential glut.

The U.S. has signalled its intention to impose new sanctions on China’s burgeoning chip sector. This move, set against escalating tensions, underscores a deepening rift between the world’s two largest economies. The semiconductor industry, crucial for future tech, is central to the confrontation between the U.S. and China. However, it is also one of the most important factors in national security.

Unveiling Huawei’s Clandestine Network

Earlier this month, Bloomberg unveiled reports of the U.S. targeting a “secret network” purportedly aiding Huawei in sidestepping American sanctions. Entities such as Qingdao Si’En, Shenzhen Pensun Technology, SwaySure, and ChangXin were in the spotlight, accused of being part of Huawei’s covert efforts to build its semiconductor capabilities. Backed by a staggering $30 billion in government funds, Huawei’s strategy is to develop chip fabrication plants (fabs) and support smaller companies. This has been perceived as a direct challenge to U.S. sanctions.

Responding to these developments, the U.S. has shifted its approach from the broad strategy of “decoupling” to a more focused “high fence and small yard” tactic. This strategy focuses on safeguarding strategic and advanced technologies rather than severing ties entirely. Furthermore, the Biden administration has announced a colossal investment in the domestic semiconductor industry. This includes a $52 billion infusion and $8.5 billion in grants for a new Intel plant in Arizona. This move not only aims to bolster the U.S.’s technological prowess but also to reassert its position as a leader in manufacturing.

China’s Counter: $178 Billion Semiconductor Surge

On the other side of the Pacific, China has not been idle. Investors have contributed over $150 billion to its semiconductor sector since 2014. Besides, with a recent injection of 200 billion Chinese yuan ($28 billion), China’s aggressive push to develop its semiconductor capabilities is unmistakable. This massive influx of capital, while bolstering China’s technological ambitions, has raised alarms globally. The Economist Intelligence Unit (EIU) has warned of a looming semiconductor glut and resultant price drops, which could exacerbate international tensions.

Huawei has emerged as a symbol of China’s technological resilience. Its development of a 7nm chip for the Mate 60 Pro smartphone, courtesy of SMIC, stands as a defiant challenge to U.S. sanctions. This technological breakthrough has prompted Under Secretary Estevez to acknowledge the necessity of reassessing SMIC’s compliance with U.S. export regulations, indicating a nuanced understanding of the complexities at play.