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US China Sanctions

Chips Act

US/China Sanctions

New rules

Following the introduction of strict export controls in 2022, China and the US may both struggle to operate normally. The sanctions, introduced by the Biden administration on October 7 2022, prevents US businesses selling products or services to Chinese semiconductor manufacturers.

The export controls stop the sales of new semiconductor technology to China. It also stops the sale of chipmaking equipment and the migration of highly skilled staff to operate them.

After the sanctions were introduced in October last year, many semiconductor companies lost a combined total of around $240 billion of stock value almost overnight.

China uses around 75% of the global supply, while they only produce 15% the world’s chips.

What effect they will have on China

The issue may arise since China’s equipment manufacturing is a few years behind the US. This means there will be a lack of replacements for the equipment they currently purchase from America. The new restrictions could encourage Chinese chipmakers to use older technologies to try and reproduce new tech.

Other Asian countries with large chip manufacturers may also be affected by the sanctions, including Taiwan and Korea.

Tech self-sufficiency has been a goal of China for quite a while, emphasised again last year by Xi Jinping. But these sanctions may put strain on until that goal is achieved. The country is, however, boosting investment in chips according to a source.

According to the source, who spoke to Reuters, said China would invest around $143 billion

What effect they will have on the US

The sanctions won’t stop the US semiconductor market from growing, but experts say it’ll definitely slow progress.

The Chips and Science Act, passed into law around the same time as the sanctions, details several incentives for domestic chip manufacturers. The Act details $280 billion in spending over ten years in various areas, including in R&D and manufacturing.

The US may also be putting themselves in a precarious position, since China could easily restrict exports of other materials. Many of the rare earth metals used in semiconductors or in their manufacture are sourced from China. The country has the largest percentage share of rare earth metals, with 37.9% of the world’s supply from there. The US, in contrast, has 1.3%.

With investments on both sides, it is going to be an interesting landscape to watch change in the coming years.

The most effective decision

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Electronic Components

Why is chip sovereignty so important?

sovereignty

Why is chip sovereignty so important?

The US and EU are planning for chip sovereignty, aiming to defend domestic chip supplies and move manufacturing back home.

At first glance this is a tall order, considering most chips are manufactured in China and China controls 55% of rare earth metal production, but it is no less crucial to ensure that the Western world has access to the chips it needs.

The need for chip sovereignty

As the electronics industry battles on with chip shortages, we are seeing car plants cut production and companies delay product launches.

These are only a few examples of measures being applied like a band aid over a supply chains that have been bleeding for years.

We are in a situation where electronic components manufacturers are running at 99-100% capacity. Demand has soared for all types of components, from chips and memory to diodes and displays, squeezing supply chains.

Quite simply, demand is outstripping supply.

Many of the problems in the supply chain are geopolitical and logistical in nature, so by moving manufacturing back home, nations like the US and the EU will be able to control the supply chain (or most of it) and make supply meet demand.

What’s happening?

The EU will legislate to push for chip sovereignty with the forthcoming “European Chips Act”. It aims to stop European countries from competing with each other for chips, instead having them work together to compete globally.

The US isn’t legislating for chip sovereignty, but the Biden administration used its first budget proposal to Congress to call for domestic funding to fight semiconductor shortages with figures up to $50 billion being touted.

The UK is at odds with the US and EU with no chip sovereignty in sight.

Simply put, the UK is selling off chip firms, with $42 billion sold since 2010 (figures from US research). For example, In July, the UK’s largest chip plant was acquired by Nexperia – a Dutch firm wholly owned by Shanghai-based Wingtech.

This raises concerns over the future of UK chip manufacturing. Industry funding is seriously lacking too, putting the UK firmly behind the US and EU.

Companies are a successful case study 

As countries continue to struggle to meet demand for chips, some companies have taken matters into their own hands.

Apple produces their own chip called the M1 for the MacBook Air and iMac, and Google is doing the same with the Tensor chip, used in the Pixel 6 smartphone.

By moving away from Intel and Qualcomm respectively, Apple and Google have taken greater control over their supply chains, cutting out many geopolitical and logistical issues and unlocking greater pricing power.

With the global chip shortage showing no signs of abating and rare earth metal prices soaring, supply chains are only going to get squeezed more in the near future.

Chip sovereignty will be important for nations to meet demand and reduce reliance on China, Taiwan, and other countries a very long way away.

However, while the EU legislates for chip sovereignty, and the Biden administration pushes Congress for domestic chip funding, the UK continues to sell off chip firms to foreign investors. This will bite down hard when chip imports take a hit.