Chips ahoy! US and China locked in self-destructive battle of trade restrictions

The chip wars between the US and China continue apace amid warnings that both sides may be harming their own economy as much as the other, and tech companies are increasingly concerned about doing business within constantly shifting restrictions.

Last week it was reported that China's chip imports had dropped by nearly 20 percent during the first six months of 2023 compared to data from a year earlier.

The figures published by Beijing's General Administration of Customs show that US sanctions are having an impact as China's overall imports shrank by 0.1 percent during the same period, according to the South China Morning Post.

China is moving to address the issue of the US blocking its access to advanced technology by stepping up efforts to develop its own. According to reports, local makers of chip manufacturing equipment in the country are seeing a massive hike in business after Washington clamped down on exports of equipment from other countries.

Two companies, Advanced Micro-Fabrication Equipment and Naura Technology Group, are predicting a doubling of profits, Bloomberg reports, as they and others increase efforts to offer home-brewed alternatives to the high-tech chipmaking equipment previously imported from suppliers such as Applied Materials or ASML. These in turn are intended to let Chinese semiconductor companies manufacture the advanced chips the Chinese market demands.

ASML is itself facing further restrictions from the Dutch government, Bloomberg said, as new export control rules are expected to bar the company from maintaining, repairing or providing spare parts for particular equipment without government approval. This could affect even those machines it has legitimately sold to Chinese customers in the past.

Meanwhile, US tech companies are said to be seeking urgent meetings with the Biden administration regarding Washington's policies on trade with China.

According to Reuters, the chief executives of both Intel and Qualcomm will be visiting Washington this week to hold meetings with officials about export controls and other matters affecting their businesses. It cited unnamed sources familiar with the matter who said that other semiconductor CEOs are coming for similar meetings.

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Many US chip companies obtain a substantial chunk of their revenue from sales to customers in China, and it is believed these meetings will be used by the CEOs to relay to government officials the impact restrictions are having, as well as the losses they may face from any further tightening of the rules.

Intel chief Pat Gelsinger has just returned from a trip to China – his second in three months – where he is said to have visited the company's chip packaging and test plant in Chengdu as well as the headquarters of IT equipment supplier New H3C Group.

The latter was a joint venture part owned by HPE, but the US giant announced its intention to sell its share earlier this year.

Intel and Nvidia are both said to be concerned that further restrictions on the export to China of advanced chips used for AI processing could hurt their businesses. Both have already gone to the length of producing modified versions of their products specifically for the Chinese market, with Nvidia offering the A800 GPU and Intel the Gaudi2 chip, but new US restrictions said to be in the pipeline could block even these lower performing products.

Perhaps ironically, White House National Security Adviser Jake Sullivan warned over the weekend that China would only harm itself with Beijing's planned restrictions on the export of two key metals used in semiconductors.

In an interview broadcast on CBS, Sullivan said China's restrictions on exports of gallium and germanium would be "self-defeating" because it would only spur other countries to find ways to reduce their dependency on China for supplies and increase the resilience of their own supply chains. ®