The US Department of Commerce recently announced that it will launch a survey of the US semiconductor supply chain and defense industrial base in January 2024 to "inform US policies aimed at strengthening the semiconductor supply chain, promoting a level playing field for traditional chip production, and reducing the 'national security risk' posed by China". This indicates that the US may further upgrade its semiconductor control over China.

In 2023, scientific and technological competition represented by chips is a focus of the game between China and the United States, and Chinese semiconductor companies are constantly suffering from the containment and oppression of the United States and its Allies. In response to the escalating ban, the US industry and its Allies have also continued to voice rational voices. Some experts believe that the competition between China and the US in the frontier technology field will not slow down in 2024. Digital technology, mainly based on artificial intelligence (AI) and fifth-generation mobile communication technology (5G), is the core area of strategic competition between China and the US.

Why the US is Targeting 'Traditional Semiconductors'

The US Department of Commerce said on December 21 that the review of the semiconductor supply chain will begin in January next year and will focus on the use and procurement of traditional chips made in China in the supply chain of key US industries to assess the dependence of its semiconductor supply chain on Chinese chips.

The so-called "traditional semiconductor" refers to the semiconductor of the current generation and mature nodes. The U.S. Chip and Science Act temporarily defines "conventional semiconductors" as chips manufactured using a process of 28 nanometers or more, covering many fields such as automobiles, household appliances, and consumer electronics.

Why is the US targeting "traditional semiconductors"? South Korea's Donga Ilbo reported on December 23 that while the United States, Korea, Japan, and the Netherlands are blocking the export of cutting-edge semiconductor technology and equipment, Chinese semiconductor companies are actively capturing the traditional semiconductor market of 20 nanometers and above, which accounts for 75 percent of the global semiconductor market.

According to a report released by the US Department of Commerce on December 22, China has provided about $150 billion in subsidies to the semiconductor industry in the past 10 years. "Over the past few years, we have seen worrying potential signs that [China] is expanding traditional chip production to try to make it more difficult for US companies to compete." U.S. Commerce Secretary Gina Raimondo said traditional chips are important to supporting key U.S. industries such as telecommunications, the auto industry and the defense industry. Depending on the results of the investigation into the semiconductor supply chain, the U.S. may consider trade restrictions such as higher tariffs and export controls.

"This suggests that the U.S. may use tariffs or other trade tools to counter China." Bloomberg commented on this.

Technological competition between the US and China is intensifying

From the Trump administration to the Biden administration, the U.S. has been expanding its export control on semiconductors to China, and the technology competition with China is becoming increasingly fierce.

On August 9, 2022, Biden signed the Chip and Science Act, which promoted the "resourcing" of chip manufacturing to the United States through $52.7 billion in huge industry subsidies and anti-competition provisions, while prohibiting subsidized companies from the United States and its ally partners from building or expanding advanced chip plants in China and other concerned countries for 10 years.

In October 2022, the United States updated the Export Administration Regulations to include 31 Chinese entities on an "unverified list" and imposed restrictive export controls on transactions for certain advanced computing semiconductor chips, supercomputer end-uses, and transactions involving certain entities on the Entity List.

In August, Biden signed an executive order authorizing the US Treasury secretary to oversee US investments in Chinese entities in three areas involving semiconductors and microelectronics, quantum information technology, and artificial intelligence. The ban means not only that products cannot be exported, but also that American money and expertise cannot be used to help China develop its own products, according to the BBC.

In October this year, the Bureau of Industry and Security of the US Department of Commerce issued the Advanced Computing Chip Update Rule and the Semiconductor Manufacturing Item Update Rule, which comprehensively upgraded the export control rules of the semiconductor industry to China based on the 2022 Export Administration Regulations, and expanded the control targets to about 45 countries with close relations with China and subsidiaries of Chinese enterprises around the world. The Nihon Keizai Shimbun reported that the core of the new U.S. regulation is to block the flow of cutting-edge semiconductor technology from a third country to China. Affected by this, NVIDIA and AMD China special edition GPU products have been banned from China since November 17.

"The United States is constantly upgrading its export control on China, and wants to weaken, muzzle and suppress the development of China's semiconductor industry, so as to block China's technological development process." Cui Shoujun, a professor of international relations at Renmin University of China, said that in the context of strict regulatory measures in the United States, many Chinese companies still show strong technical strength and innovation ability in the semiconductor field, which further exacerbates the sense of crisis in the United States. The United States is trying to use more tools to block China's efforts to develop its own semiconductor industry.

Global production and supply chain cooperation may be affected

The continuous increase of US semiconductor regulation on China has aroused great concern in the industry and international public opinion. Executives at several Japanese companies said recently that despite restrictions from both the US and Japanese governments, "they cannot exit the Chinese semiconductor market", especially as exports of traditional semiconductor equipment to China are generating sales growth for their companies.

South Korea's Dong-A Ilbo reported on December 23 that South Korea is highly dependent on Chinese products in terms of traditional semiconductors. Without the use of Chinese semiconductors, the competitiveness of Korean home appliances, smartphones and automobiles will suffer. Moreover, if high tariffs are imposed on semiconductors made in China, Samsung Electronics and SK Hynix's semiconductors made in China will suffer.

Agence France-Presse also analyzed that the semiconductor industry of U.S. Allies such as Japan and South Korea is expected to suffer a considerable blow. Losing access to the Chinese market could further worsen the earnings of semiconductor-related companies that are already facing a market downturn.

The US Semiconductor Industry Association (SIA) has also said that business innovation, manufacturing and employment should not be "unduly harmed", and that the government needs to issue an exemption policy to ensure business continuity and avoid supply chain disruption. The exception policy should also apply to the purchase of equipment, capital expenditure for tool upgrades and raw material purchases in the factory.

Some in the semiconductor industry say the U.S. ban could spur China's efforts to develop alternative technologies, and that Chinese researchers have made significant progress in developing domestically produced advanced chips, ultimately undermining U.S. global influence.

Zhou Nianli, a researcher at the China Institute of WTO Research at the University of International Business and Economics, pointed out that in the context of the Sino-Us science and technology game, digital technology based on AI and 5G is the core field of China-Us strategic competition. The tussling between the two countries not only determines the future international status of China and the United States, but also has a subversive impact on the future international political and economic pattern. He believes that because the power of digital technology itself has the characteristics of scarcity, hierarchy and periodicity, the fierce competition for digital technology power between China and the United States will not stop in the future, and there is also the possibility of cooperation in the application regulation and supervision of digital technology.