New Semiconductor Ban Poses Risks for China, U.S. and TSMC
The Storm Media Editorial, July 25, 2023
As a new U.S. semiconductor ban against China looms, American semiconductor companies have issued statements opposing such a ban. While a new ban could indeed strike another blow to China’s semiconductor industry, it would also cause losses and risks for the United States. Even Taiwan’s most valuable company the Taiwan Semiconductor Manufacturing Company (TSMC) is prone to said risks.
In October last year, the United States implemented a series of new semiconductor bans against China with unprecedented severity. These ranged from prohibiting the export of advanced chips to restricting U.S. citizens and permanent residents from working in Chinese semiconductor companies. Furthermore, the United States, along with semiconductor-exporting countries like the Netherlands and Japan, jointly regulated the sale of semiconductor equipment to China while the sale of high-end AI chips was completely banned. Recently, multiple foreign media outlets have reported that the White House is considering a “new wave of chip bans” against China, targeting more advanced AI chips and cloud services.
This approach is evidently not welcomed by the industry. On July 17, the U.S. Semiconductor Industry Association (SIA) released a public statement urging the Biden administration not to expand restrictions on semiconductor exports to China. They argued that such controls create market instability and are detrimental to the American semiconductor industry’s development. The same day, it was reported that U.S. Secretary of State Antony Blinken met with executives from semiconductor companies like Intel, Qualcomm, and NVIDIA to discuss issues concerning semiconductor supply chains.
The reaction from industry players is understandable, as China is the world’s largest semiconductor market, with an annual import value of over $400 billion, surpassing even oil imports. For many major American semiconductor companies, over 30 to 50 percent of their revenue comes from the Chinese market. Although only certain high-end chips are under restrictions, the impact is significant, especially since high-end chips have the highest profit margins. Moreover, the global semiconductor industry has already been struggling, and even the leading TSMC had to lower its revenue expectations by 10 percent. Hence, American companies will naturally oppose the new ban’s inevitable effects on profitability.
However, the industry’s opposition extends beyond short-term profit considerations; longer-term industry competition is also at stake. From the perspective of industry players, continuing to export chips to China and generating revenue can support investments and research operations in the United States, thereby maintaining America’s advantage in advanced technology.
Additionally, stricter restrictions would force China to accelerate its own independent semiconductor and related equipment industries, whose breakthroughs may allow them to compete with American companies. Following the previous ban, once-overlooked Chinese semiconductor equipment manufacturers saw increased consumption and revenue growth. If China’s advanced process chips are banned by the U.S., then China may instead focus on mature process production and eventually dominate the mature process semiconductor market––an outcome that other countries and industry players may not welcome.
Some U.S. tech figures like Bill Gates, Eric Schmidt, and Jensen Huang share this perspective. Huang believes that such bans could backfire and pose “enormous damage” to the U.S. tech industry. Apart from the loss of interest, he also pointed out that the ban would prompt China to start developing its own chips to compete with processors and NVIDIA. Similar events have already occurred: The U.S. ban prevented Huawei from using Google software, prompting Huawei to develop its HarmonyOS system, which now has over 300 million users and no longer supports Google Mobile Services as of last year.
Therefore, with new bans, both China and the United States would face risks. China will immediately encounter shortages of higher-level chips and semiconductor equipment. Breaking free from the U.S. “chokehold” includes challenges of high costs and time-consuming efforts, and the uncertainty of whether China can ultimately overcome this U.S. “chokehold” represents the largest risk.
As for the U.S., in the short term, its companies and industries will undoubtedly be affected. In the longer term, if China accelerates the development of its semiconductor industry under pressure and achieves success, this could inhibit the U.S. suppression of China or even result in the United States permanently losing access to this market.
The situation similarly bears risks for Taiwan’s TSMC. Some believe that the more intense the U.S.-China semiconductor war, the more profitable TSMC becomes. TSMC has indeed benefited in recent years from the tech and geopolitical conflicts. But the actual situation is more complex. The U.S. expansion of the ban would reduce NVIDIA and AMD’s chip sales to China––and consequently also affect TSMC’s business, since both NVIDIA and AMD are major clients of TSMC. Moreover, the semiconductor war has impacted the global market, with many countries aggressively building chip factories, leading to oversupply. Despite being a leader in semiconductor foundries, TSMC will be affected, as suggested by its recent announcement of lowering this year’s revenue forecast by 10 percent. If the new ban’s repercussions prove substantial, its revenue may drop further still.
Furthermore, there is a “political and diplomatic risk.” U.S.-China relations could return to a deep freeze. Recently, senior U.S. officials like Blinken, Janet Yellen, and John Kerry visited China to facilitate a more conciliatory atmosphere and prevent further deterioration of relations. These efforts might be in vain, however. Some sources claim the United States has already planned and formulated the new ban but has delayed its implementation to avoid worsening bilateral relations. On the other hand, China has already imposed restrictions on exports of rare earths and germanium, and Xie Feng, China’s ambassador to the United States, warned that while China does not want a trade war or a tech war, if the United States imposes further restrictions on China’s chip industry, China will “definitely” respond.
The hegemonic struggle between China and the United States is unfolding with semiconductors at its core. Although the United States has imposed semiconductor bans on China under the guise of national security concerns, to prevent China from using semiconductors for military purposes, the scope of the bans suggests the true objective is to restrain China’s development. There seems little room for compromise between the two sides, and the semiconductor “sanctions and countermeasures” war is unlikely to conclude easily.