News headlines described the Biden administration’s latest semiconductor-focused sanctions on China as sheer annihilation, which could ‘decapitate’ the overall semiconductor industry.
The sanctions aimed at preventing the delivery of cutting-edge processors to China, which are required to run AI algorithms. They also require U.S. citizens working in the Chinese industry to quit their job or risk losing their U.S. citizenship. The comprehensive strategy revealed by the Biden administration is interpreted as a significant escalation in the high-tech battle with Beijing.
The Biden administration seems to want to completely limit China’s advance in the artificial intelligence space, which requires processors to run and train impressive AI algorithms in China. Specifically, the sanctions prohibit the export of chip manufacturing tools and design software belonging to Taiwan’s Semiconductor Mfg. Co. Ltd. and Samsung. The sanctions package will also eliminate American products and technologies from the Chinese semiconductor production ecosystem.
Thea D Rozman Kendler, assistant secretary of commerce for export administration, recently said: “The PRC has poured resources into developing supercomputing capabilities, and seeks to become a world leader in artificial intelligence by 2030. It is using these capabilities to monitor, track and surveil their own citizens, and fuel its military modernization. Our actions will protect U.S. national security and foreign policy interests while also sending a clear message that U.S. technological leadership is about values as well as innovation.”
Given the recent escalations involving Taiwan, it is now evident that the United States and Beijing are entering a new era in relations, where things are extremely unlikely to go back to how they were prior to the Trump administration. President Biden, in many ways, has only extended the policies of his predecessor.
The sanctions will also hinder the development of various supercomputers with military applications, nuclear modeling, and hypersonic weapons capabilities. While the sanctions won’t affect the production of things that require older models of chips, the sanctions will limit the production of more advanced systems. They could also significantly postpone developments in autonomous driving, cloud computing, and economic digitalization.
As a result of the sanctions, Taiwan Semi reduced its forecasts for capital expenditures and Applied Materials cut its outlook for revenue and profit. Both businesses claimed that demand for semiconductor products would decline as a result. Chinese officials viewed the move as a significant attempt to limit Chinese production and advancement in artificial intelligence, which could be the most important technology of the future. Keep in mind, the Chinese sanctions were implemented as the U.S. had its own sanctions war with Russia, with a possible plan to also boycott Russian aluminum in the near future. However, it should also be noted that China will continue to massively fund its semiconductor industry, while the U.S. has somewhat stalled.
Regarding the parallel aluminum discussion, “The worst scenario is Europe and the U.S. will block Russian aluminum,” Shanghai-based Chaos Ternary Research Institute wrote in an emailed note. “Stranded Russian aluminum will most likely flow to China, India and elsewhere, followed by China’s exports of aluminum products into Europe and the U.S. to fill the gap.” China is both the world’s largest producer and consumer of aluminum, which could lead to Beijing purchasing more Russian aluminum to boost overseas sales.
There have also been signs that Washington may prevent U.S. companies from actively purchasing Chinese firms without approval by American agencies. This was always the case with military technologies, but it seems that Washington may expand the list with a broader investment review process.
Overall we see a steady separation between the geopolitics and long-term economic plans of the United States and that of China. Beijing is increasingly concerned with the diplomatic and military gestures the United States has directed towards Taiwan, while the Biden administration has also taken significant steps to ‘stunt’ China’s impressive growth. Time will tell, but Beijing will need to reevaluate its strategies regarding innovation and growth so that China is more independent from the decisions of the United States.