Companies that accept U.S. funding as part of a plan to increase America’s computer chip-making capacity will be barred from setting up advanced manufacturing facilities in China for 10 years, the administration of President Joe Biden announced this week.
The Commerce Department released its plan to distribute $50 billion provided by the CHIPS Act, which Biden signed into law last month. In an appearance at the White House on Tuesday, Commerce Secretary Gina Raimondo said the rules include specific language on technology transfer to China.
“Companies receiving CHIP funds are not allowed to build state-of-the-art or state-of-the-art facilities in China for a period of 10 years,” he said. “The companies that receive the money can only expand their mature node factories in China to serve the Chinese market.”
Mature node factories refer to semiconductor manufacturing facilities that only produce older technology that is already widely available.
Raimondo reminded his audience of the semiconductor supply shortage during the early years of the COVID-19 pandemic, saying, “We saw the impact of the chip shortage on American families when car prices drove a third of the inflation due to a lack of chips, factory workers were furloughed, appliances were often unavailable, all due to a lack of semiconductors.”
“With this funding, we will ensure that the United States is never again in a position where our national security interests are compromised or key industries are immobilized due to our inability to produce essential semiconductors here at home,” he said.
Low US capacity
The CHIPS Act is a response not only to computer chip shortages that affected global supply chains during the pandemic, but also to the perceived threat to national security posed by a lack of domestic semiconductor manufacturing.
According to the Commerce Department, the US consumes 25% of the world’s most advanced computer chips, but produces none of them. As for less advanced chips, the US consumes 30% but manufactures only 13%.
Because advanced chips are used not only in consumer goods but also in weapons systems and other technologies important to national security, the federal government is concerned that global adversaries could cut off supply in the event of a conflict.
For example, a large percentage of the chips the US imports come from Taiwan, which has come under increasing threat from China, whose government claims the island nation as part of its country.
James A. Lewis, senior vice president and director of the Strategic Technologies Program at the Center for Strategic and International Studies (CSIS), told VOA that the 10-year time limit is an “unusual” policy for US, and likely represents an effort to find a middle ground between tech companies and China hawks in the federal government.
“I can’t think of any other case where we’ve put a time limit like that… It’s not how we usually do things internationally,” he said.
The Commerce Department, Lewis said, was among the tech companies reluctant to be completely cut off from one of the world’s biggest markets on one side, and Congress and the White House on the other. Both lawmakers and President Biden are eager to prevent China from producing next-generation semiconductors.
Technological restrictions are not new
Although a decade-long ban on the manufacture of advanced semiconductor technology in China may be stricter than expected, US companies are accustomed to facing export restrictions on critical technology.
“American companies will follow American law. They will continue to sell chips to Chinese buyers in accordance with existing law,” Doug Barry, vice president of the US-China Business Council, told VOA in an email exchange. “They have long been required to apply for export licenses to sell certain types of chips and have stopped sales to specific entities in China when required by US law.”
Barry said members of his organization “support the policies of a strong indigenous semiconductor industry and strong national security.”
He added: “The key to preserving US competitiveness in important technologies is to reduce the scope of export and investment controls, and to consult regularly with the business community to avoid unintended political consequences.”
The Chinese embassy responds
In response to a VOA query, the Chinese embassy in Washington emailed a response to spokesperson Liu Pengyu’s move.
“The Chinese side opposes the intervention and restriction of the relevant law in the economic, trade and investment cooperation of the global business community,” Liu said. “The law that includes terms limiting the normal investment and trade of relevant companies in China and normal Sino-US/science and technology cooperation. It would distort global semiconductor supply chains and disrupt international trade. China is firmly against it.”
In conclusion, Liu said, “The US politicizes, instrumentalizes and weapons technology and trade issues, and engages in technology lockdowns and disengagement in an attempt to monopolize the world’s advanced technologies, perpetuate its hegemony in the science and technology and harm the narrow-knit global industrial and supply chains. Such moves would harm others without benefiting ourselves.”
a forked future
CSIS’s Lewis said the 10-year ban strengthens the possibility that China will simply go its own way, investing in the ability to produce its own technology, perhaps to standards that would not be compatible with Western technology.
If it did, it could find willing clients in countries like Russia and Iran, which are on the receiving end of US-backed sanctions. China could also begin to compete with the US in other markets.
“If nothing changes, by 2030 we will see a bifurcated system,” Lewis said. “It’s a new kind of competition. There will be Chinese things made to Chinese standards that they want to sell to the global market. And there will be Western things made to Western standards that they want to sell to the global market.” market.”