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The US-China semiconductor competition has entered new territory, with key US allies and partners now firmly siding with Washington and forcing Beijing to change course to achieve its strategic objectives.

Last month, Japan imposed export controls on 23 items required for manufacturing advanced semiconductors in what was another major blow to China’s technological ambitions. These items now require governmental approval before being exported, meaning Japanese exporters are likely to prefer to find alternative buyers.

The export controls included restrictions on lithography equipment, which is crucial for producing cutting-edge microchips.

Although Japan did not mention China by name in its announcement, the move appeared to be targeted at Beijing. Mao Ning, a spokeswoman for China’s Foreign Ministry, said during her July 24 press conference that “despite China’s serious concerns, Japan went ahead with its export restrictions that explicitly target China. China is deeply dissatisfied and finds Japan’s action regrettable.”

The move by Japan was just the latest in a series of export control measures imposed by the United States and its allies in the hope of curbing China’s technological progress, particularly in the field of artificial intelligence. Semiconductors are crucial elements in civil and military technology. Advanced semiconductors, which have been a primary focus of restrictions by the US and its allies, are essential building blocks for AI and other key emerging technologies.

As AI and computer software continue to advance and become more complex, the hardware will have to keep up with it. If China’s semiconductor supply is halted, this would certainly disrupt its AI progress.

In June, the Netherlands announced additional export control measures on certain advanced semiconductor equipment, which were similar to the ones imposed by Japan. The Netherlands is home to ASML, which is one of the most important semiconductor companies in the world as it makes the machinery required to produce advanced microchips. Although these restrictions won’t come into effect until September 1, their impact has already been felt.

Together, the US, Japan and the Netherlands provide most of the equipment for semiconductor factories globally. By getting Japan and the Netherlands firmly on its side, the US has dealt China a massive blow in the race for technological supremacy.

These recent developments stem from October 7, 2022, when the US announced a new export control policy that essentially blocked US companies from selling semiconductors and relevant equipment to Chinese companies. Since then, the US has encouraged its allies to follow suit. China has called these actions “sci-tech hegemony”, accusing the US of pushing for decoupling and blockading the progress of Chinese companies.

Meanwhile, India could potentially become a key player for the US in its semiconductor competition with China. Through a joint statement in June, the US and India signed a memorandum of understanding to coordinate their semiconductor incentive programmes. They also announced that, as part of a combined US$2.75 billion in investment, Micron would invest US$825 million to build a semiconductor assembly and test facility in India.

India and Japan also signed an extensive agreement for semiconductor development in July.

Visitors gather at the Applied Materials and Micron Technology kiosks before the start of SemiconIndia 2023, India’s annual semiconductor conference, in Gandhinagar, India, on July 25. Photo: Reuters
Visitors gather at the Applied Materials and Micron Technology kiosks before the start of SemiconIndia 2023, India’s annual semiconductor conference, in Gandhinagar, India, on July 25. Photo: Reuters

Putting the pieces of the puzzle together, the overall picture becomes clear. The US is essentially attempting to block China from acquiring both semiconductors and the equipment required to manufacture them while also trying to exclude China from the global semiconductor supply chain.

In response to these developments, China announced export control measures of its own in July. China placed restrictions on exports of gallium and germanium – rare metals needed for manufacturing semiconductors – stating this was intended to “preserve security and national interests”. China accounts for about 80 per cent of the global production of these metals.

Although these measures were not as significant as those imposed by the US and its allies, it gives a clear indication of things to come. With microchip demand only expected to increase as AI becomes more complex, major states will almost certainly clash in the quest for advanced semiconductors. This competition is likely to have spillover effects in other domains such as national security.

The US-China semiconductor competition is also inherently linked to the AI competition between the two. China has announced plans to become the global leader of AI by 2030, while the US aims to halt China’s rise and maintain its current advantage in technology.

Exactly what these restrictions on semiconductors mean for China’s AI goals remains in question. There seems to be a consensus that China is still decades behind in terms of advanced semiconductors, and that a chip ban would largely halt its AI progress.

So far, China has been heavily reliant on chip imports from the US and its allies. However, it still plans to domestically develop its own semiconductors as part of its “Made in China 2025” strategy.

With AI becoming more advanced, the importance of semiconductors will only increase. With technological supremacy considered of paramount importance in both Washington and Beijing, the global race for semiconductors is certain to intensify.

Who exactly will win this race is yet to be determined, but one thing is clear: the current tensions between the US and China indicate that a second cold war has begun, with semiconductors being at the heart of it. Whichever side gains a significant edge in the semiconductor competition will take a big step towards attaining technological supremacy in the future.

Publication Link: https://www.scmp.com/comment/opinion/article/3230626/us-china-tech-war-semiconductors-heart-competition-driving-world-towards-new-cold-war

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