Washington's Semiconductor Curbs Threaten US-China Relations

By Eduardo Baptista
BEIJING (Reuters) – Washington's new curbs on China's semiconductor industry are escalating fears of potential retaliatory actions from Beijing, intensifying trade tensions between the two largest economies.

Chinese authorities have committed to acting in defense of their domestic companies and have developed various strategies for retaliation against U.S. firms. Here are some of these strategies:

SECURITY REVIEWS

China’s declaration last May to block certain government purchases from Micron (NASDAQ:MU), due to a failed security review, is seen as one of its initial retaliations in the U.S.-China chip conflict.

Concerns have escalated regarding U.S. tech giant Intel (NASDAQ:INTC) potentially being targeted next, especially after allegations from the Cybersecurity Association of China (CSAC) claiming that Intel has regularly endangered China’s national security, suggesting its products sold in China should undergo security reviews.

Intel is crucial as a major supplier of chips for electronic devices, contributing over a quarter of its total revenue from China last year.

Retaliatory measures could also emerge from various channels; U.S. business chambers in China have reported that U.S. firms have faced increasing challenges, including slower customs clearance and heightened government scrutiny, amid rising tensions.

UNRELIABLE ENTITIES LIST

In September, China announced an investigation into U.S. firm PVH Corp (NYSE:PVH), the parent of brands like Tommy Hilfiger and Calvin Klein, for “unjustly boycotting” products linked to Xinjiang cotton, utilizing the unreliable entity list (UEL).

This represents a first for Beijing in addressing a company for avoiding Xinjiang cotton in compliance with U.S. regulations and is one of the few instances the UEL has been implemented since its inception during Trump’s presidency. The list threatens to restrict U.S. companies from engaging in trade and investment in China.

Historically, the list has included U.S. firms like Lockheed Martin (NYSE:LMT) and Raytheon (NYSE:RTN) involved in arms sales to Taiwan.

EXPORT CONTROLS ON CRITICAL MINERALS

China leads the global market in mining and processing rare earth materials and has enacted export regulations since last year.

In August, it set export limits on antimony, a strategic metal crucial for military uses, like ammunition and infrared missiles, in addition to batteries. New controls on graphite products essential for electric vehicle batteries were issued in October 2023, shortly after Washington imposed restrictions on Chinese companies purchasing sanctioned semiconductors.

July 2023 saw China restrict the export of eight gallium and six germanium products, vital for semiconductor manufacturing, citing national security concerns.

DUAL-USE CURBS

Recently, China has widened its oversight on dual-use items, those with both civilian and military functions, with export controls starting December 1.

These rules, introduced in September, establish a streamlined export control list and mandate exporters of dual-use items to provide information on end users, enabling Beijing to identify supply chain dependencies within the U.S. military-industrial sector.

The list will cover advanced technologies where China either excels or seeks to lead, such as chip technology, artificial intelligence, quantum computing, and drones. Sanctions against U.S. drone manufacturer Skydio this year have reportedly disrupted its battery supply, according to the Financial Times.

“As containment of China increases, more U.S. industries, businesses, and the entire economy will suffer increasingly severe consequences,” opined the state-owned Global Times regarding Skydio’s situation earlier this month.