US microchip curbs on China aim to halt Chinese innovation

A New York Times article from last week on the US efforts to curb Chinese access to microchips is eyeopening.

‘An Act of War’: Inside America’s Silicon Blockade Against China is the title of the article and it’s not overstated. It outlines how on Oct 7 of last year, the US Bureau of Industry and Security launched economic measures to hinder China’s ability to produce or purchase advanced semiconductor chips.

The public line is that these restrictions aim to impede China’s production of weapons and surveillance technology powered by advanced chips, supercomputers, and AI systems. However, the result (and likely the aim) is to affect, if not cripple, a wider range of Chinese industries that rely on semiconductors.

It’s a expose of the incredible reach of the US and highlights how US law allows the restriction of exports of a Japanese company to China if there’s only a tiny slice of US-held intellectual property in the manufacturing of it.

“If you have one U.S. tool and 100 non-American tools in your fab, that taints any wafer moving across the line,” says Kevin Wolf, a former assistant secretary of commerce for export administration at the BIS.

It’s shows how it’s not the US against China, it’s the US leveraging the entire world against China. Moreover, since chips are now used for nearly all innovation, so it will effectively cripple China’s competitive position.

“Today, scientific advances are often made by running simulations and analyzing huge amounts of data, rather than through trial-and-error experiments. Simulations are used to discover new lifesaving drugs, to model the future of climate change and to explore the behavior of colliding galaxies — as well as the physics of hypersonic missiles and nuclear explosions.”

From China’s perspective, this move is nearly existential. The article highlights how similar controls on Huawei — which was the world’s largest smartphone maker — nearly wiped out the company.

With this, you can see China trying to forge a BRICS alliance that removes US influence, promotes bi-lateral trade and protects itself from US power.

The obvious ploy for China is to take Taiwan, where it could commandeer the TSMC fabs where two-thirds of global chips are manufactured. But the article also highlights a line of thinking that the US should bomb and destroy those fabs rather than let them fall into Chinese hands.

Historically, there are parallels here to the US cutting of Japan from global oil supply in the early 1940s.

This article was written by Adam Button at www.forexlive.com.