The U.S. and China intensified their conflict over critical technology this week, accelerating the trend towards decoupled economies on the basis of protecting national security. The tit-for-tat trade restrictions, which targeted semiconductors and critical minerals, also revealed the Chinese government’s increasingly assertive posture towards the incoming Trump administration that has promised to supercharge the U.S. trade war with China. Beijing’s “sweeping retaliation,” NYT’s Keith Bradsher noted, displayed much more confidence than its previous reactions to trade disputes with other countries. Ryan McMorrow and Eleanor Olcott at the Financial Times described how the U.S.’s latest export controls added momentum to China’s shift towards local production of advanced chip technology:
China has finally said aloud what was once only discussed behind closed doors: the country must rid itself of US chips.
Four government-backed industry associations, representing the bulk of China’s semiconductor demand, issued co-ordinated statements this week urging member companies to rethink purchases of American silicon that three of them deemed as “no longer safe or reliable”.
“Be cautious when purchasing US chips,” the four associations said, urging their members to look for Chinese or other foreign suppliers instead.
[…] “Beijing has grown increasingly frustrated with US technology controls and has signalled it is prepared to respond in ways that create economic pain for US companies and the US economy,” said Paul Triolo, a tech expert at Albright Stonebridge Group. [Source]
In late 2022, the Biden administration unveiled its first batch of major export controls aimed at curtailing China’s access to advanced semiconductor technology. (At that time, the Chinese foreign ministry decried the controls as U.S. “technological hegemony,” a claim which drew mockery from Chinese netizens.) One year later, the Biden administration expanded those restrictions. Throughout 2023, the Chinese government responded by imposing export controls on certain critical-mineral products, such as rare-earth magnets, graphite, gallium, germanium, and (in 2024) antimony. Meanwhile, China has tightened its grip over the mining and refining of critical minerals at home and throughout the Global South, leaving Western countries scrambling to claw back market share.
The U.S. Department of Commerce announced its latest round of export controls on Monday, and China’s Ministry of Commerce announced its response on Tuesday. Gracelin Baskaran and Meredith Schwartz from the Center for Strategic and International Studies summarized each set of restrictions, introducing the latter as China’s “most stringent critical minerals export restrictions yet”:
The new [U.S.] restrictions prohibit the export to China of 24 types of semiconductor manufacturing equipment and three related software tools. They also prohibit the export of advanced memory chips, chipmaking machinery, and other semiconductor technologies to 140 Chinese chipmaking companies including major Chinese chip manufacturers and toolmakers. These companies were also added to the U.S. Department of Commerce’s Entity List—a blacklist that mandates U.S. firms to apply for export licenses that will be near impossible to secure. To make the blacklist more difficult to bypass, the United States will apply the foreign direct product rule, which will impact non-U.S. companies that utilize U.S. chips in their tools and make it difficult for U.S. firms to produce these tools in third countries and export to China. Under the rule, countries that export key chipmaking equipment, such as Israel, Taiwan, Singapore, and Malaysia, will be unable to export to Chinese fabs [microchip fabrication plants]. However, firms in other key U.S. allies such as Japan, South Korea, and the Netherlands are excluded from the rule. The rule is designed to tighten the chokehold on China’s semiconductor industry, preventing Chinese firms from circumventing the U.S. export bans by importing chips and machinery with U.S.-designed components. Considering the number of exclusions negotiated for allies, Chinese firms may still find ways to access some U.S. advanced chips.
[…] China’s Ministry of Commerce immediately responded by imposing export bans on several minerals used in semiconductor and defense technology manufacturing to the United States—a rapid retaliation by Beijing. China banned shipments of gallium, germanium, antimony, and so-called superhard materials to the United States due to their “dual military and civilian uses.” The export of graphite will now also be subject to greater scrutiny.
These restrictions come on the heels of the release of an updated Dual-Use Export Control List by China’s Ministry of Commerce. The list expands and consolidates a list of items deemed to have dual civilian and military uses. This updated framework introduces a unified system and facilitates stricter oversight to tighten China’s export controls. This list not only streamlined the implementation of this week’s export controls but leaves the door open for China to implement new export bans on other strategic minerals on the list such as tungsten. [Source]
In a ChinaTalk podcast conversation this week, host Jordan Schneider and analysts Dylan Patel and Greg Allen argued that the U.S. export controls “misfired” and will have “limited ultimate impact” due in part to their delayed release and unplugged loopholes that Chinese actors will likely exploit. Interpreting China’s restrictions, Sinocism’s Bill Bishop wrote that “part of the goal is to try to make clear to Japan, South Korea and Netherlands the risks of joining with the US in this latest round of controls. If the PRC thinks this will prompt the incoming Trump Administration to decide to back off on the controls I think they are mistaken; more likely this will be taken as another reminder of the need to strategically decouple faster.” Rishi Iyengar and Christina Lu at Foreign Policy shared other reactions from experts who described the significance of Beijing’s retaliation:
“China is effectively saying two can play this game,” said Cullen Hendrix, a senior fellow at the Peterson Institute for International Economics, who cited Beijing’s market dominance over many of the “ basic building blocks of a modern industrial economy.” He added that China’s message is: “We can play this game, and we can actually spread the pain out across more sectors.”
[…] “U.S. dependence on China for these minerals is a known Achilles heel,” said Jane Nakano, an energy security expert at the Center for Strategic and International Studies. “The latest development is a very blunt reminder that we, the United States, continue to be dependent.”
[…] The latest escalation has raised the stakes. If Beijing was flexing its muscles before, it has now “[taken] a swing,” said Tom Moerenhout, a critical minerals expert at Columbia University. “A full export prohibition should also raise all sorts of alarm bells,” he said, because if Beijing is now targeting semiconductors, “what if it happens with graphite or rare earths?” [Source]
