US export controls on Chinese semiconductors force suppliers to cut ties

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Western suppliers have begun cutting ties with some Chinese chipmakers in response to new US export controls, in another sign of the partial tech divorce the Biden administration has mandated to thwart China’s military development.

A major chip-making equipment supplier, ASML, has told US employees to stop installing or servicing equipment at any Chinese chip factory while it sorts out the new rules. Another equipment supplier, Applied Materials, said export restrictions would prevent it from achieving sales of about $400 million in the fourth quarter.

It’s common for Western companies to largely suspend exports in the immediate wake of new US restrictions, then resume later once they’ve figured out the rules, the lawyers say. But national security experts say the new restrictionswhich seek to prevent China from producing advanced chips, are among the toughest the US has passed.

“I view these export controls as extremely substantial. It goes directly to the heart of Beijing’s efforts to create a world-class domestic semiconductor industry,” said Martijn Rasser, senior fellow at the Center for a New American In particular, a new rule barring “American people” from supporting certain Chinese chipmakers “will not just freeze China’s capabilities in place, it will actually lead to degradation over time,” Security said. Shave.

US imposes strict rules to limit China’s access to high-tech chips

Trade restrictions could also have unintended consequences for the United States, warned Willy Shih, a professor at Harvard Business School who specializes in technology and manufacturing. Depriving China of the ability to manufacture the most advanced chips could cause it to produce even more low-end chips, driving down prices and making it difficult for US and Western factories to compete in this segment, he said. declared. This in turn could leave Western buyers of these chips dependent on Chinese suppliers.

“It’s a bit of a crude instrument,” he said of export controls. “The thing you have to worry about is collateral damage.”

The Commerce Department, which oversees the regulations, said it was looking for such negative effects. “It’s just something we continue to monitor and if there are any unintended consequences, we will determine what adjustments are appropriate,” a Commerce official told The Post on Monday, speaking on condition of anonymity. because the person was not authorized to speak publicly. .

The official added that the rules are “not designed to break everything” when it comes to trade, only to “achieve China’s ability to produce chips at a defined level”.

The export controls, announced on October 7, aim to slow China’s ability to produce high-end semiconductors that have dual uses in commercial and military technology – and even some applications in weapons of destruction. massive, the Biden administration said. For now, China still lags behind Taiwan, South Korea and the United States in making the most high-tech chips.

The controls essentially prohibit exports to China of American-made manufacturing equipment needed to produce advanced chips. They also prohibit the export of any American tools or components to Chinese factories capable of manufacturing high-end semiconductors.

In a new step that appears to have prompted some companies to largely suspend trade with China, the rules also prohibit “American persons” – including American factories and Americans and American green card holders who work in foreign factories. overseas – to support the development or production of advanced chips in China, unless licensed by the US government.

ASML, a Dutch manufacturer of high-end semiconductor manufacturing tools that has offices in the United States and numerous American employees, immediately instructed its American staff to freeze interactions with Chinese customers.

“ASML US employees should refrain – directly or indirectly – from servicing, shipping or providing support to any customer in China until further notice, while ASML is actively evaluating which particular factories are affected by this restriction,” the company told employees in an internal. letter last week, an ASML spokesperson confirmed.

The company said the freeze applies to US citizens, green card holders and foreign nationals who live in the United States.

The rules create tough decisions for many tech workers, Rasser said.

“There are green card holders who are considered American persons who are going to be in a bind. Do they want to stay in China and give up their American status or do they want to move? he said.

Other US and Western suppliers also appear to be severing ties with Chinese chip factories. KLA Corp. and Lam Research Corp., both California-based, suspended support for previously installed equipment and temporarily halted installation of new equipment at Chinese chipmaker YMTC, The Wall Street Journal reported. Suppliers declined to comment. YMTC did not respond to a request for comment.

The new restrictions force equipment vendors to determine whether their Chinese customers are producing advanced chips. That freezes some trade as equipment suppliers “struggle to find out what Chinese factories are doing,” said Kevin Wolf, a former senior Commerce Department official who is now a partner at Akin Gump Strauss Hauer & Feld. “Companies that don’t want to make a mistake or break the law will walk away.”

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