Biden Administration’s Final Clash with China on the Chip Front

As the Biden administration approaches to leave office, restrictions on the Chinese semiconductor industries have intensified.

On December 2, the U.S. Department of Commerce announced new rules for export controls on semiconductors to China, adding 144 Chinese semiconductor-related companies to its Entity List, including semiconductor equipment and tool manufacturers. Gina Raimondo, U.S.  Commerce Secretary, stated that the move represents “the strongest controls ever enacted by the U.S. to degrade the PRC’s ability to make the most advanced chips that they’re using in their military modernization.”

According to The New York Times, this move will likely be the final chips restrictions imposed by the Biden administration, aiming to “cement the Biden administration’s legacy in slowing down a rival country’s technological progress”.

China promptly responded with punitive measures.

On December 3, four powerful industry associations — the China Internet Association, the China Association of Automobile Manufacturers, the China Semiconductor Industry Association, and the China Communications Enterprise Association — jointly issued a rare statement urging Chinese domestic companies to carefully consider purchasing U.S. chips. On the same day, China’s Ministry of Commerce announced bans on exports of key materials such as gallium, germanium, and antimony to the United States.

The four associations each articulated their own reasons for this decision.

The China Internet Association pointed out in its statement, “The U.S. practice of overgeneralizing the concept of national security and abusing export control measures to unreasonably block and suppress China has shaken the industry’s trust and confidence in U.S. chip products.” The association urged domestic enterprises to adopt proactive measures, expand cooperation with chip companies from other countries and regions, and actively use chips manufactured domestically and by foreign-funded enterprises within China.

The China Association of Automobile Manufacturers remarked, “The U.S. government’s arbitrary revisions to control rules severely disrupt the stable supply of U.S. chip products. Trust and confidence in procuring chips from U.S. enterprises have been undermined, rendering U.S. automotive chip products unreliable and unsafe.”

Its statement highlighted China’s contributions to global automotive development and welcomed global chip companies to strengthen cooperation with Chinese automotive and semiconductor firms, invest in China, and engage in joint research and development to share growth opportunities.

The China Semiconductor Industry Association wrote, “The U.S. actions once again undermine the long-standing consensus on fairness, reasonableness, and non-discrimination in the global semiconductor industry and violate the principles of fair trade advocated by the WTO.” The association reaffirmed its commitment to openness and cooperation with international semiconductor enterprises to promote global industry prosperity.

The China Communications Enterprise Association criticized the U.S. measures as blatant economic and technological bullying under the guise of national security, undermining not only the Chinese information and communication industry but also the legitimate rights of global consumers, including American users.

Notably, the statements from four associations emphasized China’s willingness to remain open to global markets and its intent to welcome global investments and collaborations. To a certain degree, this underscores China’s desire to expand its semiconductor market outside the U.S. and to strengthen partnerships with developing countries.

Hu Xijin, former editor-in-chief of Global Times, wrote that “China’s rapid development in the semiconductor industry is gradually providing a viable alternative to U.S. chips, which is beneficial for the world in the long run.” He noted that while China still has technical gaps (with the U.S.), its massive chip market is irreplaceable in incubating new technologies.

Hu also noted that the four associations’ statements indicate that China no longer harbors illusions about U.S. policies regarding chips. Furthermore, “it reflects the growing reliability of domestic chip supply chains and partnerships outside the U.S., signaling that China will no longer tolerate U.S. hostility in the chip sector.”

This latest clash follows previous restrictions issued by the Biden administration in October 2022 and October 2023. Analysts believe the new measures highlight the ongoing fierce debates and lobbying between national security hawks and the semiconductor industry in the U.S. While the industry warns that overly strict controls may harm U.S. technological leadership, hawks firmly advocate restrictions as vital for protecting national security.

Experts say that the new measures, which span over 200 pages, reveal the complexity of negotiations. Gregory Allen, the director of the Wadhwani AI Center at the Center for Strategic and International Studies, a Washington D.C.-based think tank, said to the New York Times that the length of the regulations reflects the debate among stakeholders during their formulation.

The new U.S. chip export restrictions significantly expand American authority, including global rules prohibiting companies from shipping certain machinery to China if it contains chips made with U.S. technology. Experts say the rules aim to prevent U.S. companies from bypassing export bans by using offshore facilities to sell to Chinese buyers, a growing trend noted in a previous report written by Allen. Although the new rules have broad scope, they include numerous exceptions and mechanisms that still allow some shipments to China, according to Allen in an interview with the New York Times.

Despite those maneuvers, tech companies in the United States face growing pressure and a challenging environment in which to sell products to the Chinese market. Amid the great power competition between the United States and China, the world is gradually splitting into two technological spheres, even though this division is not in the best interests of U.S. or Chinese firms.