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US export controls on China semiconductors force suppliers to cut ties

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Western suppliers have started cutting ties to some Chinese chipmakers in response to new US export controls, in another sign of the partial technology divorce the Biden administration is mandating to stymie China’s military development.

One large supplier of chip-making equipment, ASML, told US employees to stop installing or servicing equipment at any Chinese chip factory while it sorts through the new rules. Another equipment provider, Applied Materials, said the export restrictions will prevent it from making sales of roughly $ 400 million in the fourth quarter.

It is common for Western companies to broadly suspend exports in the immediate wake of new US restrictions, and then resume some later once they decipher the rules, lawyers say. But national-security experts say the new restrictions, which aim to stop China from producing advanced chips, are among the toughest the United States has enacted.

“I see these export controls as being hugely consequential. It goes straight to the heart of Beijing’s efforts to create a domestic world class semiconductor industry, ”said Martijn Rasser, senior fellow at the Center for a New American Security. In particular, a new rule preventing “US persons” from supporting certain Chinese chipmakers “won’t just freeze China’s abilities in place, it will actually lead to a degradation over time,” Rasser said.

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

The trade curbs could also have unintended consequences for the United States, cautioned Willy Shih, a Harvard Business School professor who specializes in technology and manufacturing. Depriving China of the ability to make the highest-tech chips could cause it to pump out even more low-end chips, driving down prices and making it hard for US and Western factories to compete in that segment, he said. That in turn could leave Western buyers of such chips dependent on Chinese suppliers.

“It’s a little bit of a blunt 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 out for any such negative effects. “That’s just something we continue to watch and if there are unintended consequences we’ll figure out what adjustments are appropriate,” one Commerce official told The Post on Monday, speaking on the condition of anonymity because the person wasn’t authorized to speak publicly .

The official added that the rules are “not designed to rupture everything” when it comes to trade but only to “get at the Chinese capability to produce chips at a defined level.”

The export controls, announced Oct. 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 mass destruction, the Biden administration said. For now, China still lags behind Taiwan, South Korea and the United States in manufacturing the most high-tech chips.

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

In a novel step that appears to have prompted some companies to broadly suspend trade with China, the rules also bar “US persons” – including American factories, and Americans and US green-card holders who work in foreign factories overseas – from supporting the development or production of advanced chips in China, unless they receive a US government license.

ASML, a Dutch manufacturer of high-end semiconductor manufacturing tools that has US offices and many US employees, immediately instructed its US staff to freeze their interaction with Chinese customers.

“ASML US employees must refrain – either directly or indirectly – from servicing, shipping or providing support to any customers in China until further notice, while ASML is actively assessing which particular fabs are affected by this restriction,” the company told employees in an internal letter last week, an ASML spokesman confirmed.

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

The rules are creating difficult decisions for many tech workers, Rasser said.

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

Other US and Western suppliers also appear to be cutting ties to Chinese chip factories. KLA Corp. and Lam Research Corp., both based in California, have paused support of already installed equipment and temporarily halted installation of new equipment at Chinese chipmaker YMTC, The Wall Street Journal reported. The suppliers declined to comment. YMTC didn’t respond to a request for comment.

The new restrictions put the onus on equipment suppliers to determine whether their Chinese customers are producing advanced chips. That is freezing some trade as equipment suppliers “are scrambling to find out what work Chinese fabs do,” 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 violate the law will pull back.”

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