US sanctions on Chinese semiconductors ‘decapitate’ industry, experts say

The Biden administration’s sweeping new export controls aimed at cutting off China from obtaining chips used in supercomputers has caused the “complete collapse” of the Communist country’s semiconductor industry, according to one expert.

“This is what annihilation looks like: China’s semiconductor manufacturing industry was reduced to zero overnight,” Lidang, CEO of Hedgehog Lab, said in a Twitter thread.

Rules announced by the US Department of Commerce last week restricting “US persons” from involvement in manufacturing chips in China had led to mass resignations of American executives from Chinese firms.

Lidang said this had the effect of “paralyzing Chinese manufacturing overnight”, and that the industry was in “complete collapse” with “no chance of survival”.

The rules which came into effect on 12 October would bring severe damage to “Chinese national security as a whole”, Lidang said.

“This is nothing like the 10+ rounds of performative sanctioning during the Trump years — this is a serious act of industry-wide decapitation.”

The US Commerce Department said in a statement announcing the new controls that they were in response to China using supercomputers and semiconductors to create weapons of mass destruction and commit human rights abuses.

“The threat environment is always changing, and we are updating our policies today to make sure we’re addressing the challenges posed by (China) while we continue our outreach and coordination with allies and partners,” Under Secretary of Commerce for Industry and Security Alan Estevez said in a statement.

Semiconductors are used in everything from cars to refrigerators, and are increasingly important in artificial intelligence and advanced military programmes.

Among the new measures were requirements for companies to have licenses to export high-performance chips used in artificial intelligence and supercomputers, and restrict US companies from exporting machinery used in manufacturing chips to China.

Any companies that violated the sanctions could face arrest by the US Department of Justice.

The Chinese government hit back on Thursday, accusing Washington of “Cold War thinking” and appealed for efforts to repair strained relations.

Experts said the new controls on represented a significant escalation in tensions between Beijing and Washington.

“With the latest action, the chasm between the US and China has now expanded to the point of no return,” Abishur Prakash, co-founder of the Center for Innovating the Future, told CNBC.

In August, Mr Biden signed the Chips and Science Act into law which pledged $52bn to revitalise semiconductor manufacturing in the US.

The bipartisan legislation was seen as essential to national security interests to reduce the dependence of Taiwanese-made chips, which account for around 90 per cent of the market.

Earlier this month, Micron announced plans to open a $100bn chip manufacturing plant in Syracuse, New York, bringing 50,000 jobs.

Mr Biden called it “another win for America, and another massive new investment in America spurred by my economic plan”, the Associated Press reported.