DONALD Trump has reclaimed the presidency in the US election. In his first term in 2018 he declared a trade and tech war against China which encouraged the development of China’s domestic semiconductor industry, earning Trump the ironic title of “benefactor” among Chinese semiconductor professionals.
As he takes office again, how will the policies he pursues in his second term affect China?
Sweeping, indiscriminate sanctions
Sanctions on Chinese semiconductors enjoy bipartisan support in America, with the Biden administration having built on Trump’s original measures. With Trump’s return, changes could arise. Unlike the Democrats’ focus on advanced processes, Trump may opt for sweeping, indiscriminate sanctions that affect not just advanced but also mature semiconductor processes.
His proposal to levy a 60 per cent tariff on Chinese products could significantly disrupt end products, reverberating throughout the entire Chinese semiconductor supply chain. Navigating these tariffs poses a fresh challenge for China’s semiconductor sector.
Continuously evolving sanctions
The US has consistently restricted China’s semiconductor industry by targeting key technological nodes, while frequently updating its sanctions to address new developments. The semiconductor sector, characterised by rapid innovation and the emergence of new products and technologies, becomes a prime target due to its potential breakthroughs and high added value. Backed by expert advisers, the US government implements targeted sanctions on these cutting-edge products.
Since October 2022, the US has been introducing regulations on new technologies such as graphic processing units, high bandwidth memory, drone technology, automotive chips and gate-all-round transistor architecture, strategically stalling China’s technological advancement. Focusing sanctions on these new technologies and products is expected to be a sustained US tactic.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Reaction of allies
Since the US introduced sanctions in October 2022, it has virtually depleted its policy tools without introducing any new major sanctions. The ability to escalate sanctions against China now hinges on whether America’s allies, particularly in Europe, Japan and South Korea, are willing to further sacrifice their interests. Despite good relations with Europe, the Biden administration’s efforts to persuade allies to make greater concessions saw limited success.
Given the importance of the semiconductor industry in Europe’s struggling manufacturing sector, European resistance to increased sanctions is significant. Similarly, Japan and South Korea are reluctant to compromise their economic interests. If US tariff policies strain alliances, progressing with joint sanctions, particularly on mature semiconductor processes, will become challenging without substantial ally cooperation.
Ineffective tech wars
Several American think tanks, including the Peterson Institute for International Economics, have found that US efforts to curb China’s technological ascent have been ineffective. The Institute found US restrictions have not impeded China’s technological progress or its pace. According to Bloomberg Industry Research, despite the US sanctions, China leads in five of 13 key technologies and is quickly catching up in others, including semiconductors. A Goldman Sachs report predicted that by 2030, China’s chip self-sufficiency would hit 40 per cent.
Data from China customs show that in the first half of 2024, the country’s exports of integrated circuit products surged by 25.6 per cent year on year to US$76.4 billion, making them the country’s largest export category. The long-term outlook suggests that China’s semiconductor industry will become as globally competitive as its solar, high-speed rail and electric vehicle sectors, undeterred by sanctions.
Prolonged challenges
America initially sanctioned Chinese semiconductors to counter the decline of its own chip industry, using sanctions to unfairly subsidise domestic manufacturers. Despite this, there is little sign of revival in US semiconductor production.
American manufacturing has been on the wane since the 1950s and 60s, and even with policies such as the Chips and Science Act under President Biden, manufacturing employment has grown by only 1 per cent. The US continues to suffer from a Stem – science, technology, engineering and mathematics – talent shortage, and the Department of Labor anticipates further declines in manufacturing jobs over the next decade. Given that semiconductors are vital for US tech dominance, America might increase efforts to attract international firms and escalate sanctions against China.
Consequently, China’s semiconductor sector should brace itself for prolonged challenges and prepare for all potential difficulties.
Trump’s first term highlighted the critical need for China to develop its semiconductor industry, which has embarked on a path towards self-reliance. With his return to the White House, the Chinese semiconductor sector may face increased pressure. To navigate these challenges, the industry must prioritise high-quality development and resilience.
China’s semiconductor market is expansive and integral to the global supply chain, attracting international business. By enhancing its core capabilities and maintaining a focus on market and international standards, China can build global alliances and effectively counteract US sanctions. CAIXIN GLOBAL
Gu Wenjun is chief analyst at semiconductor research company ICwise.