Why choose the semiconductor industry? Have the American sanctions succeeded?

Semiconductors have always been the focus of trade and technology disputes between China and the US. After the failure to contain China in the 5G field, the US is trying to strangle China in the field of artificial intelligence. In the information age, the semiconductor, as the most important part of chip, can undoubtedly have a significant impact on the manufacturing of smart products such as mobile phones and computers. In the longer term, it will also affect China’s future AI development, due to hardware equipment being an essential part of AI development. From the Trump administration’s “Artificial Intelligence Initiative” to the Biden administration’s “National Security Strategy (2022 Edition)”, restrictions on semiconductors have been expanded from the initial tariff measures to the current all ways, ranging from export controls, investment reviews, chip alliances, to restricting foreign companies’ exports. US aim to block China’s semiconductor industry from catching up in all aspects.

Bloomberg News reported that the United States is considering adopting “the most severe trade restriction measures” to prevent companies from continuing to provide advanced semiconductor technology to China. These measures will apply to well-known companies such as Japan’s Tokyo Electron and Netherlands’s ASML. As soon as this news came out, the stock prices of related companies such as Tokyo Electron, ASML, and NVID fell sharply that day.

But have these tough sanctions succeeded? Is it worth the economic losses and the decoupling of trade and production they cause? According to Nikkei Chinese news, United States semiconductor equipment manufacturers continue to rely on China. Although the US government restricted the export of the latest equipment to China two years ago, the export of unrestricted non-cutting-edge products has increased, and the proportion of sales to China has increased to 40%.

China accounted for 43% of Applied Materials’ February-April 2024 revenue, up 22 percentage points from the same period last year. China’s account of Lam Research(LRCX)’s operating income from January to March 2024 also reached 42%, an increase of 20 percentage points over the same period last year. For manufacturers, the Chinese market cannot be ignored. In short, manufacturers are increasing their exports to China of equipment in non-cutting-edge fields that are not subject to export control.

Global sales of semiconductor equipment will increase by 3.4% from the previous year to $109 billion by 2024, the international semiconductor group SEMI, predicted on July 9. Among them, China is expected to account for more than 30% of the total, which will be the largest demand driver. Meanwhile, under the guidance of China’s national policy of encouraging the localization of semiconductor materials, local semiconductor material manufacturers have continuously improved the technical level and capabilities of semiconductor products, gradually breaking the monopoly pattern of foreign semiconductor manufacturers, and promoting the localization process of China’s semiconductor materials. 

China has maintained the trend of high chip production, export, and high chip investment. In the first half of 2024, data from China Customs showed that in the field of integrated circuits, Chinese exports reached about 542.7 billion yuan, a year-on-year increase of 25.6%. In conclusion, China’s semiconductors and chips have a good development. However, some Chinese companies are truly affected by US sanctions such as Huawei and ZTE.

China is still weak at making advanced semiconductors. More importantly, the industrial chain and international trade environment of chips have been destroyed. US’s behaviors seriously undermined international trade rules and the stability of the global production and supply chain, which are not beneficial to anyone. It is still difficult to conclude whether the United States sanctions have been successful or not. However, it is undeniable that they have seriously affected the health and stability of the market. They are truly selfish actions under trade protectionism and national strategies.

By Le Tianyu