Sep 29, 2020 - Technology

U.S.-China fight spreads to the chip factory

An animated GIF of microchips representing the U.S. and China.

Illustration: Aïda Amer/Axios

The Trump administration's campaign against TikTok gets all the headlines, but the U.S. move last week to place restrictions on Semiconductor Manufacturing International Corp. (SMIC), China's top chipmaker, could end up making a greater difference.

Why it matters: Semiconductor analysts say SMIC represented China's strongest bid to build a domestic chip industry and bolster its tech independence. Sanctions that cut off its access to advanced manufacturing and testing equipment from the U.S. could seriously set that effort back.

Driving the news: The Commerce Department sent a letter Friday to U.S. semiconductor firms telling them they would need licenses to export some kinds of equipment to SMIC because anything they sold the company might be subject to "diversion to a military end use."

  • SMIC denies any relationship with China's military.

Between the lines: The SMIC restrictions don't go as far as the sanctions the Trump administration has enacted against Chinese telecom equipment makers Huawei and ZTE. But the move represents a broadening of the U.S. campaign against China's tech sector that's likely to have wide impact.

  • In the short term, it will slow China's efforts to stand up a chip industry that can compete globally with rivals in the U.S., Taiwan and Japan. But in the long run, it could deepen China's resolve to achieve high-tech self-sufficiency.

What's next: U.S. firms will have to apply for licenses to sell stuff to SMIC, and the Commerce Department gets to decide whether to grant them. China watchers expect Beijing to retaliate.

Meanwhile, the federal judge who Sunday put a hold on a U.S. order to ban new downloads of TikTok in the U.S. explained his reasoning in a ruling released Monday.

  • The national security law that the Trump administration based its order on specifically exempts "informational materials" from being targeted, and TikTok's service — a video-sharing app embraced by young users — falls into that category, the judge said.

Our thought bubble: So far, the Trump administration is having more success dealing blows to Chinese tech via moves on hardware companies than by acting against software and services providers. That could be because U.S. law and culture places a high value on the free exchange of information and ideas — which, ironically, is far less protected in China today.

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