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The US Plan to Block China on Chips Will Backfire
Curbing Beijing’s access to cutting-edge technology will cause collateral damage. It’s not worth the risk.By Anjani Trivedi
2023年2月1日 GMT+8 08:30
America’s push to steer the world toward protectionism won’t end well. Not just for China, but for its own technological ambitions and for Japan’s industrial giants at the center of chipmaking.
Expanding the restrictions unveiled by President Joe Biden in October, officials from the US, Netherlands and Japan have reached an agreement to ban supply of some advanced chipmaking equipment to Chinese companies, Bloomberg News reported. The measures are directed at China and aim to curtail its ability to move up the value chain for semiconductor manufacturing, an industry Beijing has long struggled to get off the ground. China has filed a dispute with the World Trade Organization in protest and this week told the Netherlands it wants to ensure the “stability of international industrial and supply chains, and safeguard an open rather than divisive” trade environment.
The US move will hurt a crucial market and weigh on the revenue of the world’s biggest industrial companies at a time when global economic conditions are already looking grim. China accounts for over a quarter of sales for chip equipment manufacturer Tokyo Electron Ltd., where they’ve been growing sharply over the past five years. For Nikon Corp., a maker of lithography machines, it’s around 20%, while Advantest Corp., which produces testing machines, depends on China’s evolving computing market for its customers, too. The country accounted for over a quarter of global billings — a gauge for demand — at the end of last year. Along with Taiwan and South Korea, China has been the top destination for capital spending for the past two years for the largest semiconductor equipment companies.
The looming risk of export controls limiting access to China spooked the industry at the end of last year. Billings for the already-conservative Japanese semiconductor equipment makers grew only just over 1% in December, data Friday showed, after expanding an average 30% between July and November. Japan’s industry association struck a cautionary note last month. With companies pulling back on investment and spending, research and development will take a hit, as will future capital outlays.
Here’s the rub: These firms don’t just invest in China, they sell equipment across the world, including to the US and Europe. That keeps the virtuous cycle of technology transfer and development humming along. If they’re hamstrung because major sources of revenue get cut out, then ultimately industrial innovation will struggle. Even if the US manages to stay ahead in terms of technological advances in lab projects and patents, it won’t be able to scale them.
The US has faced a similar problem with electric vehicle batteries, now a geopolitical flashpoint and a key focus of American industrial policy. The country has long been a backer of the nickel-manganese-cobalt chemistry, which was developed at its Argonne National Laboratory in Illinois. Over the years, it was licensed to several car and chemical companies. Yet, there wasn’t enough investment to scale manufacturing at home, or to dominate. Now, when the US needs these batteries for electrification, it doesn’t have a supply chain or enough raw materials. Despite pouring in billions of dollars since the US Inflation Reduction Act was signed last August, the country won’t ever catch up with Beijing, let alone get ahead.
Meanwhile, China pushed the lithium-iron-phosphate variety — which is cheaper and safer but without the same energy density. It was considered an inferior technology until recently, but Chinese firms thought it was the most realistic and achievable combination. Businesses there have now managed to boost the powerpack’s performance so much that local companies are making and supplying them in large numbers globally. And, because it’s now available at scale and commercially viable, firms like Tesla Inc. and Ford Motor Co. are turning to these firms.
While the US’s concerns center around national security, its policy focus on holding China back — as opposed to boosting domestic capabilities — is likely to do more harm than good. Cutting-edge chipmaker ASML’s Chief Executive Officer Peter Wennink said last week that export controls may eventually push Beijing to develop its own advanced technology.
The reality is, multinationals with huge markets and supply chains in China know how to do business there, and have a tried-and-tested playbook. Consider BMW AG. The automaker built its first joint-venture plant in Dadong in 2003, but it didn’t make engines in the country until 2012. It began manufacturing three- and four- cylinder petrol units for the domestic market in 2016, three years after it started producing them in Germany. Yet, it has catered to the Chinese market and done well there. Toyota Motor Corp. ran a similar strategy. China is on its way to becoming one of the biggest auto exporters in the world.
Coming out of the pandemic that hobbled supply chains and companies, measures to foster competition and innovation are likely to be far more productive and profitable than shutting out a key player in the market. As the economic cycle turns, that is even more important.
The US Plan to Block China on Chips Will Backfire
Curbing Beijing’s access to cutting-edge technology will cause collateral damage. It’s not worth the risk.
www.bloomberg.com
