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December 7, 2022

US scales back plan to ban Chinese semiconductors

Under pressure from businesses, senators have rowed back on plans for an immediate moratorium on Chinese components as the chip war continues.

By Matthew Gooding

US senators have watered down plans to ban the use of Chinese semiconductors by US government agencies and their contractors. The news comes as China has reportedly started to allow American officials to make export control checks on some of its tech businesses which had faced being blacklisted by Washington.

As TSMC announces fresh investments in the US, senators have scaled back plans to control China semiconductors. (Photo by TSMC)

A cross-party bill unveiled in September by Democratic senator Chuck Schumer and a Republican counterpart, John Cornyn, would have required US government departments to immediately stop using chips manufactured by China’s top semiconductor company, SMIC, as well as other companies such as memory producers YMTC and CXMT. But the wording of the legislation has now been changed.

US-China semiconductor restrictions scaled back under pressure from industry

Senators came under from the US Chamber of Commerce and other business groups, which said removing devices built by SMIC and China’s other semiconductor companies would be tricky. Though China’s chipmakers have been restricted from making leading-edge chips by US export controls on chipmaking equipment, they are prolific producers of older, less-powerful chips used in a wide range of electronics.

The US Chamber of Commerce said in a letter released last month that finding and removing these chips from devices would be a massive, time-consuming task for agencies, and would not further US national security. The letter was also signed by trade bodies from the telecommunications and defence industries, both of which rely heavily on Chinese-manufactured devices.

As a result, the bill has been changed. Where agencies and their contractors would have previously been compelled to remove the devices immediately, or in some cases within two years, they will now have a five-year compliance window should the legislation become law.

A spokesperson for Senator Cornyn told Reuters the changes should allow US manufacturers to take advantage of the CHIPS for America funding, a $72bn package approved by the government to support the on-shoring of semiconductor manufacturing. “That funding will allow US and western-allied production to come online to replace the production lost to these Chinese companies,” the spokesperson said.

China allows US export checks on its tech companies

Government departments in the US are already banned from using other Chinese technologies such as Hikvision CCTV cameras and Huawei networking equipment because many Chinese businesses have close ties to the state.

Recent months have seen Joe Biden’s administration ramp up the China semiconductor trade war, restricting supply of vital manufacturing equipment to companies like SMIC, as well as banning US firms such as Nvidia and AMD from selling AI chips to the Chinese.

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But in a sign that relations between Washington and Beijing could be thawing slightly, China is allowing US officials to make export control checks on a number of its tech companies which otherwise faced being added to the banned “entity list” alongside the likes of Hikvision and Huawei. The checks are to ensure these businesses are not using American technology for unauthorised purposes, such as the manufacturing of weapons.

“We are seeing better behaviour. Mofcom [the Chinese commerce department] has been more forthcoming,” said Alan Estevez, US commerce under-secretary for industry and security, in comments reported by the FT.

But, he warned: “We’re seeing a change in attitude. It’s not the first time we’ve seen such a change in attitude, so it depends on how long that is sustained.”

The Chinese government reportedly relented under pressure from its own businesses, which are struggling to cope with the tough export controls on top of the wider economic slowdown and China’s strict Covid-19 restrictions.

Meanwhile in the US, TSMC prepares to cash in

As US-China semiconductor tensions continue, one company taking advantage of the CHIPS for America subsidies already is leading manufacturer TSMC, which yesterday held a ceremony to mark the construction of its new $12bn chip foundry in Arizona, while also committing to trebling its investment in the US to $40bn.

At the ceremony, attended by President Biden and CEOs of major TSMC customers, the company said it would build a second plant in Arizona once the first is completed, and expects its US operations to eventually generate revenue of $10bn.

As reported by Tech Monitor, the new fab will initially make 4nm and 5nm chips when it comes online in 2024, to cater for the demand for advanced chips from customers like Apple, AMD and Nvidia, all of which are committed to using the new factory. It will upgrade to TSMC’s cutting-edge 3nm process by 2026.

TSMC says the new factories will create 13,000 supply chain jobs, including 4,500 directly employed by the company. It has already recruited 600 engineers in the US, who will be sent to Taiwan for training.

Apple CEO Tim Cook was among those to welcome the launch of the factory. “We work with TSMC to manufacture the chips that help power our products all over the world,” Cook said. “And we look forward to expanding this work in the years to come as TSMC forms new and deeper roots in America.”

Read more: The European chips act has already failed

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