The Economist - USA (2022-01-29)

TheEconomistJanuary29th 2022 International 53

Butfewexpectittoplaythatrole,notleast
becauseRussiaisa member.
Sonewerforumsarespringingup.The
mostformalistheeu­usTradeandTech­
nology Council,set uplastJunewitha
workinggroupdedicated to export con­
trols.Semiconductorsareontheagenda.A
joint statement after the council’s first
meetingin Pittsburghin Septemberde­
clareditsintentiontoco­operatein“rebal­
ancing”globalchip supplychains. That
wasdiplomaticlanguageforkeepingthem
awayfromChina.Thechipindustryinthe
WestandpartsofAsiathatarewaryofChi­
nahaswelcomedthediscussion,atleast
officially.It hopesthatclearerexportrules,
appliedglobally,willreduceuncertainty.
Butglobalchipdiplomacyisstillweak.
Whensemiconductortradeisdiscussed,it
tendstobetackedontotheagendaofother
worldforums.Export­controllawyersand
governmentofficialshuddle,oftenvirtual­
ly,inthecorridorsofmeetingsoftheQuad,
a clubofcountriesthatembracesAmerica,
Australia,IndiaandJapan.InSeptemberit
announcedthatoneofitsgoalswastose­
curethesupplychainsinsemiconductors.
Chipshavealsocomeupintheside­
linesofmeetingstodiscusssanctionsthat
mightbeputonRussiaifitweretoinvade
Ukraine(seeBriefing).TheAmericanad­
ministrationhasbriefedtheSemiconduc­
torIndustryAssociationonhowthesortof
exportcontrolsusedagainstHuaweicould
bepartofa sanctionspackageagainstRus­
sia,tocutoffitsaccesstoWesterntechnol­
ogy.UnlikeChina,Russiahasnoelectron­
icsindustrytospeakof,sosuchcontrols
wouldnothurtitasbadly.Butitmight
makeitharderforRussiatocarryoutcyb­
er­attacksonitsenemies.
Agreements forged between the gov­
ernmentsoftheleadingcountriesinthe
chipsupplychain—America,Japanandthe
Netherlands—stillmattermore thanany
talkingshop.Thattrioproducesthelion’s
shareofthemachineryusedtomakechips.
Aconsensusbetweenthemovertradein
chipsmarkedthefirststeptowardscon­
straining China towards the endof Mr

Trump’spresidency.A bigDutchcompany,

asml (originally standing for Advanced

Semiconductor Materials Lithography),

hadbeenpoisedtosellitsmostsophisti­

catedtoolsto smic,China’sbiggestand

beefiestchipmaker.JapaneseandAmeri­

canofficialsroundedontheDutchgovern­

ment, whichdulyrefusedtogiveasmla li­

cencetoexportitscutting­edgemachines

tosmic.

Americanofficialswitha morehawkish

stanceonChinawhowanta cleanbreakin

thesupplychainsfavourthisnarrowerco­

alition­of­the­willing approach to diplo­

macy.Itssmallnumberofmembersplan­

ning discreetlymakes iteasierto move

quickly againstperceivedthreats.Italso

gives Americathemainsay,echoing Mr

Trump’s go­it­alone attitude to China,

ratherthantakingthetimetocajolepart­

nersandfindwaystowritea bookofclear

rulesfortradinginchips.TheEuropeans

andtheJapanesebothwanta moreformal

multilateralapproach.ButAmericareck­

onsitsabilityto reactfastto aChinese

threatwouldinevitablybecurbed.

Nostake,nochips

The snag, asaformerofficial inBarack

Obama’sexport teamargues, isthatthe

morerobustlyAmericawantstorespond

toChina,theharderitistogetAmerica’s

WesternandAsianalliestocomealong.

WithoutAmerica’sfriendsonboardAmer­

ica’s hard line on exports threatens to

weaken itsown companies.That is be­

causeitcouldsteerinvestmenttoplaces

outsideAmerica’sreachbutwhichstillsuit

Chinesechipmakers.Americaiscaughtbe­

tween choosing a softer setof controls

whichmayworkbetterinthelongrun,ora

harshersetthatcouldhurtChinesetech­

nology moreintheshortrunbutmight

harmAmericanindustryoverall.Worse,it

mightruintheprospectofAmerican­Chi­

nesechiptradeeverrevivingintheevent

thatbetterrelationsonedayresume.

Forthemomenttheadministrationis

seekinga compromisebycuttingoffChi­

neseaccesstochipsandchipmakingtools

abovea certainlevelofsophistication.For

example, it completely blocks Huawei

fromgettingchipsthatrunwhizzy 5 Gnet­

workingequipmentbutletsithaveolder

technologies.Likewisesmiccangetolder

chipmakingtoolsbutnotthelatestver­

sionsthatcanbeusedforchipsthatgointo

iPhonesandself­driving cars. America’s

friends,however,haveyettoagreetothis

compromise,whichisstillbeingimposed

unilaterallythroughtheAmericangovern­

ment’sexport­controlrules.

Mr Biden’s administration is anyway

hamstrungbypoliticsathome,whatever

new course America might try to chart

withChina.“Manyarescepticalbecause

they’renotsurewhetherornotBidenwill

bearound,”saysRichardThurston,once

thetoplawyerattheTaiwanSemiconduc­

torManufacturing Company(tsmc), the

world’slargestchipmaker.Hesaysthead­

ministrationmaybelosingitsappetitefor

energetic chiplomacy for fear that any

agreementit makesmaybesweptawaylat­

erthisyearif CongressturnsRepublican.

MrThurstonreckonsthatcontrolling

exportsofspecificmachinesandcompo­

nentsisunwiseanyway,becausenonetof

controlscanbedrawntightlyenoughto

stopa determined,powerfulcountryfrom

somehow getting the tools. But it will

nonethelessbetrickyforChinatoacquire

the knowledgefor using those tools to

make chips incommercially viable vol­

umes.MrThurstonsuggeststhatgovern­

ments,insteadofconstrainingsemicon­

ductorsupplychains,shouldfocusonpro­

tectingtradesecrets.Americansemicon­

ductorcompanies andthosein friendly

countriescouldselltheirmostadvanced

chipmakingservicestotheChinesemar­

ket, yetstillbe ableto preventChinese

firmsfromdevelopingthemostsophisti­

catedmanufacturingcapacitythemselves.

Thisisnota popularviewinWashing­

ton,whereMrBidenisalltooeasilybat­

teredbyheadlinesbemoaningtheflowof

chipsandtoolstoChina.Yetanawkward

factisthatAmerica’sownsemiconductor

toolmakersstillcountChinaasoneoftheir

biggestmarkets.AppliedMaterials,a Cali­

fornianfirmthatmakesmachinesusedto

etchminutecircuitsonsiliconwafers,sold

toolsworth$5bntoChinain2020,more

thantoanyothermarket.

MeanwhileChina keepsmaking pro­

gress.Theproportionofglobalchipssold

byChinaisrising(seechart1).Thatisnot

trueforanyothermajorchipmakingcoun­

try,despiteMrTrump’scampaigntosnuff

outChina’sindigenousindustriesandMr

Biden’s more multilateral attempts to

achievethesameend.Americaanditsal­

liesmayyetagreeonhowtocontainChi­

na’ssemiconductorambitions.Butitmay

proveimpossibleforonestatetocontrol

suchacomplexindustry. Ifso,America

maycometoregrettryingtointervene.n

Chinarising

Semiconductorsales,globalmarketshare,%

Source:Semiconductor

IndustryAssociation

*Annual average increase

of 30%, 2021-24

1

50

40

30

20

10

0

2003 10 15 2420

China*

Taiwan

SouthKorea

Europe

Japan

UnitedStates F’CAST

You can’t have that!

Number of Chinese entities added

to US export blacklist, by sector

Source: Harvard Kennedy School, Belfer Centre



60

50

40

30

20

10

0

20191817161514132012

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