How the US-China Tech Tensions are Reshaping the Semiconductor Industry
The global semiconductor industry has become the epicenter of a high-stakes geopolitical standoff, with the United States and China vying for dominance in the race to control the future of technology. These tiny chips, which power everything from smartphones and electric vehicles to advanced military systems and artificial intelligence, are now the most critical asset in a global tech arms race.
For years, the global semiconductor industry has thrived on collaboration, with raw materials, manufacturing, and innovation flowing seamlessly across borders. But rising tensions between the US and China have upended this model. This rivalry has transformed into a full-blown trade war, with both nations enacting sweeping measures to secure their positions. The US has imposed strict export controls on advanced chip technologies, aiming to limit China’s ability to advance in AI and military applications. In retaliation, China has restricted exports of key minerals, such as gallium and germanium, essential for chip manufacturing.
China’s critical mineral export bans disrupt global supply chains
Back in July 2023, China announced sweeping export restrictions on two critical minerals: gallium and germanium. These materials are essential for producing advanced semiconductors, which are crucial to industries such as consumer electronics, telecommunications, and defense.
China’s control over these resources is staggering. The country produces approximately 94% of the world’s gallium and about 60% of germanium, cementing its dominance in these key inputs. Under the new restrictions, exporters must obtain government licenses and disclose detailed information about buyers and the intended use of the materials.
China’s export bans have sent shockwaves through the global tech industry. Countries such as Japan, South Korea, and Taiwan, which are heavily reliant on semiconductor production, are scrambling to secure alternative sources of gallium and germanium.
Japan, for example, has ramped up its efforts to develop domestic production capabilities for critical minerals. Meanwhile, the European Union has launched initiatives to diversify its supply chains, including partnerships with resource-rich nations like Canada and Australia. However, experts warn that these efforts may take years to bear fruit, leaving the semiconductor industry vulnerable in the short term.
The restrictions have also caused prices for gallium and germanium to surge, increasing production costs for semiconductor manufacturers worldwide. Smaller companies, in particular, face significant challenges in navigating this new landscape, as they lack the resources to invest in alternative sourcing or self-sufficiency.
The US response with export controls on advanced chip technology
In response to China’s growing technological ambitions, the United States has implemented a series of export controls designed to limit China’s access to advanced semiconductor technology. These restrictions, first introduced in 2022 and updated several times since, target AI chips, semiconductor manufacturing equipment, and other high-performance technologies.
The US has imposed restrictions on the sale of cutting-edge GPUs, such as those produced by NVIDIA, which are critical for training advanced AI systems. Additionally, US companies are now required to obtain licenses for exporting semiconductor manufacturing equipment to China, particularly for the production of chips smaller than 14 nanometers.
The goal is to curb China’s ability to develop advanced computing technologies that could enhance its military and AI capabilities. While these measures align with US national security interests, they have significant implications for American companies. Major tech firms like Intel and NVIDIA, which rely on the Chinese market for a substantial portion of their revenue, face growing uncertainty about their ability to operate in the region.
For instance, NVIDIA has warned that the export controls could cost the company billions of dollars in lost revenue. Similarly, Apple has been forced to explore alternative production hubs, such as India and Vietnam, to reduce its dependence on China.
Innovation and supply chain fragmentation
The semiconductor trade war has far-reaching consequences that extend beyond the US and China. As tensions escalate, countries around the world are being drawn into the conflict, with supply chains and innovation efforts facing increasing strain.
Taiwan, South Korea, and Japan are at the epicenter of the semiconductor supply chain and are among the nations most affected by the trade war. Taiwan, home to TSMC, the world’s largest semiconductor manufacturer, has long been a critical player in global chip production. However, the island nation now faces mounting pressure to navigate the demands of both the US and China while maintaining its technological dominance.
Similarly, South Korea, which houses semiconductor giants such as Samsung and SK Hynix, must balance its reliance on Chinese raw materials with its strategic partnerships with the US The country has been actively investing in R&D and diversifying its supply chains to mitigate the risks associated with the trade war.
Japan, a key supplier of semiconductor chemicals and equipment, has also taken steps to bolster its domestic production capabilities. The country is collaborating with the US and other allies to reduce its dependence on Chinese materials and strengthen its position in the global tech landscape.
One of the most concerning aspects of the trade war is its potential to stifle innovation. The semiconductor industry has traditionally thrived on global collaboration, with researchers, engineers, and companies working together to advance technology. However, the growing divide between the US and China threatens to fragment this ecosystem, creating regional silos that could slow progress.
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