UPDATED 19:49 EDT / SEPTEMBER 27 2020

5901466806_c5e82c5472_h POLICY

US imposes trade sanctions on China’s largest chipmaker SMIC

The U.S. Commerce Department has imposed trade sanctions on China’s largest chipmaker, Semiconductor Manufacturing International Corp., that will restrict the company’s access to U.S. technology.

The restrictions are not as harsh as those imposed on Huawei Technology Co. Ltd. and ZTE Corp., which were outright bans on gaining access to U.S. technology rather than a requirement that any company wishing to supply SMIC must obtain a license for exporting certain goods.

In a letter on Friday, the commerce department told American suppliers that it was taking the action after a review that determined the Chinese company “may pose an unacceptable risk of diversion to a military end use in the People’s Republic of China.”

The severity of the export controls is yet to be seen. Although it doesn’t immediately cut off all U.S. technology supplies to SMIC, in practice it could. At the very least, it may simply result in an extra layer of bureaucracy for companies seeking to export products to SMIC. Alternatively, obtaining a license could be highly difficult and restrictive on exports to the point that many may not bother.

“It all depends on how the US implements this,” Paul Triolo, head of tech policy analysis at consultancy Eurasia Group told The Financial Times. “In the worst-case scenario, SMIC is completely cut off, which would severely set back China’s ability to produce chips. This would be a tipping point for U.S.-China relations.”

Founded in 2000, SMIC is at the forefront of China’s efforts to build a local semiconductor industry, but 20 years later it’s still reliant on Western technology. SMIC is said to rely on a number of U.S. firms that provide critical manufacturing equipment, including Applied Materials Inc., with U.S. firms making up about half of SMIC’s suppliers.

As noted when sanctions were first mooted in earlier this month, SMIC recently added capacity to manufacture chips using a 14-nanometer process, which is about two generations behind capabilities at rival Taiwan Semiconductor Manufacturing Co. Ltd.

In response to the news, SMIC said that it had not received any notice of the restrictions and claimed that it has no ties with the Chinese military. “SMIC reiterates that it manufactures semiconductors and provides services solely for civilian and commercial end-users and end-uses,” the company said in a statement.

The move against SMIC by the Trump administration is the latest in a year of tit-for-tat between the U.S. and mainland China. More recently, social sharing app TikTok has been in the news, with the administration threatening to ban the app if owner ByteDance Ltd. doesn’t offload its operations in the U.S. The common theme in all of these cases — including Huawei, ZTE, TikTok and SMIC — is that officially there are national security concerns, but they also come in the middle of an ongoing trade war between the two countries.

Photo: Micah Sittig/Flickr

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