**Global**: The escalating U.S.-China trade conflict, marked by steep tariffs and export controls, is disrupting semiconductor supply chains, driving China’s $150 billion push for self-sufficiency, and forcing key players like Taiwan and South Korea to navigate mounting geopolitical and economic pressures.
The U.S.-China trade war has significantly impacted the semiconductor industry, a crucial sector that underpins modern technology, from consumer electronics to advanced military applications. This ongoing conflict has led to rising scrutiny and evolving dynamics within the semiconductor market, raising questions about the effects of tariffs and related measures on both countries.
In recent years, tariffs imposed by the United States on Chinese goods have escalated dramatically, with rates reaching as high as 145% for certain imports. The primary goal of these tariffs is to limit China’s technological competitiveness and spur domestic manufacturing within the U.S. In October 2022, the U.S. government further tightened its control over exports of advanced semiconductor technology, specifically targeting firms such as the Semiconductor Manufacturing International Corporation (SMIC) and Huawei. These restrictions aim to hinder China’s ability to develop cutting-edge technologies, thereby affecting its semiconductor capabilities.
The U.S. has also implemented entity list sanctions, which prohibit key Chinese companies from accessing essential American technology, disrupting their supply chains. Partnering with allied nations, the U.S. has enlisted countries like Japan and the Netherlands to limit the export of advanced chip-making tools, particularly those produced by ASML, which are vital for the fabrication of high-performance chips.
In response to the mounting pressure, China has undertaken several countermeasures. Notably, it has restricted exports of rare earth materials, holding a dominant position in global production—accounting for around 70%—such as gallium and germanium, which are crucial for semiconductor manufacturing. Furthermore, China is investing over $150 billion into its semiconductor industry, targeting 75% self-sufficiency by 2025. Progress has been made, as evidenced by SMIC’s production of 7nm chips this year; however, it still lags behind established leaders like Taiwan’s TSMC.
Additionally, Chinese firms are finding alternative strategies to mitigate the impact of U.S. restrictions. These include using intermediaries and stockpiling chips, while also diversifying their supply chains by sourcing from Southeast Asia. In retaliation, China has imposed tariffs of up to 125% on U.S. goods, particularly targeting American technological and agricultural exports, intensifying the trade conflict.
The implications of this trade war extend beyond individual companies and countries. Both Taiwan and South Korea play pivotal roles in the global semiconductor supply chain, with TSMC producing an overwhelming 90% of the world’s advanced chips. These nations are under pressure to align with U.S. policies while also maintaining trade relations with China. Consequently, the trade war has contributed to a reduction of about 30% in China’s chip imports in 2023, leading to increased costs for U.S. companies like Nvidia, which reported a 20% revenue drop in China.
The friction has broader economic ramifications as well. U.S. consumers are facing higher prices due to these tariffs, which could contribute to an estimated 0.5% increase in inflation. Simultaneously, U.S. chipmakers are losing ground in the Chinese market, while Chinese firms confront mounting production costs.
As both nations aim for technological dominance, semiconductors have become a symbol of this broader struggle. The situation has raised geopolitical stakes, especially considering Taiwan’s central role in the semiconductor sector, which amplifies risks of further escalation. The drive for supply chain diversification initiatives like the U.S. CHIPS Act and the European Union’s Chips Act may reduce reliance on China, but challenges remain, including high costs and a shortage of skilled talent.
While China faces notable difficulties, particularly in the realm of advanced chip production, characterising it as being “hit hard” may be an oversimplification. Its strengths in legacy chip production, government support for innovation, and comprehensive global trade networks provide a buffer against the immediate impacts of U.S. measures. Nevertheless, sustained pressure from the U.S. and its allies may deepen the technological divide unless significant breakthroughs are achieved in China’s semiconductor capabilities.
The intricate web of relations among these nations within the semiconductor market raises concerns about the long-term fragmentation of global supply chains, with both the U.S. and China incurring economic and strategic costs in the process.
Source: Noah Wire Services
Subscribe to Industry Updates
