The recent decision by the United States government to grant permission for Samsung Electronics and SK Hynix, both based in South Korea, to acquire advanced manufacturing equipment for their semiconductor plants in mainland China is anticipated to pose challenges for domestic memory chip manufacturers in China, such as Yangtze Memory Technologies Co. (YMTC). In a significant compromise with Seoul, the United States has provided Samsung and Hynix with an unrestricted exemption from imposing limitations on the sale of sophisticated chip manufacturing equipment to the mainland.

The aforementioned measure is expected to provide significant benefits to the two firms operating in the biggest semiconductor market globally. It is anticipated that this step will contribute to the stabilization of their market share and enable them to sustain their competitive edge inside China’s semiconductor supply chain. 

Presently, China holds about one-third of the worldwide market share for NAND flash memory and DRAM. The waiver is anticipated to provide advantages for suppliers of sophisticated chip manufacturing equipment and materials while simultaneously placing Chinese memory chip manufacturers such as YMTC, who are subject to US blacklisting, at a disadvantage. During the second quarter, Samsung saw a significant decline of 95 percent in its profits due to the presence of a subdued worldwide market for memory chips. Hynix had an operating loss of 2.88 trillion Korean won (equivalent to US$2.13 billion) for the same period.

In addition to Samsung and Hynix, Taiwan Semiconductor Manufacturing Co., the largest contract chip maker globally, had previously obtained a one-year authorization from the US government to sustain its operations in mainland China without being subject to additional licensing obligations imposed by the US Commerce Department. The potential award of an indefinite waiver to TSMC, similar to the two South Korean businesses, remains uncertain. The waiver that was provided to Samsung and Hynix coincided with YMTC’s anticipation of enhanced worldwide demand for NAND Flash memory products in the current year. This surge in demand was projected due to increased orders from smartphone, server, and personal computer manufacturers.

For YMTC and other Chinese chip manufacturers in their domestic market, the recent action by the Biden administration has resulted in a significant disadvantage. This comes after the US Department of Commerce decided to impose export restrictions on chip-making equipment to mainland China in October of last year. YMTC has been establishing stronger connections with local tool suppliers to substitute US components in its production equipment. Due to restrictions put in place by the Washington government, American suppliers have stopped working with the company, prompting this action. As far as the memory chip business goes, both DRAM and NAND Flash products are very standard, which means that other products from different companies can be used instead.

There are several justifications for the United States’ decision to exclude China from export restrictions on semiconductor equipment, specifically about South Korean companies Samsung and Hynix. The anticipated US waiver is poised to significantly benefit both Samsung and Hynix in the global semiconductor industry’s biggest market. The actions taken by Washington, however, have placed Chinese memory chip manufacturers such as YMTC at a disadvantage in their market.

The United States has decided to exclude China from export restrictions on sophisticated semiconductor equipment, allowing South Korean companies Samsung and Hynix to access these technologies. This decision has been made based on many factors. The United States seeks to maintain its strategic partnership with South Korea, seeing it as a pivotal partner in the region and a significant market for American products.

Through the act of granting the waiver, the United States demonstrates its support of South Korea’s economic and security objectives while also reaffirming its commitment to fostering and maintaining the bilateral partnership. Additionally, the United States seeks to safeguard the worldwide availability of semiconductors. The United States’ decision to let Samsung and Hynix sustain their operations inside China serves to mitigate the potential scarcity of semiconductor chips, which might have adverse ramifications for both the United States and other nations. In addition, the United States aims to address China’s expanding influence and competitive edge in the semiconductor sector, a field seen as strategically significant by both nations. By giving the waiver, the US helps Samsung and Hynix keep their competitive edge over their Chinese rivals, YMTC, who are subject to US export restrictions and penalties.

The impact of China’s influence on the semiconductor industry has multifaceted implications for the United States. The US sees China’s growing semiconductor industry as a possible threat to its military and technical dominance, especially in the Indo-Pacific region, where they are worried about the creation of advanced processors that can be used in weapons and systems. The United States may have concerns over the potential for China to disrupt the global supply chain of semiconductors, potentially impacting the military capabilities of the United States and its allied nations. From an economic standpoint, it is plausible that the United States might see heightened rivalry from China inside the semiconductor industry, thereby impacting its financial gains and capacity for technological advancement.

The potential diminishment of the United States’ bargaining power in trade discussions with China may arise from China’s reduced reliance on chips manufactured in the United States. From a diplomatic standpoint, the United States may need to navigate a delicate equilibrium between its interests and values and those of its friends and partners, who may have different perspectives and stakes in China’s semiconductor sector. As an example, the United States may find it necessary to engage in collaborative efforts with South Korea and Taiwan, both major manufacturers and exporters of semiconductor chips to China. However, it is important to acknowledge that these countries also have security concerns originating from China. The United States may need to establish collaboration with Europe and Japan, both of which have significant positions in the semiconductor industry. However, it is important to acknowledge that these countries may adopt distinct strategies and emphasize different objectives compared to the United States.

The probability for the United States to gain a competitive advantage in the semiconductor business via the implementation of limitations on China is uncertain. The United States stands to gain a strategic advantage if the imposed limits effectively impede China’s ability to obtain and progress in the field of sophisticated chips and chipmaking equipment. Such limitations have the potential to hinder China’s technical and military capacities in the context of contemporary conflict. The United States has the potential to use its prominent position in the semiconductor industry as a means to cultivate more support from friends and partners while also exerting pressure on China about several other matters. 

Nevertheless, the United States runs the risk of relinquishing its advantageous position if the imposed limitations have an adverse effect and serve as a catalyst for China to intensify its investments in the local semiconductor sector. This, in turn, may potentially result in China achieving self-sufficiency and fostering a culture of innovation. The United States may potentially encounter retaliatory measures from China, including cyberattacks, which have the potential to adversely impact both the US economy and national security.

In conclusion, the mitigation of the US-China chip war may be achievable through the implementation of balanced and calibrated limits. The United States has the potential to collaborate with its allies in the Indo-Pacific region and engage in constructive discussions with China to develop shared standards and norms within the semiconductor industry.

Source: Eurasia Review

• EU to ban products made with forced labour - a progressive tool against modern slavery
• VN needs drastic reforms to create firm ground for economic growth: experts
• Enterprises want clearer regulations on seafood production
• Foreign businesses increasingly seek export sources in Vietnam
• Sailing through storms: The fallout of Red Sea disruptions for global trade and inflation