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April 24, 2024

Beneath China’s might, however, lies a serious vulnerability: Almost all of the chips that power the country’s most advanced programs and institutions are closely tied to American technology. “The entire industry can only function with input from the United States,” Miller said. “In every facility far from the cutting edge, there are American tools, American design software, and American intellectual property throughout the process.” Despite decades of efforts by the Chinese government and tens of billions spent on “indigenous innovation” dollars, but the problem remains serious. In 2020, China’s domestic chip producers supplied only 15.9% of the country’s overall demand. As recently as April this year, China imported more semiconductors than oil.

America has it all In 2019, the Trump administration placed major Chinese telecommunications manufacturer Huawei on the Entity List, underscoring its sway over the global semiconductor market. While the listing was ostensibly a punishment for a criminal infraction — Huawei was caught selling sanctioned materials to Iran — its strategic benefits became immediately apparent. Huawei, the world’s largest maker of telecommunications equipment, is struggling to survive without access to U.S. semiconductors, software and other essentials. “The sanctions on Huawei kicked in immediately,” said Matt Sheehan, a fellow at the Carnegie Endowment for International Peace who studies China’s tech ecosystem. “Chinese tech giants are using American-made chips or chip.”

Export control laws have long been viewed as a dusty, arcane backwater, far removed from the actual exercise of U.S. power. But after Huawei, the US found its dominance in the semiconductor supply chain a rich and untapped source of leverage. All three companies are based in the United States and dominate the market for chip design software, which is used to arrange the billions of transistors on new chips. The market for advanced chip-making tools is similarly concentrated, with a handful of companies able to claim an effective monopoly over the basic machine or process—and almost all of them are American companies or rely on American components. Every step of the supply chain goes through the US, US treaty allies or Taiwan, all of which operate in US-dominated ecosystems. “We stumbled across it,” Sheehan said. “We started using these weapons before we really knew how use them. “

In May 2020, the Trump administration tightened the policy further, this time subjecting Huawei to a previously obscure provision of export control laws known as the “foreign direct product rule.” According to the FDPR, foreign-made products are subject to U.S. control if they are produced using U.S. technology or software. Here’s the sweeping claim to extraterritorial jurisdiction: Even if an item is manufactured and shipped outside the United States, never crosses that country’s borders, and the final product contains no U.S.-origin components or technology, it can still be considered U.S. The product is ok.

For Huawei, the implementation of FDPR means that the company is effectively cut off from semiconductors. “The rule puts every semiconductor on the planet under U.S. law because every foundry on the planet is at least partially Use US tools.” “If you have one US tool and 100 non-US tools in your fab, that contaminates any wafers moving on the line.”

According to market analyst firm, in 2020 Huawei is the world’s largest smartphone seller, according to Canalys, with a market share of 18%, even surpassing Apple and Samsung. Huawei’s revenue fell by nearly a third in 2021 as the company sold one of its smartphone brands to stay afloat. By 2022, its share has dropped to 2%.

The Oct. 7 rule represents everything U.S. policymakers know about semiconductors, supply chains, and U.S. power combined. The measures were announced as “interim final rules,” meaning they took effect immediately — a direct response to apparent weaknesses in Huawei’s controls. “There’s been a lot of notice before the Huawei rule goes into effect, and they’re going to take their time and stock up,” said Peter Harrell, a former senior director of international economics at the National Security Council who was involved in crafting the Oct. 7 rule. “It’s a tactical lesson — you need an element of surprise.” What’s more, the US has learned that blocking a company, no matter how large, only creates room for new competitors to step in. A more comprehensive approach is required. “The Trump administration is targeting corporations,” said Allen, an expert at the Center for Strategic and International Studies (CSIS). “The Biden administration is hitting industry.”



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