US sanctions on export of semiconductors to China hits global players

Chipmakers in Asian trade plunged on Tuesday over new US sanctions to limit China's access to high-end semiconductors that have military uses. These restrictions basically ban the export of all semiconductors made by a US citizen or using any US equipment to China. This move by the Biden government has wiped billions from companies' valuations worldwide.

USA restricts the export of semiconductors to China

The US Department of Commerce said the sanctions will restrict the export of some chips used in supercomputing or have military use and also toughen requirements on the sale of semiconductor equipment claiming that this was to protect US national security and foreign policy interests. The Joe Biden administration has claimed that China is using high-end chips for surveillance on the United States and for military systems. This directly affects the country's national security.

Reports by news.com.au claim that the restriction bans the export of equipment that no other competitor can provide. In addition, any form of export of American tools or components to China-based fabrication plants will require licenses.

In response to these restrictions Apple, which was working with Yangtze Memory Technologies Co (YMTC) since 2018 for cheap memory chips, will no longer source the components from the company.

This will likely complicate Beijing's plan to develop its own semiconductor industry and develop advanced military systems.

Market Implications

The impact of this decision was clearly visible in the market as the Philadelphia Stock Exchange Semiconductor Index closed at its lowest since late 2020. Bloomberg News also reported that $240 billion has been slashed from companies' market values globally. As Taipei, Tokyo and Seoul markets were closed on Monday due to a holiday but when trading resumed on Tuesday the chipmaker companies sank.

The worst hit amongst these companies were Taipei-listed firms with the Taiex stock index going down by more than four per cent. Taiwan Semiconductor Manufacturing Co. went down 8.3 per cent, ASE Technology went down by nine per cent and United Microelectronics went down by seven per cent.

Even companies like Samsung, a major semiconductor maker, were hit and it fell more than one per cent in Seoul. In Tokyo, Tokyo Electron and Renesas Electronics went down almost 6 per cent.

Jobs in China

In addition, after the announcement on Friday, there was a mass departure of American workers that has shaken China's semiconductor industry. This is because the sanction states that US citizens, companies and residents are barred from supporting Chinese chip companies without getting a proper license. Anyone that is found violating these sanctions could face arrest by the Department of Justice.

American workers hold many key positions throughout the country's domestic chip market. They help manufacturers develop new chips and compete with foreign rivals. But now 43 American senior executives across 16 companies will likely be pushed into a difficult spot where they either have to choose their US citizenship or permanent resident status.

Even companies like Naura Technology Group Co. and Dutch equipment maker ASML Holding NV have suspended their American employees until there is clarity on the rules and the restrictions.

Impact on Indian Industry

In the short run, these implications will affect the import of electronics sub-assemblies and modules to India from China. It can also disrupt the supply chain related to components of mobile phones, modems and laptops and RAM modules. But in the long run, these sanctions may help India as the companies looking for alternate manufacturing destinations may find a solution.

Published on: Tuesday, October 18, 2022, 02:31 PM IST