I already touched on this story in Friday’s LinkSwarm, but lots of other people are now twigging to just how huge a story this is. Let’s start with that: “US Firms Pull Staff From China’s Top Chip Maker As Economic War Worsens.”
The Biden administration’s new technology restrictions are already causing disruptions in China as US semiconductor equipment suppliers are telling staff based in the country’s top memory chip maker to leave, according to WSJ, citing sources familiar with the matter.
State-owned Yangtze Memory Technologies Co. has seen US chip semiconductor equipment companies, including KLA Corp. and Lam Research Corp., halt business activities at the facility. This includes installing new equipment to make advanced chips and overseeing highly technical chip production.
The US suppliers have paused support of already installed equipment at YMTC in recent days and temporarily halted installation of new tools, the people said. The suppliers are also temporarily pulling out their staff based at YMTC, the people said. –WSJ
It’s hard to overemphasize how badly fucked China’s chip industry is with this latest move. Semiconductor equipment not only needs regular maintenance, but extremely specialized expertise when something goes wrong and your yields crash, wizards who can look at a wafer defect chart and determine by experience what’s gone wrong with which tool. Without support and spare parts from the western semiconductor equipment giants, expect yields to start crashing in a matter of months, if not weeks, especially if Applied Materials and Tokyo Electron join the pullout.
I just put in a call to the Applied Materials press office to ask them about this. I’ll let you know if I hear back.
As Peter Zeihan notes, these sanctions screw not only China’s semiconductor industry, but every segment of the high tech assembly chain that depends on them.
Takeaways:
Not only is China now unable to import the equipment to make semiconductors, or the tools to maintain and operate the equipment, or the software that’s necessary to operate the equipment, or any mid or high level chips at all. Now any Americans who want to assist with the Chinese semiconductor industry have to make a choice: you can have your job with China or you can have your citizenship.
I’ve read this elsewhere: “One of the provisions of President Joe Biden’s executive order is that any U.S. citizen or green card holder working in China cannot work in the Chinese semiconductor industry or risk of losing American citizenship.” The thing is, I don’t think such sanctions are constitutional, and I’m pretty sure stripping citizenship over trade regulations with a country we’re not at war with would fail the Ninth Amendment “necessary and proper” test.
Back to Ziehan:
One sign of that pullout is that Apple has shifted iPhone manufacturing from China to India, and has scrapped plans to use YMTC chips in iPhones.
In many ways, the Biden Administration’s approach to China has been a continuation and escalation of the Trump approach: No More Mister Nice Guy, with sanctions and reshoring of American industry.
Short of actual military action, it’s hard to see how China can effectively retaliate against America over these moves. American companies are already leaving, and China has built up so much ill will in various international trade organizations that it’s difficult to see how they could lodge a complaint with one of those and prevail.
Previously:
Tags: Apple Computer, China, Economics, Foreign Policy, Ninth Amendment, Peter Zeihan, Regulation, Semiconductors, technology, Trade War, video, Yangtze Memory Technologies Co. (YMTC)
Fellow Texan here, and just in case no one else has noted this:
The “necessary and proper” clause is found in the last paragraph of Article I, section 8, not the Ninth Amendment (The enumeration … of rights shall not be construed to deny or disparage others …”.)
Enjoy reading your column.
So, at what point do our actions, which could result in a choking of the Chinese economy, become casus belli?
We don’t expect China to take that sitting down, do we? There is A LOT of products and commodities we depend on China for more than half of our supply of.
So the PRC which owns the Bidens, Obamas and Clintons are going to suffer? Right.
I think McConnel and Pelosi will really, really enforce these restrictions.
I have two questions: One, does China Joe know about this? And two, is the cabal behind Sleepy Joe trying to start World War III?
Oh and China created a virus and released it on the world… there is that too.
My mind’s eye immediately turned to the embargoes against Japan in the late 30’s…
I certainly hope that this administration follows through with the mining and refinement of the “rare earth” metals.
I find Zeihan interesting, sort of like a slightly less crazy and more grounded version of Zerohedge. He talks about things other academic types have ignored for too long, that are having a big moment right now.
With that said, I feel like he’s more of a promoter talking a book than a real expert in the things he talks about. He takes a bunch of trends on a chart, extends the lines 10-30 years into the future, and then talks about what will happen when the lines cross. There’s a lot of people who want to hear how the US will continue to beat China, and he gives that audience what it wants in a format that feels more erudite than it is.
If that sort of thing worked well, Paul Ehrlich would have been right and we’d be living in an overpopulated wasteland now. China is a huge country full of very tangled contradictions and is extremely opaque to outsiders, and possibly even many insiders.
We’ve been saying “China can make X but they can’t make Y, they don’t have the skills/quality/etc.” for decades and throughout that time China has proved us wrong over and over. Maybe semiconductors will prove to be too much of a reach for them, but somehow I doubt it. And if it proves to be true, then yes, this might be the signal for them to invade Taiwan (or worse) much like the oil embargo started the countdown to Pearl Harbor.
In response to Kevin, does this remind any one else of the build up the Pearl Harbor? Most people seem to think that “just happened” but there was a long history economic warfare between the USA and Japan before that, in a manner very similar to this (change “oil” to “tech”).
Constitutional: When working for China –
FBI background investigation & mandatory border inspections.
And Congress passing a +80% income tax.
The Executive Order cancelling citizenship is clearly unconstitutional on a number of bases.
But what an Executive Order can very likely do, is *cancel the passports* of citizens in particular situations, or named citizens.
But entirely untouched by any of this is whether the revocation of a passport by Executive Order fails under due process arguments.
The effect of the sanctions harms China where the US citizens react as if the Order is effective as against them. Any legal argument would have to come from a US citizen who stays in China. And that would be difficult to do. Among other things, depositions would likely be required to be held in the USA, thus removing the citizen from China, And *then* he gets his passport revoked so he can’t do back!
What does it say about China that after four decades of unrestricted industrial espionage, trademark and copyright infringement, and massive penentration/corruption of our higher education institutions and government (often wilfully abetted by the targets) that they aren’t prepared for this?
They may be teaching the Calculus in junior high bit they are still just commies.
It’s just possible that a few folk who hold dual passports might be OK with having their US citizenship stripped. It is really, really difficult to renounce your US citizenship, and therefore escape the IRS and their taxes on foreign income. We are one of the few countries that levies tax on foreign earned income (though the first $80k or so are exempt), and a lot of the persons affected are earning well into 6 and even 7 figures.
One thing not mentioned is that Taiwan has a best-in-class chip fabrication industry and supplies 2/3 of the world market in semi-conductors. Taiwan based TMC is the largest in the world and has half the world market by itself. Guess that makes the island a tempting target for an increasing aggressive and desperate China.
Regular blog readers know that, as I’ve mention TSMC many a time.
They also know that Taiwan would be no pushover.
“The buildup to Pearl Harbor,” yes… the west throttled Japan’s access to oil and rubber from Southeast Asia, halting hopes of expansion… a quick over-optimistic strike, four months later Doolittle’s raid, two months more war was over at Midway, but then many years of battle to get the death-cult out of Japan’s government. Supreme Leaders are hobbled decision-makers.
Xi’s speech this weekend had an emphasis on self-sufficiency… sixty years ago it was the backyard steel furnaces of the Great Leap Forward, now it’s photolithography?
Biden’s latest… wonder how it will affect the production of consumer goods.
And we are still playing patti-cake with the Russians in the Ukraine. Not sure that “Slo Joe” is the guy we want at the helm for this one.
Reminds me eerily of how the USA embargoed oil going to Japan in the years leading up to our involvement in WWII. So clever our leaders thought. Deprive them of oil and they will submit and stop their expansionism. Japan didn’t see it that way. They saw it as an act leading inevitably to war, so they attacked Pearl Harbor, and the rest is history.
Re: Constitutional. At this point, what difference does it make?
Re: TSMC. It’s super easy to destroy a fab: Just put a cat in a clean room; heck, just open the doors. I would be amazed if an invasion didn’t render it useless (i.e. requiring billions in repair) just by accident.
So China now needs to take Taiwan to survive? Asking for a friend.
China can’t do anything remotely high tech (hypersonic missiles, AI, Great firewall, etc.) without buying chips on the gray market.
1: If this destroys the Great Firewall, that in and of itself would be amazing
2: Read the other day that the electronics Russia is now getting from China have 40% failure rates.
Which means that you put a random 4 of those parts together, and 7/8 of the products made don’t work.
But I’m sure that Russia has the high quality quality assurance such that they can filter out all the bad parts before they assemble them together right? Right? Why are you laughing so loudly?
I read an article about some of the Biden Admin sanctions, and the key words I saw were “you have to get a license from the US Commerce Dept in order to …” not be harmed by the sanctions.
So, will these actually be carried out, or will enough 10% make it to the Big Guy so that the waivers / licenses flow to all the connected?
Interesting times
[…] However, I wonder how well they can continue to build high tech weapons guidance system under the new semiconductor sanctions. GPS is an old technology, so presumably China build guidance systems in their older fabs guided […]