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: