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Restrictions against Chinese companies continue

Restrictions on China’s advanced semiconductor sector continue as the United States asks its allies in Europe and Asia to further tighten restrictions on China’s access to advanced chips and chipmaking equipment. In Europe, U.S. authorities have pressured the Dutch government for additional restrictions on the services that Veldhoven-based ASML Holding NV is allowed to offer Chinese customers. These proposed restrictions could prevent the lithography equipment maker from servicing and repairing all deep ultraviolet (DUV) lithography equipment that it had previously sold to Chinese customers.  

The U.S. is also attempting to convince Germany to join the Netherlands and Japan in imposing semiconductor export control measures against China. Restrictions on German chip equipment exports could impact companies like optoelectronics manufacturer Carl Zeiss AG, which supplies optical systems used in DUV lithography equipment to customers in China. Outside of Europe, the U.S. has reached out to the Japanese government to limit exports to China of vital chemicals used in the semiconductor manufacturing process.  

In March 2024, discussions were held between the U.S. and South Korea on the possibility of imposing chip export controls against China. U.S. officials are reportedly pushing the country to restrict exports of advanced semiconductor equipment, logic chips smaller than 14nm, and DRAM chips smaller than 18nm to China in a move that would align with existing U.S. chip controls. However, it remains unclear if South Korea would be willing to impose chip controls on China.  

Discussions between the U.S., South Korea, and Japan over chip restrictions are ongoing and the three countries are scheduled for a trilateral meeting to discuss supply chain and advanced technology issues in late June. An imposition of widespread chip controls by Japan and South Korea is likely to prompt a response from Beijing as both East Asian nations are the largest and second largest providers of silicon wafers and chip-making materials to China respectively.  

China continues to respond to ongoing chip restrictions by emphasizing the development of local chipmakers at the expense of foreign companies. For example, Beijing is currently in the process of raising $27 billion (€ 24.87 billion) for the third phase of its China Integrated Circuit Industry Investment Fund. In addition to boosting the semiconductor industry through investment, Beijing is also favouring domestic technology companies by phasing out microprocessors made by U.S. companies from its government computers and servers, and by sidelining Microsoft’s Windows operating system. The phase-out of U.S. chips within China will result in major losses for U.S. chipmakers like AMD and Intel, as the Chinese market contributed to 15% and 27% of their total revenue in 2023 respectively. For the electric vehicle (EV) sector, the Chinese Ministry of Industry and Information Technology has encouraged original equipment manufacturers (OEMs) to procure semiconductors made in China over foreign chips.  

Companies with links to Huawei face additional scrutiny 

Chinese technology company Huawei Technologies Co., Ltd. has also come under increased scrutiny by the U.S. government in recent months following the announcement of its 7nm smartphone chip in August 2023. An investigation by the U.S. Commerce Department revealed evidence that Huawei’s chip fabricator, Shanghai-based Semiconductor Manufacturing International Corporation (SMIC), had potentially violated U.S. export controls by manufacturing these advanced chips. In addition to SMIC, the Biden administration is considering sanctioning at least six other suppliers that have been linked to Huawei’s 7nm chip by adding them to the U.S. Department of Commerce’s Entity List.  

More Chinese industries affected by protectionism and data security concerns  

Chinese companies from other industries could face additional restrictions from the U.S. and the EU as concerns over unfair competition and data security continue to rise. For example, the EU recently indicated that it would soon begin customs registrations for Chinese electric vehicle (EV) imports into the bloc in preparation for the conclusion of an official anti-subsidy investigation into battery electric vehicles (BEVs) imported from China. The investigation was launched in October 2023 and is set to be concluded within a maximum of 13 months. Chinese EV imports into the EU will be hit by retroactive tariffs should the investigation find that Chinese EV manufacturers did in fact receive unfair subsidies.  

China’s shipbuilding and maritime logistics industry has also come under increased scrutiny in the U.S. due to security vulnerabilities related to Chinese-made cranes at U.S. ports. A U.S. congressional investigation that concluded in March revealed that cranes manufactured by Shanghai Zhenhua Heavy Industries Co., Ltd. (ZPMC) contained undocumented telecommunications equipment that had not been revealed to U.S. customers. Chinese-made cranes are currently used at all major U.S. ports on both coasts except the Ports of Savannah, Brunswick, and Jacksonville.  

The extensive presence of Chinese-made equipment in the U.S. maritime logistics sector has become a source of tension with local unions including the United Steelworkers (USW) union and the International Association of Machinists and Aerospace Workers (IAM), which launched a complaint with the Office of the United States Trade Representative in March to demand a government probe into unfair practices surrounding the Chinese shipbuilding and maritime logistics sectors. The complaint called for the U.S. government to provide trade relief and state support for the domestic shipbuilding sector over concerns that American maritime, logistics, and shipbuilding companies have been undercut by unfair Chinese competition. The Trade Representative’s office will have 45 days to decide whether to initiate an investigation.  

Concerns are rising over espionage and data security risks related to Chinese companies. Several lawmakers in Washington D.C. are proposing legislation that would ban lobbyists from representing companies linked to the Chinese military. This proposal caused several lobbying firms to drop Chinese companies and could impede the ability of these firms to oppose trade restrictions proposed by Congress.  

Enforcement against forced labor intensifies 

In February, goods valued over $301 million (€277 million) were detained by U.S. Customs and Border Protection (CBP), the highest amount since the Uyghur Forced Labor Prevention Act (UFLPA) came into effect. Exports from Malaysia continue to be the most affected in value, at $130 million (€120 million), followed by Thailand ($79.97 million / €73.66 million), Vietnam ($75.89 million / €70 million), and China ($13.46 million / €12.40 million).  

Electronics continue to comprise the highest value of confiscated goods, most of which are from Malaysia, Thailand, and Vietnam. The expansion of UFLPA detentions coincides with a planned expansion of the UFLPA Entity List by the U.S. Department of Homeland Security, with a government official indicating that the entity list would be expanded in the coming months.  

Efforts to oppose forced labor have also increased in Japan, where a group of lawmakers have called for an investigation into connections between the country’s automotive sector and Uyghur forced labor in the aluminum industry in Xinjiang, China. Japan is a major destination for Chinese aluminum and the country accounted for around 36.5% of all raw aluminum exports from China in 2023 totaling around $362 million (€333 million). While it is unclear what steps the Japanese government would take if forced labor was discovered, evidence of Uyghur labor in Japan’s automotive supply chains could further increase support for a proposed human rights due diligence law in the country.   


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