Trade tensions between the US and China continue to remain high a year after the U.S. first announced restrictions on the sale of advanced semiconductor technologies to China. American authorities have recently announced new investment restrictions and reporting requirements on U.S. companies seeking to invest in advanced Chinese companies. The proposed rules could come into effect in 2024 and will impose a notification requirement for U.S. companies that are looking to invest in advanced technologies within China, Hong Kong, and Macau.
China has also continued to impose retaliatory measures on American companies, most recently by imposing a ban on the use of iPhones and other non-Chinese smartphones in government agencies. The government has also been flexing its use of regulations to disrupt semiconductor acquisitions by U.S. companies. However, the U.S. and its allies also appear to have taken several measures over the past month to slow down rising tensions with China by extending existing semiconductor export measures.
U.S. and allies extend some export permissions for chipmaking equipment
Despite the ongoing trade tensions, the U.S. and its allies have also announced several short-term conciliatory measures that could ease China’s access to existing chip making equipment into the end of the year. For example, U.S. authorities recently indicated that they would allow Taiwanese and South Korean semiconductor firms with Chinese foundries to continue importing advanced chip manufacturing equipment into the country until October 2024. This measure was first implemented in October 2022 as a conciliatory measure to help Asian chipmakers including Samsung, SK Hynix, and TSMC adjust their Chinese operations to recently imposed semiconductor controls. However, an end to the current import exceptions would have likely upset U.S. relations with Taiwan and South Korea and caused further disruptions to semiconductor supply chains.
In addition to prolonging existing equipment access, U.S. authorities have also moved to remove 27 Chinese entities from the Bureau of Commerce’s Unverified List (UVL). Among the entities removed from the UVL are high-temperature superconductor firm Sino Superconductor Technology Co., Ltd., machining company Jinan Bodor CNC Machine Co., Ltd., and high-end laser manufacturer Hunan Dake (DK) Laser Co., Ltd.
Dutch authorities have also provided Chinese semiconductor firms with further relief by allowing advanced chipmaking equipment firm ASML to temporarily continue shipping DUV lithography systems to Chinese customers. An export regulation that would have prohibited the sale of ASML’s DUV lithography machines to China was supposed to come into effect on September 2023 but sources indicate that the company has received permission from the Dutch government that allows it to fulfil contracted deliveries to Chinese customers until the beginning of 2024.
Chinese regulators apply pressure on Western tech companies
In addition to its ongoing ban on germanium and gallium exports, China continues to place pressure on western companies as a means of responding to ongoing trade restrictions. For example, Chinese authorities have begun implementing a ban that will prevent central government employees from bringing iPhones and other foreign branded smart devices to their workplaces. The ban will also reportedly apply to workers from local government agencies and state-owned companies involved in trade secrets from October 2023 before being expanded to cover all state employees from March 2024.
China has also shown resilience in developing indigenous semiconductor manufacturing technologies despite recent chip restrictions. On August 30, days after the US rejected China’s demands for a relaxation of technological restrictions, Huawei released a new smartphone that was made using 7 nanometer (nm) chips. The 7nm Kirin 9000 chips, made by China-based SMIC, suggest that China has made significant strides to mass produce 7nm despite recent restrictions to advanced semiconductor making equipment.
Xinjiang cotton remains in Western supply chains
In addition to chip restrictions, Xinjiang-related forced labor concerns continue to pose a compliance and reputational problem for Western companies. The apparel industry in particular continues to face compliance risks given the proliferation of cotton from Xinjiang in global supply chains. For example, isotope tests performed by the US Customs and Border Patrol on 86 shoe and garment imports into the United States from December 2022 until May 2023 indicate that 15% of apparel products tested contained cotton sourced from the Xinjiang region.
Canada has also started tougher checks on firms that may be involved with Xinjiang. The Canadian subsidiaries of Nike, Diesel, Dynasty, Ralph Lauren, and Wal-Mart have all been placed under investigation by the Canadian Ombudsmen for Responsible Enterprises (CORE) on their ties to suppliers that utilize forced labor in Xinjiang. The investigation by CORE comes three months after an American bipartisan group also named apparel makers Nike, Adidas, Shein, and Temu as companies complicit in the possible use of Uyghur forced labor in their supply chains.
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