On December 2, the U.S. launched its third major round of trade restrictions targeting China’s semiconductor sector since curbs began in 2022. The latest round of restrictions focus on reducing Beijing’s access to advanced chipmaking tools and advanced memory chips – with specific attention given to high bandwidth memory (HBM) chips, which are critical for AI training and advanced AI capabilities. The new rules also aim to close loopholes surrounding re-exports of advanced chipmaking equipment to China from third countries by expanding the scope of the Foreign Direct Product Rule (FDPR).
The latest expansion of the FDPR also includes an exemption list for some U.S. allies including the United Kingdom, most EU countries, Australia, and Japan that allows them to ignore FDPR rules for chip exports from their own countries. Notable exclusions from the exemption list include major semiconductor players like South Korea, Singapore, Malayia, Taiwan and Israel – which means that companies exporting chip-making equipment from these countries will have to ensure that their products comply with the latest FDPR restrictions. The expansion of the FDPR to cover chip-making tools manufactured in these countries will increase due diligence requirements for companies like ASML, which is constructing a chipmaking machinery plant in Malaysia, and laser grooving and wafer deposition maker ASM Pacific Technology, which has a presence in Singapore.
Additionally, the expanded rules also increase due diligence requirements to make it more difficult for chip companies to unknowingly export controlled products to Chinese customers. The restrictions have also added 140 more companies to the U.S. Department of Commerce’s Entity List and placed new nationwide-level export controls on the latest memory chips and semiconductor equipment.
Most of these firms are domestic Chinese semiconductor manufacturers that are involved in the etching, dielectric disposition, DUV photolithography, annealing and cleaning process of chips or manufacturers that produce advanced equipment used in such processes. Examples of these Chinese toolmakers include Piotech, Naura Technology Group, ACM Research, Empyrean (Beijing Huada Jiutian Technology) and SiCarrier Technology. Several firms were also added for their involvement in acquiring controlled chips and chipmaking technology for Huawei Technologies and SMIC. These companies include Swaysure Technology, Si’En Qingdao, and Shenzhen Pensun Technology.
US government hikes tariffs on solar and tungsten exports from China
On December 11, the US Trade Representative (USTR) announced that it would be increasing Section 301 tariffs for imports of solar wafers, polysilicon, and certain tungsten products from China. The tariffs are part of a larger four-year USTR review of Chinese imports that resulted in tariffs of between 25 and 100% being imposed on imports of EVs, solar panel modules, steel and aluminum products, and medical devices from China from September 2024.
Duties on solar wafers and polysilicon from China will increase to 50% from 25% while tariffs on tungsten products will increase from 0 to 25% from January 1, 2025. The new duties on solar-related products are aimed at reducing the dependence of US manufacturers on renewable energy supply chains from China, which still accounts for most of the world’s polysilicon and solar wafer production. The duties on tungsten products appear aimed at reducing US reliance on Chinese exports of rare earth metals. Like other rare materials restricted by China, tungsten has a variety of military applications and is also used to produce a variety of high-density industrial alloys.
China bans exports of certain critical minerals to the United States
In retaliation for the new restrictions, China has banned all exports of gallium, germanium, and antimony to the United States and tightened rules for the export of graphite. All three metals are rare earth minerals that have strategic applications in both the semiconductor and defense sectors while graphite is also an important material used in the production of electric batteries. Additionally, germanium is also used to manufacture infrared technology, fiber optic cables, and solar cells while antimony is also a critical mineral used in the production of bullets and weaponry.
China’s export ban to the United States is expected to tighten supplies of these critical minerals to US customers and drive a price increase for these metals on the open market as the country accounts for roughly 98.8% of refined gallium, 59.2 % of refined germanium, and 48% of antimony exports globally. US companies will still able to obtain these banned metals through transshipments via third countries and by purchasing supplies from a limited number of non-Chinese producers – albeit at an increased cost.
In addition to metal export restrictions, China has also indicated that it is also willing to continue placing regulatory pressure on US companies operating in the country. For example, China’s State Administration for Market Regulation announced on December 9 that it had launched an anti-trust investigation into American chipmaker Nvidia for violating China’s monopoly laws following its acquisition of Israeli chip design company Mellanox in 2020.
China begins drills around Taiwan after Taiwanese leader’s visit to the Pacific
Tensions between the US and China also remain high due to an increase in Chinese military activity around the island of Taiwan that began on December 10. The exercise appears to have been launched as a response to several meetings that took place in early December between US government officials and Taiwanese president William Lai Ching-te in Guam and Hawaii.
Beijing has not declared the recent spike in military activity as a formal military drill but Taiwanese authorities have indicated that China has deployed the largest naval fleet around the island in several decades. A peak of around 90 vessels and 53 Chinese aircraft have been detected around Taiwan over the last several days near the southern Japanese islands, and the East and South China seas while Beijing has also designated seven zones of reserved airspace off the coasts of Fujian and Zhejiang province.
No live-fire exercises have been reported and logistics operations in Taiwan and through the Taiwan Strait do not appear to have been affected by the drills. However, the exercise highlights both China’s growing military capabilities in the region and its ability to disrupt trade through the Taiwan Strait as well as the South and East China Seas in the event of a conflict over the island.
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