Trump blacklisting of Chinese firms puts U.S. chip industry at risk, analyst contends

Katherine Tai will serve on the Biden cabinet as U.S. Trade Representative if confirmed by the Senate, weaving a path through Trump tariffs on China while seeking to remain tough on national security and human rights concerns. One analyst says the latest moves against China's SMIC and other electronics companies put the U.S. chip industry at risk in the lucrative China market. (Biden-Harris Transition)

 

President-elect Biden’s handling of the U.S. relationship with China will be shaped by how his administration treats the critically-important electronics industry—both those companies based in China and in the States.

Much of those electronics trade decisions to be made under Biden will likely come from his nominee for U.S. Trade Representative, Katherine Tai, who will serve in that cabinet-level position if confirmed by the U.S. Senate.  She speaks Mandarin fluently and was the top lawyer with the USTR office on China from 2007 to 2014.

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Experts believe Biden’s team on trade will not immediately unravel Trump Administration actions, including moves in 2018 to place Huawei and other companies on the U.S. Entity List. That listing bans U.S. companies from selling chips and components to those companies without obtaining a special permit from the U.S. Commerce Department.

On Friday, Trump’s Commerce Secretary Wilbur Ross added 60 more Chinese companies and their affiliates to the Entity List, including China’s biggest chipmaker, SMIC, and drone king DJI.  SMIC has repeatedly denied it aids China’s military, as Ross implied.

RELATED: Chinese chip giant SMIC and global drone leader DJI added to U.S. trade blacklist

Meanwhile, DJI called the listing a disappointment and told customers they could still buy DJI drones.  It is clear, however, that a U.S. parts supply shortage to DJI could eventually hurt the company’s production capabilities.

In its Friday statement, Commerce explicitly banned U.S. sales of chipmaking equipment to SMIC to produce chips at “advanced technology nodes—10 nanometers or below.”  The statement said such gear will be “subject to a presumption of denial” for a special sales permit “to prevent such key enabling technology from supporting China’s military-civil fusion efforts.”

However, should Biden’s administration adopt a similar posture on restricting sales of equipment to build chips at nodes of 10 nm and below, it could miss the point on how chip packaging designs are evolving to become as important as process node size in measuring microprocessor technology prowess, analysts said.

“The semiconductor industry is moving toward a systems- and platform-oriented angle on performance as AI computing and traditional general purpose compute converge,” said Leonard Lee, an analyst at neXt Curve, via email. “This means that integration and packaging technologies are equally important as process node.”

Lee asserted it is unlikely that blocking SMIC’s access to advanced technologies will be effective in slowing or controlling China’s advancement toward semiconductor self-reliance. The entire chip industry is “butting up against the limits of Moore’s Law” which is pushing semi designers to look at integration and packaging to scale up chip economics. 

In one example, Lee said that Intel’s PC and data center products and platforms are “very competitive” at 10nm with chips from competitors at nodes below 10nm. 

“What is certain is that this [Trump] blacklisting policy will put the business of the U.S. semiconductor industry in the world’s fastest-growing semiconductor market, China, at risk,” Lee added. “This risk will very likely translate into less business and revenue and less market share for Us semiconductor firms and diminished US leadership in the global semiconductor industry.”

“This is a risk that needs to be very carefully contemplated and managed by the [Biden] administration,” he added.

From various assessments by policy experts, Tai would work to bring U.S. allies into the U.S. trade and diplomatic posture with China rather than working unilaterally. However, U.S. public opinion favors remaining tough on China, largely over concerns about human rights violations and examples of theft of technology intellectual property and restrictions on foreign companies from opening their businesses in China.

On Dec. 10, Biden’s transition office called Tai a “veteran trade expert who has spend her career working to level the playing field for American workers and families.” https://buildbackbetter.gov/press-releases/president-elect-biden-announces-key-members-of-his-administration/ She currently is the chief lawyer on trade to the chair and Democratic members of the House Ways and Means committee on matters of international trade and previously worked as chief counsel for China Trade Enforcement with U.S. disputes against China at the World Trade Organization.

If confirmed, she would be the first Asian American and first woman of color to serve as US Trade Representative. “Her deep experience will allow the Biden-Harris administration to hit the ground running on trade and harness the power of our tradition relationships to help the U.S. dig out of the COVID-industry economic crisis and pursue the President-elect’s vision of a pro-American worker trade strategy,” the transition team said in its statement.

At a Center for American Progress panel presentation in August, Tai predicted, “I think there will be really robust political support for aggressive and bold steps with respect to how we compete with China,” according to a report in The Wall Street Journal.

Trump trade negotiator Clete Willems told CNBC that Tai is likely to carry on a tough stance against the Chinese government. “Folks like me who worked in the Trump Administration have a ton of respect for her and think she will help carry on a tough line on China,” Willems said in the report.

William Reinsch, senior advisor for international business at the Center for Strategy and International Studies, told CNBC on Dec. 1 that Trump might leave a “whole pile” of trade problems with China. He added that Biden is not expected to unravel Trump actions but also not look for new sanctions and new actions in the short run.

Noting that both the Democratic and Republican parties have taken a “hard line” on China, Reinsch predicted less tariffs and more diplomacy with China, “but you won’t see a fundamental difference in attitude” from the Trump administration.

RELATED: Editor’s Corner: How Biden may handle China and the electronics trade