Some financial and foreign policy analysts are projecting increased costs for chips in coming years as a result of US sanctions on Chinese chip technology. The question of how much higher costs will be in five to 10 years is unclear, however.
The topic was discussed in a recent Financial Times article, and is on the minds of trade officials in the Biden administration and CEOs at major chip designers and manufacturers.
“Longer term, the US ban on Chinese tech will raise prices for all sorts of chips,” said FT Asia Editor June Yoon in the article. “That bill will be picked up by businesses and consumers on both sides of the Great Silicon Divide spring up between east and west.”
So far, analysts are not forecasting how much chip prices would rise in five to 10 years, partly because the chip supply and pricing are cyclical and because of the difficulty of forecasting even a quarter ahead, much less a full year or up to a decade. Other factors are already expected to contribute to a rise in prices in coming years, including raw materials shortages and shortages in specific chip categories.
The idea that higher prices for chips will be inevitable is based primarily on the normal curve for supply and demand and the impact of these cycles on prices. If the US can substantially cut down on the supply of chips out of China because it has effectively stopped sales of chipmaking equipment to Chinese chip manufacturers, the impact could be higher prices, the forecast theorizing goes. China accounts for about 20% of the global chip production, especially for 14nm chips and above that are still used in many cars and other products. Meanwhile, the Biden sanctions announced earlier this fall are meant to hit Chinese production of advanced chips in the 3 nm to 14 nm range.
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Ambitious growth plans for chip fabs built in the US by Intel, Micron, TSMC, Samsung and others will produce more chips, but not for years to come. Europe is on a similar trajectory.
Reactions to the October sanctions announced by the Biden administration have hit semiconductor engineers, many with decades of experience in the industry. An online chat between engineers on the Semiconductor Professional’s Group on Monday elicited some questions and concerns over the Biden sanctions.
“The US should...invest and stay two technology nodes ahead of China by staying on the leading edge rather than focusing on tripping up the competition,” said Simon Kirk, a director of new business development for a company based in the Atlanta area.
Robert Stodieck, a technology consultant, worried that Biden sanctions could hurt technology research in the future. “The current electronics age was to no small amount attributable to Chinese scholars working in the US, both American and imported from China and Taiwan since the 1980s,” he wrote on the group chat. “The arrival of modern digital electronics has required the intelligence of the entire plant. It is in no way an American monopoly. The current approach of the Biden administration to this particular issue is highly damaging and not promising.”
Jack Gold, an analyst at J. Gold Associates, noted that chip prices will rise in coming years in any event given supply shortages and raw materials increases. He noted that the Biden restrictions are mostly focused on the very advanced chips. Other high-volume chips are not restricted “and will flow as they do now,” he noted.
“If there are some additional costs associated with high end chips due to restrictions, and potentially some lower volumes as a result, the majority of users won’t notice,” he said.
The restrictions will also push China to create its own tech, a process that could take several years, Gold added. The restrictions are needed and appropriate, Gold said,” but it’s always a gamble that home grown tech doesn’t replace what you won’t sell and then compete with your tech longer term.”