Chip War Intensifies As China Threatens More Retaliation Against U.S. Export Controls

Updated Jul 5, 2023, 04:48am EDT

Chinese officials Tuesday warned of additional retaliatory measures against the U.S. in response to Washington's efforts to curb China’s access to advanced computer chips, signaling an escalation in trade tension between the two countries a day after Beijing placed restrictions on the export of key raw materials needed to manufacture semiconductors.

KEY FACTS

On Monday, China’s Commerce Ministry announced it was placing restrictions on the export of gallium and germanium starting August 1 citing national security interests.

Gallium and Germanium are used in the manufacturing of several high-tech components, including advanced chips, electric vehicle batteries, radars and satellites and China is the world’s largest producer of both metals, according to Reuters.

Washington has not yet reacted to the measure, but a former Commerce Ministry official told Chinese state media Tuesday that this was “just the beginning of China's countermeasures,” and warned they would escalate further if more “high-tech restrictions” are imposed on China.

While the escalation threat remains vague, Beijing’s export curb has raised fears that the measures could be expanded to include rare earth elements, which are critical to the production of semiconductors and electric vehicles.

China accounts for more than 60% of the world’s total production of rare earth elements, nearly four times as much as the U.S.

BIG NUMBER

80% and 60%. That is the estimated percentage of global production of gallium and germanium respectively that China accounts for, according to data by the Critical Raw Materials Alliance.

WHAT TO WATCH FOR

The latest threat and export curbs come just days before U.S. Treasury Secretary Janet Yellen’s visit to Beijing. The Treasury Department said Yellen will meet with Chinese officials to discuss the relationship between the world’s two largest economies, “communicate directly about areas of concern, and work together to address global challenges.” Yellen’s trip, which is set to begin on Thursday, comes just weeks after Secretary of State Antony Blinken’s visit to the country where he met with Chinese President Xi Jinping.

KEY BACKGROUND

Advanced semiconductors have emerged as a key diplomatic battleground between the U.S. and China, as tensions between the two countries continue to simmer. The Biden administration has attempted to restrict China’s access to top-tier U.S.-made chips—including ones used in AI applications—amid fears that they could be used to develop weapons or cyber threats. Last month, the Wall Street Journal reported that the White House may further expand these restrictions and effectively ban the export of nearly all advanced AI chips made by U.S. firms like Nvidia, AMD, Intel, and Qualcomm to China. This move is yet to be officially announced and it is unclear if it could trigger the “escalation” that Chinese officials have warned about. Late last month, China’s ambitions to manufacture advanced chips were dealt a major blow after the Dutch government—purportedly under U.S. pressure—announced new export restrictions on chip-making machines. The restrictions are designed to target the Dutch company ASML, which has a near-global monopoly on advanced chip making machines.

https://www.forbes.com/sites/siladityaray/2023/07/05/chip-war-intensifies-as-china-threatens-more-retaliation-against-us-export-controls/