US Considers More Sanctions on China’s Chip Industry

The Biden administration is considering increasing the sanctions on China’s chip industry in a meeting tomorrow. The National Security Council is set to meet Thursday to discuss the changes. The rules are designed to tighten the noose on China’s SMIC semiconductor manufacturer by restricting even further the sale of chip making equipment to them.

Assuming they approve the changes, that would restrict even further the supply of semiconductors worldwide. Everything from cars to consumer appliances to toys would likely see price increases and out-of-stock notices.

The auto industry alone says they are already going to lose more than $200 billion in sales as people put off buying cars or buy them from foreign manufacturers.

Consumers who normally buy electronics will also find empty shelves or reduced inventory.

There is, apparently, disagreement in the ranks as any unilateral decision by the US to do this might give business rivals in other countries a competitive advantage to sell equipment to China and therefore not really solve the problem while the defense department is worried that if we don’t do this we will be giving that edge to the Chinese military, who needs the most advanced chips.

In the mean time the US needs to figure out how to subsidize the US chip industry if it hopes to increase self-sufficiency. There is a bill in Congress to to provide money to do that, but it is stalled. Part of the problem is that new chip plants will not create many jobs, consume massive amounts of energy and are massive polluters. While the environmental effects may be reduced sometime in the future, it will not happen soon. In addition, even if subsidies happen, it takes years to bill a chip factory.

While it is probably the right thing to do from a national security perspective, it will have a negative impact on US businesses for the next several years, at least.

All in all a bit of a mess, but for businesses that depend on chips, now is the time to plan. Chips are in almost any durable equipment that businesses buy, so there is no way to avoid the problem. Assume that prices will go up, choices will go down and lead times will increase. Credit: Yahoo