Biden Administration’s Semiconductor Export Controls Face Mounting Hurdles

300-millimeter wafers are pictured in a machine for coating with gold in a clean room during the mass production of semiconductor chips at Bosch's semiconductor plant in Dresden, eastern Germany, on July 12, 2022. Jens Schlueter/AFP via Getty Images

The Biden administration’s recent move to limit semiconductor exports to China is facing several hurdles that could negatively impact the effort and place additional strain on international supply chains.

The administration issued sweeping new export controls on Oct. 7 in an effort to hamstring the Chinese Communist Party’s (CCP’s) military modernization. Among those rules is a measure to cut China off from certain advanced semiconductor chips made with U.S. technologies, regardless of whether the chips were manufactured in the United States.

Advanced semiconductor chips are used to make everything from pickup trucks to hypersonic missiles. Currently, more than 60 percent of the world’s supply of chips is produced in Taiwan, many of them with the help of U.S. research and design.

The Department of Commerce (pdf) said in a statement that the unprecedented move was necessary to prevent the CCP from developing weapons of mass destruction (WMD) and further increasing its apparatus of state repression.

“These advanced computing items and ‘supercomputers’ are being used by the PRC to improve calculations in weapons design and testing including for WMD, such as nuclear weapons, hypersonics, and other advanced missile systems, and to analyze battlefield effects,” the statement reads, using an acronym for the People’s Republic of China.

“In addition, advanced [artificial intelligence] surveillance tools, enabled by efficient processing of huge amounts of data, are being used by the PRC without regard for basic human rights to monitor, track, and surveil citizens, among other purposes.”

Stranded Workers, Disrupted Supply Chains

Although an effective means to immediately begin interfering with the CCP’s capability to manufacture modern military equipment, the move has created several headaches for government officials.

For instance, a historic ban on “U.S. persons” from supporting semiconductor development in China has stranded hundreds of Chinese Americans who work in China.

Under the new rules, neither U.S. citizens nor permanent residents can support the production or development of China’s domestic advanced semiconductor industry. Now, Chinese Americans are left in limbo waiting to see if they can continue working, albeit temporarily.

The United States will have to scramble to contend with unintended consequences of the new rules that could inadvertently harm the semiconductor supply chain.

As a result, numerous products may not be able to be shipped until vendors are granted special licenses to continue operations, and without the minute-by-minute support that semiconductor foundries need, they could begin shutting down.

The United States planned to review licenses for non-Chinese factories in China hit by the new restrictions on a case-by-case basis. Delays in shipments are likely to occur even with approval.

Such supply chain issues are a cause for concern, according to Michael Pecht, a professor of mechanical engineering at the University of Maryland.

Pecht said that the disruption could cause problems for the United States because the nation’s own advanced semiconductor manufacturing facilities, funded by the recently passed CHIPS and Science Act, likely wouldn’t be up and running for several years.

“Supply chain management is going to be an issue,” he said. “I think it’s going to take quite a while. Even with the CHIPS Act, it’s going to take three to four years to build the facilities, and then it’s going to take longer to get the technology up to speed.”

Pecht said that the United States was so dependent on Taiwanese semiconductor manufacturers that the strain could adversely affect U.S. national security interests.

“I think it’s going to be tough for the U.S. right now,” he said. “I think companies like Intel are far behind and, really, we depend quite heavily in terms of security and military issues as well as just regular high technology components on TSMC. So, it’s going to be quite difficult.”

Taiwan Semiconductor Manufacturing Company (TSMC) is the world’s largest contract chipmaker and is based in Taiwan.

Too Early to Tell

Thus, while the new rules will eliminate some of China’s ability to obtain or manufacture key chips and components for supercomputers and have already caused stocks in Chinese chip makers to fall, it’s too early to tell what negative impact the rules might have for the United States and its allies.

To that end, the head of TSMC warned that the growing conflict between China and the United States could have serious consequences.

“The U.S.–China trade conflict and the escalation of cross-Strait tensions have brought more serious challenges to all industries, including the semiconductor industry,” TSMC Chairman Mark Liu said at an annual convention this week.

Likewise, the Semiconductor Industry Association, which represents the U.S. semiconductor industry, issued a statement on the new rules, saying that it was too early to tell what the ramifications would be.

“We are assessing the impact of the new export controls on the U.S. semiconductor industry and working with our member companies and the U.S. government to ensure compliance,” the statement reads.

“We understand the goal of ensuring national security and urge the U.S. government to implement the rules in a targeted way—and in collaboration with international partners—to help level the playing field and mitigate unintended harm to U.S. innovation.”