US Chip Sanctions on China: Analysis and Implications  

Posted by Written by Chris Devonshire-Ellis Reading Time: 7 minutes

Op-ed by Chris Devonshire-Ellis  

The United States has issued new export controls preventing the sales and service by US businesses to Chinese chip manufacturers. While not described as ‘sanctions’, the unilateral approach taken by the US against one specific country indicates that this is, in effect, exactly what they are. In this article, I will pick through what this means and the implications.


Beijing has been aware that this eventuality was likely to arrive and has made what contingency plans it can to deflect this, although it will undoubtedly be a serious setback. I will discuss the implications of this later in this piece. For the United States, however, it unveils the concern that Chinese chip manufacturers were rather closer to attaining parity with US technologies than previously thought – some analysts have described Chinese chip tech as being 10 to 15 years behind the US. The imposition of this ban is indicative that perhaps the Chinese have been rather more advanced than Washington has previously cared to admit. Much of this is based upon the leadership of AI technologies. Whoever corners that market first is likely to be able to manipulate global affairs to their own advantage over lesser competent rivals. It is a direct result of Washington doing as much as it can to make sure it retains that edge.

Impact on China

The ban will undoubtedly slow China’s progress in chip technology, however, it won’t stop it. Instead, it is more likely to give the US manufacturers time to pull ahead of China in technical aspects and to achieve what Washington considers a ‘safe distance’ in capabilities. The export ban will also hurt China’s plans to achieve self-sufficiency in chip making, a stated goal of Russia as well. The tech aspect that China has not yet mastered in chip technology is the etching of precise patterns on silicon wafers, a technique that China remains highly reliant on imported equipment. The sanctions effectively block that process from being acquired by China – until they are able to develop a solution to this process themselves.

However, while the longer terms geopolitical race concerns AI; there are also impacts upon global industries, where the US also wishes to become dominant, such as in electric vehicles. To put that into context, there are about 1 billion petrol-driven vehicles globally. That is expected to drop by 50% by 2030 – meaning that there is a growth market to provide potentially 500 million EVs between now and the end of the decade. Washington wants its manufacturers to take the lion’s share of that – at least in the territories it has political sway over.

Secondary sanctions

To ensure it gets its way, Washington has also been pressurizing chip manufacturing and related businesses in Europe. The Netherlands’ AMSL is the world’s biggest supplier of advanced chipmaking gear, with Washington threatening the company with exclusion from the US market unless it bans sales to China. This type of behavior is extended to other (primarily Western) manufacturers as well, although it also impacts Japanese and South Korean manufacturers as well. Taiwan, already significantly under US control, will simply follow Washington’s lead.


This is not to say that the ban is a massive immediate blanket against China. Exemptions have been made, in order to help protect those companies whose China trade in chip technology is significant and where cutting off that revenue stream could inflict serious cash flow damage.

There is also the question of foreign-owned chip manufacturers based in China. For these, the US Department of Commerce has created a window to allow them to apply for permission to continue to receive the US or other foreign imported equipment, meaning that the sales will be vetted in terms of what can and cannot be provided. Some of these windows have already been put in place, such as the Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest contract chipmaker, which has received a one-year authorization for its Nanjing manufacturing hub. South Korean memory chipmaker SK Hynix, based in Wuxi, also said it had also received a similar window. However, this does mean that the US will be looking closely to see what is provided to China.

Advantage America?

The main question here is, how much time can the United States buy in terms of delaying China’s ability to perfect the etching of silicon wafers? In reality, the cat is already out of the bag in many ways, numerous companies in the West have mastered this technique. China almost certainly has the capability; the issue is ramping the manufacturing process up to achieve the volumes that China needs. Based on past experience in other industries, that may only be a two-three-year timeframe given that Beijing already knew these types of sanctions would arrive.

Geopolitical implications

This is the wider issue that regular media isn’t focusing on. There will be repercussions for the United States in having taken this action. These are as follows:

Further global divisions

It helps create (or strengthen, depending upon your political point of view) additional divisions between the United States, its allies, and the rest of the world. In manufacturing, for example, the US is now able to impose its will on countries it considers allies – such as the numerous businesses in the EU, Japan, and South Korea involved in these industries. There is the question of the US taking, via the threat of sanctions, effective sovereignty over other countries’ manufacturing capabilities and markets. How the US intends to keep the EU, as well as its allies in the Far East under its ‘protection’, remains to be seen. At present this is being arranged through product and development sanctions as well as the talking up of ‘threats’ – such as China and Taiwan.

To some degree, this is gunboat diplomacy. It also creates regional divisions, which could be a growing problem in Asia. China, Japan, and South Korea are all part of the RCEP Free Trade Bloc – these sanctions inhibit what was a carefully crafted, mutually beneficial, and globally powerful trade alliance. Should FTA such as RCEP be whittled away due to US sanctions, divisions may begin to appear with Japanese and South Korean relations with Washington as they will require some form of compensation. While that may be an issue for future US administrations to have to deal with, today’s reality is that the US is creating an ‘Us versus Them’ approach to global trade and that China is definitely out of the picture. That, when taking into account Russia as well, is a rather large ask for Washington to have taken on.

Diverting supply chains  

The ongoing Russia-Ukraine issue has already shown that sanctions do not work as well as is generally perceived, there are always certain nations prepared to break ranks depending upon their own geopolitical pressures. The tech supply chain issue over chips is a case in point, where manufacturers are already shifting manufacturing facilities. Manufacturers in this sector are moving to other Asian destinations, including Singapore, Malaysia, and India. Back in 2013, I asked the question “Could India Manufacture The iPad?” an article that was scoffed at as implausible at the time. More recently, Apple has been asking the Indian government for more incentives to increase its Indian manufacturing facilities, which it established just seven years after I posed the original question.

The same situation will occur with chip production. Manufacturing capabilities are already spreading out across Asia and will be incentivized to do so by the US sanctions. Many of these will be Chinese invested. What will eventually occur is a wider geographic spread of chip manufacturers, many of them China owned, instead of a China-retarded industry. The only longer-lasting impact will have been to relocate the production out of the PRC. The only gain for the US as concerns these sanctions is to temporarily slow China down. It won’t last.

The real geopolitical battle: Basic commodities

The real upcoming battle for supremacy in tech manufacturing hasn’t reared its head yet. But it is going to, and it isn’t great news for the United States. Chip manufacturing requires a number of basic commodities as follows:


Silicon is of course a common material on earth, however, getting it to the quality used in semiconductor chip manufacturing isn’t an easy process. It requires huge amounts of energy to purify the material. China is the dominant producer and manufactures 79 percent of the total global semiconductor market. Given that China (and Russia) have access to cheap energy, this will impact the chip manufacturing industry on a global basis.


This element is found within zinc deposits and can also be extracted from coal ash and recycled fiber-optic cables – illustrating its effective rarity. The US considers it a strategically important component in semiconductor manufacturing. Zinc deposits are found in ten major sites around the world – but only one of them is in the US, and that will be mined out by 2032. Russia and India also have significant zinc reserves.


Boron is another element used in the industry, with applications used to dope into Si semiconductors to produce p-type (i.e. positively charged) semiconductor materials. The world’s largest reserves are in Turkey, with significant deposits also in Russia, Kazakhstan, and China. The US has reserves but these are dwindling, and it already has to import from Australia.


Gallium is produced as a by-product of bauxite (aluminum ore) and from zinc processing. Canada, China, and Japan all produce Gallium, with aluminum ore being the dominant source with zinc ores and scrap metal making up the remaining supply portion. The United States recently sanctioned the supply of aluminum from Russia yet does not have supplies of its own.


Copper is sourced from porphyry copper deposits, such as from Escondida in Chile, magmatic sulfide deposits, such as Kambalda in Australia, and sediment-hosted stratiform deposits in the Central African Copperbelt. Refinement is carried out in Canada, China, France, Japan, South Korea, and Russia. US copper reserves are dwindling and the country now imports.

Rare earth

A variety of rare earth is used in the semiconductor industry. The largest reserves are found in China and Russia.

Coming supply chain issues

The supply chain issue for the semiconductor industry is gradually starting to whittle down towards the geographical presence of where the required manufacturing mineral components are to be found. The looming difficulty for the United States is that it does not possess enough of these commodities itself and must rely on imports. Australia is a main supplier and will continue to be so, while Japan and South Korea also have reserves of some of these. This is why the US is so involved in East Asia – it has to be, in order to keep ahead of the semiconductor and tech battles, it needs to keep these countries onside. Yet balanced against this as several countries that the United States has decidedly poor relations with – China, Russia, and Turkiye being just three. That, coupled with global energy battles also favoring China and Russia, means that the US has to be very careful in how it organizes its supply chain management.

The political problem it will have to face in the future is when Washington has to ask for supplies from countries such as China and Russia and those within their geopolitical orbit. Washington’s current modus operandi when it comes to diplomatic relations in its direct inhibiting of Chinese and Russian development will be remembered in Beijing and Moscow for a very long time. That won’t be Biden’s problem to solve, but it does mean that US geopolitics is going to be very bumpy with potential roundabouts and U-turns ahead as we move further into this decade.

About Us

China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at

Dezan Shira & Associates has offices in Vietnam, Indonesia, Singapore, United States, Germany, Italy, India, and Russia, in addition to our trade research facilities along the Belt & Road Initiative. We also have partner firms assisting foreign investors in The Philippines, Malaysia, Thailand, Bangladesh.