The Biden Administration’s Final Push and the US-China Semiconductor Battle

The Biden administration is far from content with a “lame-duck” role and is actively engaging in international affairs. Starting December 2, it launched a major third wave of measures against China’s chip industry, imposing export controls on nearly 140 Chinese entities. Meanwhile, Beijing is not sitting idly by. According to Bloomberg, China has begun restricting exports of critical components used to manufacture drones to Europe and the US, signaling the possible prelude to broader bans. Considering the Biden administration’s proactive involvement in the Syrian civil war and the Russia-Ukraine conflict, the period leading up to the January 20 power transition will certainly not be marked by peace between the US and China. These actions can be seen as the “opening skirmishes” preceding a full-blown US-China trade war.

The Largest Battle Yet in the Three-Year US-China Semiconductor War

On December 2, the Biden administration announced its third and most extensive wave of export restrictions targeting China’s semiconductor industry during his term. This time, 140 Chinese companies were added to the export control list. The measures involve three main parties:

1. China: The sanctions target companies such as NAURA Technology Group, Piotech, and SiCarrier, all headquartered in China.
2. Southeast Asia: The measures restrict an additional 24 chip-making tools and three software tools, extending export controls to semiconductor equipment manufactured in countries like Singapore and Malaysia.
3. The US and its allies: According to Reuters, these measures could impact US semiconductor equipment makers like Lam Research, KLA, and Applied Materials, as well as Dutch companies like ASMI.

In short, the new regulations expand US authority to restrict exports of chip-making equipment manufactured by US, Japanese, and Dutch companies to certain Chinese semiconductor factories. The rules also apply to equipment manufactured in countries such as Israel, Malaysia, Singapore, South Korea, and Taiwan. Japan and the Netherlands, however, are granted exemptions. These measures lower the threshold for US product content that triggers export controls, meaning the US can regulate any item shipped to China from overseas if it contains even minimal US-made chips.

The US began targeting China’s semiconductor-centered technology industry in 2018. Since 2021, the Biden administration has launched three rounds of chip-related sanctions. However, in terms of scope and depth, the latest measures are unprecedented. The rules demand automatic rejection of product purchase applications from Chinese companies on the control list. Notably, these measures apply not only to American companies but also to suppliers in South Korea, Japan, and the Netherlands.

China’s Response: “If You Don’t Sell, I Won’t Buy”

In a surprising turn, China has abandoned its usual restrained approach. On December 3, several Chinese industry associations, including the China Internet Association and the China Semiconductor Industry Association, issued a joint statement condemning the US for arbitrarily revising trade rules under the guise of national security. They urged Chinese companies to cautiously procure American chips, signaling a push to reduce reliance on US technology and find domestic alternatives. Given the official nature of these associations, the statement reflects the Chinese government’s stance.

China’s progress in semiconductor R&D gives it the confidence to decouple from US chips:

1. From 2019 to 2022, US sanctions on China expanded from restricting chip use in smartphones to military, medical, and automotive applications, eventually covering nearly all sectors. While these measures caused significant losses for Huawei—forcing the company to sell parts of its smartphone business—Huawei has not only survived but achieved breakthroughs, reportedly now capable of independently developing and iterating high-end chips.
2. In the broader mid-to-low-end chip market, China has seen a remarkable rise. Last year, China imported $350 billion worth of chips (about 2.5 trillion RMB), the largest forex expenditure for imports. But from January to October this year, China exported over 930 billion RMB worth of chips, with the annual total likely surpassing 1 trillion RMB. China has now become the world’s second-largest chip exporter after the US.

China’s Retaliation Escalates

Recent Chinese countermeasures include:

• December 3: China announced a ban on exporting certain rare minerals to the US, including gallium, germanium, antimony, and ultra-hard materials, citing their dual-use military applications. Exports of graphite will also face stricter scrutiny. Bloomberg predicts these actions are just the beginning, with export controls likely expanding to dozens of niche materials if trade tensions escalate. While the US could seek alternative global sources, extracting and refining these materials takes time and comes at a significantly higher cost than relying on China.
• December 9: China’s market regulator launched an anti-monopoly investigation into Nvidia, a US AI chip giant.
• December 10: Bloomberg reported that from January, China might further restrict the supply of key drone components to the US and Europe, impacting producers of motors, batteries, and flight controllers.

US-China Relations Enter Unprecedentedly Difficult Times

Former President Trump recently announced a phone call with Xi Jinping, urging Beijing to play a role in ending the Russia-Ukraine war. The Trump camp views tariffs as a negotiating tool to secure Chinese cooperation. However, Biden’s flurry of actions has defied expectations of a passive “lame-duck” government.

China, like other nations, had assumed it only needed to prepare for Trump’s potential “2.0” administration. The recently concluded Central Economic Work Conference in Beijing announced principles aimed at addressing global trade challenges and geopolitical risks. On December 10, Xi Jinping met with leaders of global economic organizations, emphasizing that “economic interdependence between nations is a strength, not a risk,” indirectly addressing Trump’s rhetoric. Trump responded swiftly, inviting Xi to attend his January 20 inauguration ceremony.

However, Washington’s recent actions suggest China faces more than just a tariff war:

• December 6: The US House of Representatives passed the “Crucial Communism Teaching Act” with a 327-62 vote. The act aims to educate American students on the dangers and historical impact of communism, with China as the primary focus.
• December 10: Several US intelligence agencies briefed Congress on alleged Chinese cyberattacks, including the so-called “Salt Typhoon” operation targeting US telecom firms.

With nearly 40 days remaining before January 20, tensions are escalating. Drawing parallels to President Clinton’s round-the-clock work during the 1994 Mexican financial crisis, the current administration seems determined to leave its mark. The opening battle may be just the beginning of an unpredictable US-China trade war.