Sanctionmonious

The resilience of China’s semiconductor industry means the West has to re-assess its sanctions strategy before it completely backfires

Xi Jinping’s first trip to Europe in five years is an attempt to shore up one side of China’s generally frosty relationships with the West, ideally providing a counterweight to the currently stalemated US-China ties. However, while largely cordial, the trip seems confined to negotiations around the EU’s growing thicket of trade sanctions and restrictions aimed at blunting Chinese market competitiveness in technology-intensive manufactured goods, particularly electric vehicles.

China is reaching into the “if every Chinese consumer bought a bottle of Remy Martin” bag of market access tricks to counter European efforts, and EU diplomats flood the news cycle with assertions of China’s importance in helping bring Russia’s war on Ukraine to an end. Yet, these pieces of window dressing obscure the central issue: Europe, just like the US, wishes to staunch the decades-long erosion of its own competitiveness in high-tech markets—even if it comes at the expense of missing its carbon emissions reduction goals.

These efforts will do no good, neither to motivate China to help resolve a conflict that it has no interest in seeing finish, nor to make EU EV manufacturers better competitors against the output of the world’s emerging Greentech leader. This is clearly seen in front-line reports from the US-waged tech trade war. The US’ attempts to stifle China’s semiconductor industry (let’s call it what it is and stop wrapping up anti-competitive trade policy in national security gauze) are not only failing, but instead serving as fast-acting incentives.

China’s chipmakers are making AI-grade chips which rival their Western counterparts, and are reported to be close to clearing the fabled 5nm hurdle needed to power advanced smartphones, all while working within the confines of US-driven export restrictions and frugally using their pre-ban cache of material and machinery. In China’s dogged progress to become self-sufficient in chips, one hears echoes of Russia’s unfortunate success in keeping its economy afloat despite (and partially, because) of onerous sanctions.

Undeterred, the rest of the world continues to search for China alternatives for semiconductors and related computing technology, and this will create opportunities for other players. India is one primary destination, even though its most impressive plans mean their chip production volumes will only be a few percentage points of China’s current efforts.? India is even starting to develop its own RISC-V industry—semiconductors designed using the simpler royalty-free architecture which, as Delta Analysis has long argued, will be essential for any country’s semiconductor industry success. Get our RISC-V: Global Semiconductor Market report

Sanctions are therefore proving ineffective, particularly when they target globally essential commodities (oil, semiconductors) or manufactured goods reliant on globally distributed supply chains (semiconductors again and, well, practically everything else). But increasingly, when they target countries with the political will (and like-minded friends with which they can keep trading), they just serve as an animus to invest in innovation and self-sufficiency.

Over time, they will only really serve to hamper the West’s own interests: isolating China will continue to keep us from collaborating on technologies such as AI or renewable energy generation which are essential to the global good.?

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