back to article Let the chips fall where they may: US Commerce dept whacks Middle Kingdom firm SMIC on naughty list

The US government has added SMIC — China's largest domestic semiconductor foundry — to a Treasury Department entity list. This action, which the Treasury Department said was intended to protect US national security interests, will prevent SMIC from acquiring certain US technologies. Any business hoping to export to SMIC will …

  1. aregross

    Horse, Door

    Oops, too late!

    1. DJV Silver badge

      Battery Staple!

      Oops, sorry. Wrong conversation!

  2. cornetman Silver badge

    If I were in the US administration, I would be more wary of poking the Chinese "bear" too frequently.

    They're only going to take it for so long and I can see a trade war being ignited in the not so distant future.

    I suspect that the Chinese government are weighing the cost/benefits very carefully. The only thing stopping the Chinese acting more aggressively is that the situation isn't hurting them sufficiently at this point, reciprocating is not in their financial interests.

    But these manufacturers are big players. I wonder where that balance would tip.

    1. Chris G Silver badge

      I suspect that China is waiting to see what Biden will have to say, if he continues the current trend then expect China to rein in on trade, probably starting with rare earths, or at least a threat to do so.

      1. DS999 Silver badge

        The US has plenty of rare earths production capacity, we just don't mine them here because it is a dirty process and they are cheaper in China where they have fewer environmental regulations.

        Most of US production capacity is merely mothballed, it could be spun up in less than a year - no doubt many companies that require rare earths have stockpiled months of supply against such a recurrence, given that they don't take up much space since such tiny quantities are needed for most products.

        Trump is actually helping Biden by doing this now: China won't immediately retaliate because they will want to try to avoid escalating before they find out if Biden's administration will be more willing to deal. However, since Biden has said he wouldn't unilaterally undo any of the tariffs/sanctions because "why give up a bargaining chip" Trump is giving Biden more bargaining chips. Since the 'entity list' stuff is (at least in theory, hard to tell in Trump's corrupt administration where policymakers overrule career people all the time) coming from the intelligence community, how willing his administration will be to make deals will depend on what the intelligence people say. How real are these threats, versus being used as an excuse to go after China?

        1. Anonymous Coward
          Pint

          "why give up a bargaining chip"

          Ho ho ho.

        2. Chris G Silver badge

          Obama was upset with China in 2012 over then restricting RE sales, forcing prices up and potentially availability down. A couple of years later a resolution was made to make the US self sufficient, that position is still at least two years away.

          Even those REs that are produced in the States at the moment have to go to China to be refined.

          https://www.nationaldefensemagazine.org/articles/2020/11/20/mining-company-determined-to-restore-us-rare-earth-supply-chain

          You have mining production gear mothballed but not refining equipment for product to market.

        3. Duncan Macdonald Silver badge

          Trump just being nasty again while he still can

          I expect most of the entries on the list to be removed before the end of January.

          Restarting rare earth production would require investing many millions of dollars that would be lost when China restarted exports.

          Perhaps China should put Boeing, Lockheed Martin and Northrop Grumman on their export control list - how much of Boeing's aircraft depend on parts from China for example.

          1. Anonymous Coward
            Anonymous Coward

            Re: Trump just being nasty again while he still can

            Exactly, and if China did restrict RE to the US and the US started mining and spending all the money on building up refining, all China needs do is lift the restrictions, put the prices below the US, bankrupt the companies. Put up or restrict RE again.

            No bank or invester would then touch RE mining or refining in the US, it would need to be government funded, but that's solcialist, which means commies.

      2. Anonymous Coward
        Happy

        If China screws around with their rare earths exports, they will just kill that particular golden goose.

        Rare earths aren't rare. China is the leading producer of these because of cheap mining and processing costs, driven by low wages and environmental standards.

        A lot of their production is actually from ore mined in places like Vietnam, and until recently Myanmar, and there is even lanthanum-rich ore shipped from the United States to China for processing. Consequently, as well as being the worlds largest exporter of rare earths, they are also the largest importer of ore concentrates. Mining and processing is straightforward, and will move to wherever it is cheapest.

        Brazil and Vietnam have equal second largest known reserves, together equal to China's. There are doubtless many large reserves that have not been discovered yet because global demand for rare earth oxides is small - only 210,000 tons per year - and so there are about a century's worth of known reserves already. The entire annual world demand of rare earth oxides could be carried in just three Panamax-sized bulk carriers.

        1. Anonymous Coward
          Anonymous Coward

          Doesn't matter if its not rare, what matters is the cost. China could undercut any other mining and refining facility in the world. Only if every country band or put tarrifs so high on them so that it is cheaper to source elsewhere, or subsidised them.

          If that doesn't happen then every company that tries will end up bankrupt in not so long.

          1. Anonymous Coward
            Facepalm

            Doesn't matter if its not rare, what matters is the cost. China could undercut any other mining and refining facility in the world. Only if every country band or put tarrifs so high on them so that it is cheaper to source elsewhere, or subsidised them.

            They can't have a trade war over it and simultaneously "undercut any other mining and refining facility in the world" because if they aren't selling it, then you aren't buying it from them.

            It is quite clear from your sweeping statement that you are utterly clueless when it comes to understanding the issues. One of the major problems with rare earth extraction is that the ore usually has thorium in it, which means that the waste water, dust etc from the processing is contaminated with this radioactive substance. This used to be allowed to pollute the local environment, but in 2014, the Chinese Government reversed its policy of prioritizing economic growth over environmental damage, and it is now enforcing environmental controls that drive up chemical processing costs compared to countries that don't.

            1. Anonymous Coward
              Anonymous Coward

              You clearly did not understand what was written.

              China gets in on the trade war, no more RE for you. You go OK, start my own up. Year or 2 pass, money spent.

              China, here you go, you all can have all the RE you want, special price.

              All new refineries and mines go bankrupt.

              China can start again limiting.

              Round and round you go.

              1. W.S.Gosset Silver badge

                That is in fact EXACTLY what happened in/with the US a coupla years back.

        2. W.S.Gosset Silver badge

          >If China screws around with their rare earths exports, they will just kill that particular golden goose.

          There's maybe 2% of ElReg Commentards with the remotest real-world knowledge or experience.

          China smashed down Japan a few years ago, forcing it to remove key military defence arrangements, by withholding rare earths.

          I mean, this was massive global news at the time. Still major. And you're completely unaware of it?

    2. DS999 Silver badge

      There already is a trade war

      Did you miss China adding retaliatory tariffs more than once?

      If you are thinking they might ban the hugely long list of US companies from manufacturing products in China, that would devastate China's economy in a much more long lasting way than the 9-18 months or so it would hurt US companies like Apple, Dell, Amazon, Microsoft, etc. etc. etc. before contract manufacturers like Foxconn could expand existing factories in Vietnam, Brazil, India, etc.

      1. cornetman Silver badge

        Re: There already is a trade war

        I suspect that they wouldn't take such drastic steps. They would be token, tit-for-tat gestures, like making similar bans on trading in China for certain targeted companies. They would be calculated to inflict the biggest impact on the US and the least impact on China.

        It would not be hard for China to introduce embargoes on US companies that work for the US military, and the US would hardly be hard pushed to take the moral high ground in that respect. That's what I would do. The likes of Cisco perhaps.

        Or they could suspend cooperation on patent/copyright agreements. Chinese companies are hardly the most well-known adherents to that side of things, it would hardly have a big impact on China.

        1. Diogenes

          Re: There already is a trade war

          They would be calculated to inflict the biggest impact on the US and the least impact on China.

          @cornetman - you are assuming the Chinese govt is a rational actor...

          "China is suffering mass power cuts in the south, prompting cities to dim street lights, suspend factory production and tell office blocks to turn off heating unless the temperature falls below 3C.

          The electricity crisis appears to have been prompted by a shortage of coal after Beijing banned imports from Australia. China imposed trade bans against Australia after Canberra demanded an inquiry into the origins of coronavirus and criticised Beijing’s treatment of the people of Hong Kong."

          source https://www.thegwpf.com/mass-blackouts-after-china-cuts-australian-coal-imports/

          Ships full of Aussie coal are anchored outside Chinese harbours and are not allowed to leave.

          1. W.S.Gosset Silver badge

            Re: There already is a trade war

            Diogenes, you are spot on but actually not cynical enough.

            China started vs Australia in September 2019. We're still not sure what the kickoff was. But that's when the Chinese government stopped even taking phonecalls from the Australian government.

            But yes, there's over a billion A$ of just _metallurgical_ coal parked in Chinese harbours ("roads", technically and nautically) right now. Such that internal coal costs are up by 50-100% (reports vary).

            Thing is, the CCP are insulated from the economic consequences for their plebs. So they literally do not care. It's all just a point scoring exercise.

            Western governments really haven't taken that on board, despite history.

            1. W.S.Gosset Silver badge

              Re: There already is a trade war

              > internal coal costs

              To be clear: what Chinese companies are paying for coal inside China.

    3. martinusher Silver badge

      Its a 'dragon', not a bear.

    4. W.S.Gosset Silver badge

      Cornetman, you're so off the pace, it's painful. 40yrs off the pace, mate.

      Per senior Chinese, the trade war was well under way by the early 80s. Not just vs USA, but vs the whole West. Most recent source is a book I'm currently reading: Zhao Ziyang's autobiography.

      Trump was just the first politician to say: "enough". And: "let's play tit for tat."

      "Interestingly", the only Western country NOT currently being smashed by China in trade attacks, is... the US.

  3. Anonymous Coward
    Anonymous Coward

    This will cause more pain in the long term

    China will develop it's own sub 10nm technology and sell it to the rest of the world.

    Sure, it's going to take them a few years to get there.

    1. PhilipN Silver badge

      Re: This will cause more pain in the long term

      Simple Newtonian cause and effect.

      Previously it was a 25-year plan. Now it is a 5-year plan.

    2. Anonymous Coward
      Anonymous Coward

      Re: This will cause more pain in the long term

      Or just order parts from Korea and Taiwan where it's made rather than "on the road map"

    3. Richocet

      Re: This will cause more pain in the long term

      The Chinese are actually pretty crap at high tech - they are good at copying and mass production.

      Their ethics of product substitution, pollution, forced labour and race to the bottom for low quality are a substantial part of the problem and are not easily changed. I'm not sure how much this is due to the government lying, mismanagement and corruption, but the government is not going to change any time soon.

      Japan and Taiwan have some sort of motivation to produce higher quality products and eventually succeed. Korea has too (surprisingly). But I not confident that China will succeed.

  4. PhilipN Silver badge

    Confused

    A company set up to compete with Intel and which so far has failed to do so after many years of trying and many billions of dollars is a threat to national security? Despite the many more billions of dollars spent on national security?

  5. martinusher Silver badge

    Major Growth Industry

    Obviously one of the principal US exports in the future is going to be sanctions of one sort or another. Just think of all the effort neded to identify companies and entities to be sanctioned and all the follow up to make sure that those sanctions are enforced.

    The joke being that all this activity is actually giving employment to the Chinese -- they make the phones, computers, printers and what-have-you that keeps modern bureaucracies humming.

    A couple of kilograms of Moon rock made it back to China yesterday despite all the ongoing, crippling, sanctions. Its an interesting science and engineering experiment but its also sending a bit of a message to anyone receptive enough to listen.

    1. Version 1.0 Silver badge

      Re: Major Growth Industry

      America has exported a lot of technology to China over the years to make money from it, moving production to China made American corporations a lot of money ... and boosted Chinese technology while killing American jobs. It's been very profitable in both the US and China but now, since so much technology has been sold to China, the Chinese are moving ahead much faster than the US.

      I moved to America in my 20's because it was a great environment to work with technology and start a company - I've visited China a bunch since then and if I was in my 20's today then I'd move to China to start again. The politics in both countries is pretty much the same, they each like to claim that it's different but both counties are just run to make money.

      If the American economy collapses, maybe a lot of the Chinese production facilities will move to America because it would finally be cheaper to manufacture in the US than China.

  6. Bitsminer Bronze badge

    This is so Cold War 1970s/1980s

    Anyone remember when Apple bragged about their (PowerPC based?) Mac being on the US export control list?

    When exports of anything interesting from the US required a US export certificate stating the number of MTOPS* the device had? Even to NATO allies?

    Or when your company would receive a request for quote for some spare parts from some Czechoslovakian company that had received something technical during one of several thaws in the relationships. Only to be told "no can do". Followed a few weeks later by a request for quote for some spare parts from some Swiss company that you'd never done business with before, but wanted exactly the same parts....

    The playbook exists. Just repeat until done.

    *MTOPS=millions of theoretical operations per second.

  7. Joe W Silver badge

    Difference

    "private companies in China that develop new technologies have little ability to refuse incorporating them into military programs"

    And in the west they fall over themselves trying to become military suppliers by all means. Or they are kept alive by military programs anyway.

  8. John Savard Silver badge

    Holes

    What concerns me is the news that TSMC has built a 7nm fab inside the People's Republic of China. Since that is physically within the country, if the PRC decides it needs 7nm chips for its military, it could steal it. Of course, then they wouldn't be able to fool TSMC that way again, but if one really wants to keep technology below 14nm out of China's hands, isn't a more comprehensive approach required?

    1. Anonymous Coward
      Anonymous Coward

      Re: Holes

      What makes you think Mil spec semiconductors are made on the latest bleeding/leading edge nodes?

  9. Klimt's Beast Would

    Emmentallin' it? You're not gettin' it.

    So the US is adding this to another in a long list of WTO* rules 'national security' exceptions?

    It's all getting very Swiss cheezy and that's before it goes fondu!

    * Wot The Orifice?

  10. W.S.Gosset Silver badge

    US Stock Exchanges vs Chinese firms

    Worth pointing out that many Chinese companies have listed in the US but China insisted that they must not be audited and could not legally be audited. To be clear: their numbers may or may not be fiction.

    Previous US Administrations wholeheartedly agreed.

    Not just Obama, also Bush and previous. Current, now-departing, Administration has finally worked down its list and got to this and has put the ban-hammer down : play fair or play elsewhere.

    Expect certain of the larger US-listed Chinese firms to drop out of the US exchanges.

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