The great Chip war USA VS China

Just after the G7 Hiroshima Summit ended, China’s Cyberspace Administration of China, or CAC, issued a statement requesting that “operators of critical information infrastructures in China should stop purchasing products made by Micron Technology” due to “national security risks.”

The U.S. Department of Commerce dismissed the ban issued Sunday as “unsubstantiated,” while Micron, the biggest U.S. memory chipmaker, said in a written statement, “We have received CAC’s notice. … We are evaluating the conclusion and assessing our next steps. We look forward to continuing to engage in discussions with Chinese authorities.”

United States has started a war with China and it is not just in South China Sea it has started a war in the semiconductor domain most of the countries which are involved in the supply chain of semiconductors are Western allies of United States this immediately puts China on a back foot the first step taken by United States in this war was to ban the direct sale of American semiconductors to China the Second Step taken by United States was the indirect sale of chips to China the third step was to deny capability of China to manufacture these chips the fourth step was then to stop the human resource from America to work on Chinese semiconductor projects in this video we are going to explore each and every step that United States has taken and then we’ll talk about how China has retaliated will talk about the future of U.S and China Chip War and how it will most likely end thank you [Music] so United States top direct sale of chips from American companies to Chinese companies the first Chinese company to get impacted was ZTE ZTE was accused of trading with Iran and North Korea which were earlier sanctioned by United States hence ZTE was banned from purchasing semiconductors from American companies Huawei was the second company that America targeted United States banned Huawei from selling in America to telecommunication companies simultaneously America also banned Huawei from purchasing American Semiconductor many other Chinese companies have been kept under Commerce Department’s entity list which is de facto Blacklist of United States in fact during that time Chinese companies were blacklisted and kept into the entity list due to their alleged human rights violation in xinjiang province with oigurs can you imagine chip manufacturing and human rights well America can do anything but initially the Huawei ban turned out to be unsuccessful because Huawei was still able to purchase semiconductors from entities which are manufacturing chips outside of United States that is South Korea and Taiwan in fact few American companies were also granted licenses to sell low-end chips to China after seeing Chinese companies circumnavigate these sanctions United States then put these companies under fdpr which is foreign direct product rule it was initially started in 1959. it basically means that if a product is made using American Technology and if that product is under sanctions then America can stop that product from being sold in the territory outside of United States this act changed everything this means that Chinese companies are no longer able to circumnavigate the direct ban which United States did to ZTE and Huawei other companies in Taiwan South Korea and Netherlands can no longer Supply these Advanced trips to China because they are using technology gained from United States this was the Second Step of United States in this war with China that is to ban indirect sales of semiconductor chips from American companies to China fdpr rules ensured the Chinese companies can no longer exploit the ban and its loophole in fact U.S Regulators also used fdpr rules on Russia and Belarus after the Russian invasion in Ukraine you see these restrictions gave a big blow to Huawei and other companies to a lesser extent but China was still able to manufacture cutting-edge chips through its own indigenous companies so United States had to do something about this United States had to ensure that China is not able to produce its own ships within its own territories so what did U.S do you well U.S targeted the semiconductor manufacturing equipments that is SME so this was the third step taken by United States which was capability denial you see smes are used to fabricate ships and the components to manufacture smes are very complex in 2018 United States lobbied in Netherlands with the Dutch company and ensured that it did not sell critical technology which is required to manufacture smes which is an essential tool to manufacture smes restrictions on smes have proved to be effective because it takes years if not months to get some of the components which are required to make these smes smes are produced by handful companies and most of them are all U.S allies so this gave us a certain advantage over China this ensured that the leading SME companies could not offer Servicing to the Fabs located within China you see the Fabricators require regular servicing sometimes almost every few months and now the these foreign smes were unable to give servicing to Chinese fabricators this was a major blow to China to further tighten the screws on China United States took one more step it basically banned U.S citizens or residents in United States to take up jobs in Chinese companies which required manufacturing of either semiconductors or components which are required to manufacture semiconductors this meant that thousands of employees primarily U.S citizens had to resign and leave their jobs where they were working for these Chinese firms you see American expertise was one of the main reasons why semiconductors were being manufactured in China a lot of Chinese technology within the semiconductor domain has been acquired from United States and its allies Chinese firms regularly hire people from Taiwan South Korea United States and many other Western countries they import technological know-how and the fourth step that United States took directly attacked this so this was a four-pronged attack by United States on China in this Chip War the market share of Chinese companies in the supply chain of semiconductors in the world is minuscule it is highly dominated by Taiwanese manufacturers and manufacturers from South Korea Japan United States and many other countries hence it is going to be extremely difficult for China to circumnavigate this and establish a semiconductor ecosystem within China in a very short span of time especially considering the restrictions that United States has placed on the semiconductor manufacturing equipment which kind of targets the manufacturing capability of China so how could China not retaliate Chinese government banned U.S company Micron Micron is a supplier of advanced level trips to China China’s cyberspace Regulators said in a statement I quote that Micron had failed its Network Security review and that it would block operators of key infrastructure from buying from the company the review found that micron’s product have serious network security risks which pose significant security risks to China’s critical information infrastructure supply chain affecting China’s national security this was the statement from cyberspace administration of China this was seen as a retaliation to the United States action against China in the state War immediately after this announcement the share prices of Samsung and SK hynix have increased these two companies from South Korea were seen as replacements for the American chips which were banned but it is to be seen to what extent South Korea will help China in this because South Korea is a key Ally to United States and South Korea cannot make any hostile decision against United States with U.S troops on ground in South Korea with third missile defense system deployed in South Korea South Korea has a very difficult choice to make whether it wants to supply China with semiconductors or risk losing business which is a major contributor to South Korea economy which has been in deficit for the last two years but the thing to note is that this China’s so-called retaliation will not have any major impact on United States you see majority of Revenue of Micron from China is not coming from government projects it hardly contributes anything to micron’s overall Revenue only 16 percent of micron’s revenues comes from telcos and government so Micron will not lose out on any significant revenue from the so-called ban from China so why has China done this because this move will impact China more than United States this move by China is being seen as symbolic in nature you see China had to do something to express its displeasure and this is what China has done probably also China is hoping that Samsung and skynix will fill in the gap for the Micron company microns dram and nine products could be replaced by Samsung and SK hynix the reason why I’m saying that this move is symbolic by China is because we have to track the geopolitical events you see during the G7 Summit which happened during 19th May to 21 May United States asked its allies to de-risk from China and not decouple so United States made a hostile statement which dissuaded its allies from Trading with China obviously didn’t like this and as a Tit for Tat on May 21st China gave this ban on Micron on 22nd of May the Chinese government organized a meeting with American companies in Shanghai where the Chinese government mentioned that it is committed to high-level opening of his economy and it is attracting foreign investment so China immediately gave a olive branch to United States by having this conference immediately on the next day of announcement of the ban on Micron so China clearly tried to do some damage control the very next day but the West could not keep quiet immediately after that Japan which could be seen as a vessel state of United States said that it would add 23 items including Advanced chip making equipment to its list of regulated exports to China this step came immediately after this conference which was conducted by China in Shanghai the West is not backing down the conclusion of indo-pacific framework of prosperity was done immediately on May 27th 14 ipef countries would create a supply chain crisis response Network so clearly United States is anticipating tensions in Taiwan Straits hence it is preparing by creating this alternative supply chain with Pacific Nations so clearly United States is anticipating and preparing for a conflict in taiwan’s trade it is creating alternative Supply chains in case the conflict ignites so what do you expect from China more hostile actions an article on Chinese state-owned medium mentioned that the U.S wants to resume dialogues with China but it keeps stepping up its effort to contain China but have the US is now feeling guilty it tries to use the term de-risking to describe its decoupling with China they wrote that the ban on microns product is likely only the first round of countermeasures to be imposed in retaliation against U.S tech curves he says China will cooperate with U.S only if it can show more sincerities according to the publication which is state owned Xi Jinping has no other option from move to a market-based Innovation System to Security based National Innovation planning so things are indeed heating up but at the same time even United States is sending mixed signals U.S treasury secretary Janet Yellen said last month China’s economic growth need not be incompatible with U.S economic leadership in short Beijing ought to nurture strategic industries that don’t challenge the U.S dominant role this was just one month ago Janet Yellen U.S treasury secretary at the same time Sullivan said we must maintain as large of a lead as possible in certain technology areas as a whole for all intents and purposes erasing the line between civilian and Military applications in the advanced chip production and supercomputing sectors so Jake Sullivan certainly has been more hawkish but United States has to be very careful according to analysts because the dominance of United States in the semiconductor supply chain is not as high as compared to what its domination is when it comes to Global Currency so it’s not the same technology Supply chains can be replaced more easily as compared to currency Biden Administration last year introduced the chips and science Act which promoted investment of around 52 billion dollars in semiconductor sector in United States this was in addition to 150 billion dollar investment from the Biden’s office ever since he took charge so these are Big Monies which are being put into semiconductor sector in America immediately Micron and Qualcomm announced 40 billion dollar and four billion dollar Investments respectively United States is partnering with India to set up plans of semiconductor manufacturing facilities China will be watching this very closely especially since China has been locked with a conflict with India for the last three years after the Chinese belligerence at the border today India and China are strategic competitors it is to be seen how China reacts to India getting the benefit of this Chip War but India has a long way to go India does not have an ecosystem of Chip manufacturing as of now India is building it from the scratch at the same time United States has expedited moving factories of semiconductor chips from Taiwan to United States it is not win-win situation for United States by any stretch of imagination its own allies in Europe are unhappy with certain steps United States has taken the disruption in the global supply chain of semiconductor means that not only China but even other countries will be impacted and many of these other countries would be allies of United States so just like sanctions these restrictions on semiconductor supply chain will put more pressure on the western allies so it’s not just China which is going to suffer this is degrees signing off from this video do like this video And subscribe to my channel I’ll keep posting more videos stay tuned.

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