Will Chip Shortage Lead To US-China Trade Conflict?

A potential trade conflict between the US and China is brewing as the Biden govt is weighing the option of banning or imposing restrictions on exports of chipmaking tools to Chinese factories that make advanced state-of-the-art chips for both civilian and military use.

The US Commerce Department is actively discussing the possibility of a ban on chips of 14-nanometer nodes and smaller to big factories, though smaller plants making less advanced semiconductors are to be exempted.

The US accounts for 45% to 50% of global billings in semiconductor chips, though manufacturing has shifted to Asia, especially Taiwan and Korea, which together account for 83% of global processor chip production and 70% of memory chip output.

Further, the Biden govt is hoping to rope in its allies to deny China access to advanced technologies with dual-use. China has reacted to the development by calling it a “technological blockade.”

“America is on the verge of losing the chip competition,” warned international relations scholar Graham Allison and former Google CEO Eric Schmidt in a column published in Wall Street Journal.

“If Beijing develops durable advantages across the semiconductor supply chain, it will generate breakthroughs in foundational technologies that the US cannot match,” they wrote.