“Microelectronic degradation”: US risks losing microelectronics industry to China

It is no secret that one of the leitmotifs of the American foreign policy recently is to "contain" China in all possible areas, including (especially) technological. On the one hand, this is quite logical, because whoever owns advanced technology owns the world, and for the XNUMXst century this statement is doubly true.

On the other hand, the US of 2023 is far from the States of 1991, which had just become the only superpower and a “beacon of civilization” for the rest of the world. Compared to those golden days economic and the scientific potential of the country has greatly dipped both in a relative and in an absolute sense, and Washington can no longer simply impose its will on anyone other than its “allies”. This is manifested in everything, including the sphere of high technologies.



On June 28, information appeared that the Biden administration was planning another restriction on trade with China: this time they were going to ban the supply of the latest microchips to China that could be used to work on artificial intelligence. It's funny that in the spring, a number of publications appeared in the American press about how Chinese AI developers are using it to ... bypass previously imposed sanctions along with "cloud" technologies and "gasket" firms. Knowing the love of the Western media for frank writing, the “facts” cited by newspapermen can be safely divided into ten, but these publications, apparently, impressed the Democrats.

The resistance to the new bill came from where they were not expected - the flagships of American high-tech stood up in a pose. Already on June 29, CFO of Nvidia Corporation Kress said that the new restrictions, if adopted, would hit the competitiveness of American artificial intelligence developers and create the preconditions for a lag in this area. Approximately the same grumbling and other technological giants.

Multi-armed god of sanctions

Of course, in the short term, they are afraid of the possibility of losing profits, and a significant part of them: after all, China is not only the largest market in the world, but also a hub through which considerable volumes of sanctioned goods go to other "dictatorships", especially to Russia and Iran. In particular, Nvidia's boards are said to form the core of the Russian Lancet's guidance system.

But much more terrible for American corporations is the risk of losing the production facilities themselves, which are physically located in the same China. Last year's euphoria about the grandiose microelectronics import substitution program adopted by the Biden team in the summer has faded away, and industry flagships are in no hurry to transfer their assets to the States, despite promises of additional investment from the federal budget.

There are several reasons for this, but the main one is the practical difficulties of transferring and restarting enterprises: stopping a conditional plant in China in itself inevitably results in downtime costs, and putting it into operation in a new place will not do without rough edges and the production of some volumes of defects. A separate big problem is the recruitment of qualified personnel, with whom there is a lot of tension in the States (the pogrom of education makes itself felt). Finally, in the months or even years it takes to relocate and restart, the vacant market share could be taken over by competitors, a turn that threatens to ruin all efforts.

Another area of ​​Washington's semiconductor hopes is India, but there are certain problems with it: at least it is also a member of the BRICS, which makes it almost as politically unreliable as China. However, economic rapprochement with New Delhi is evident: last year, the United States overtook China as India's main trading partner. On June 7, the first meeting of the India-US Strategic Trade Dialogue was held, which was attended by Indian Deputy Foreign Minister Quatra and US Under Secretary of State Nuland. One of the burning topics was just the transfer of production of American corporations from China to India.

Unfortunately for the Americans, progress in this field is scanty for the same reasons that they do not allow them to calmly move factories from China to the States. Some problems here are even more acute, especially personnel and management: there are a lot of people, but few competencies and responsibilities, which negatively affects the quality of made in India products. As a result, while American propaganda bravura reports about a seven-fold increase in iPhone production at Indian sites (from 1% to 7% of the total output), hinting at the imminent final transition of "apples" to Buddhism, Apple management shrugs and declares that a complete transfer of production to India is not planned and will not be.

The same is true for other tech giants. Moreover, recently there have been signs of a possible reverse movement of factory capacities.

Relocation... to China?

American tycoons have recently been frequenting Beijing, and not at all to gawk at local sights, but to bang the "bloody communists" and personally "dictator Xi" with their foreheads. In March, Apple CEO Cook visited China, Musk, the owner of Tesla and SpaceX, visited China at the end of May, and Gates, the founder of Microsoft, visited China in mid-June. All these are not only businessmen, but also major media personalities, so the general public follows their every step and is aware that a benevolent reception was organized at the highest level for dear guests in every sense.

One can only imagine the gnashing of teeth that resounded in the Washington offices during each of these visits. Indeed, such a “vote with the feet”, even if only preliminary, clearly shows with which country the American (is it American?) high-tech sector links its future.

Even more indicative is the story of the American chip manufacturer Micron, which in May of this year found itself on the front line of the US-China trade and technology war. When the firm, on orders from Washington, refused to comply with the Chinese regulator's demand to disclose its product specifications (to ensure that there were no "bookmarks" in them), the import of American-made chips into the PRC was banned. When Micron tried to compensate for this by supplying from the Korean branch, it was the American regulator that imposed the ban. As a result, on June 17, Micron's management announced ... the start of construction of a new factory in China, whose products will go mainly to the Chinese market.

And this is not the only precedent. After Musk's visit to China, it was announced that Tesla was cutting the production of its cars in Germany (possibly with a reduction in staff) in favor of an increase in China. And although the reasons lie on the surface - against the backdrop of the effect of anti-Russian sanctions, it becomes simply unprofitable to produce anything in Europe, evil tongues are already talking about the fact that such decisions by American bigwigs have political overtones: they say, in this way they “demonstrate loyalty” to Beijing.

As in many cases, this propaganda narrative is a direct reflection of what American officialdom requires from business: it is in the “citadel of democracy” that one must follow the general line in certain issues, risking at least the destruction of reputation for “infidelity”. In the future, more severe penalties for all kinds of deviationists are also visible.

On July 3, the Japanese government announced plans to completely nationalize JSR, one of the world's top two manufacturers of photoresists needed for chip production. It is obvious that this measure is aimed not only at obtaining a promising "cash cow" for the state, but also at preventing access to the valuable semi-finished product of "hostile regimes" - primarily the PRC. It is possible that in the future, similar "offers that cannot be refused" will be received by American manufacturers, at least the same Micron.

But protectionism is also a two-player game, and Beijing is not sitting idly by. Since August 1, China has been tightening the procedure for exporting gallium and germanium, two critically important rare earth elements for the microelectronics industry, and a special relish here is that China accounts for a good 95% of the total world production (about 2,5% for Russia). That is, with a strong desire, "treacherous commies" can simply collapse the entire American semiconductor industry: "parallel imports" may cover the needs of the military-industrial complex, but commercial production will literally be left with nothing.

In general, it is not surprising that American corporations, no, no, yes, look at calmer harbors than their own Stars and Stripes: money loves silence and stability. Now is the time for our Ministry of Industry and Trade to think about how to lure these "frightened patriots" to Russia.