Chipmakers Are Right. Cutting Off China Will Backfire.

Tightening restrictions on semiconductor exports to China, as advocated by some US chipmakers and the Biden administration, may have unintended negative consequences. The concern is that such actions could lead to retaliation from China and strain relationships with other US chip-making allies. Additionally, these restrictions could hinder President Joe Biden’s efforts to promote more chip manufacturing within the United States.

President Biden’s semiconductor strategy centers around two main goals. The first is to limit China’s access to semiconductors, particularly for military purposes. The second objective, reflected in the Chips and Science Act signed into law, aims to reduce US vulnerability to supply chain disruptions in East Asia by encouraging chipmakers to invest in research, development, and production within the US.

China is a significant market for commodity semiconductors, accounting for a substantial portion of companies like NVIDIA and Qualcomm’s global revenues. The demand for high-end chips used in artificial intelligence systems contributes to the growth of these companies, and their stock prices have benefited from the expectation of continued access to the Chinese market.

In conclusion, cutting off China’s access to semiconductors could have far-reaching implications for both the US semiconductor industry and international relations. The situation is complex, and finding a balanced approach that addresses national security concerns while maintaining economic cooperation is a challenging task for the Biden.

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