US sanctions backfire again. China is stronger as a result. 
US-China Chip War Snips
The US makes up a significant portion of global manufacturing capacity for that semiconductor machinery, but it by no means has a stranglehold on the market—and in many areas, American firms still lag. That means DC is highly dependent on cooperation from its allies with key chipmaking equipment manufacturing centers for its sanctions policies to be successful—and the most important of those allies are the Netherlands and Japan.
The Netherlands is the headquarters and manufacturing home of ASML, the world’s leading semiconductor equipment giant and primary maker of key lithography equipment. In 2023, 29% of ASML’s total system sales were to China, up from only 14% in 2022, while the company’s net system sales rose more than 42%. That has shown up as a massive increase in chipmaking equipment exports from the Netherlands to China, which exceeded $5.8B in 2023. While none of those shipments represent the absolute-cutting-edge Extreme Ultraviolet Lithography (EUV) machines that ASML is famous for—the company has been effectively banned from shipping those to China for years—they do represent significant quantities of less-advanced lithography machinery that remain useful for a wide range of chip production. In 2023, the 176 machines bought from the Netherlands made up 85% of the dollar value of the PRC’s imports of “other apparatus used to project circuits.”
US imports of semiconductor equipment, while robust compared to pre-pandemic levels, are currently nowhere near the level or growth rate of Chinese imports. That’s in part thanks to significant delays among a wide range of CHIPS Act construction projects that now plan to open behind schedule.
The Chinese government and military have already been able to acquire some of the highly-coveted NVIDIA A100 and H100 chips American sanctions were designed to keep them from buying, and NVIDIA is rumored to be making more chips explicitly for the Chinese market with capabilities designed to come just under new US export restrictions. The US is continually playing whack-a-mole to wrangle the trading firms that enabled those acquisitions, as well as other possible methods of circumventing sanctions like via cloud computing services. America has also struggled to fully reign in foreign chip investment to China, with Korean chipmakers Samsung and SK Hynix alongside Taiwan’s TSMC negotiating essentially indefinite permission to import chipmaking equipment to their China-based factories. China’s leading domestic semiconductor manufacturer SMIC has already made an attention-grabbing breakthrough with the manufacture of 7nm chips used in new Huawei cell phones, and even though this was cobbled together using old foreign equipment and may not be ready for the limelight of long-term production it still represents a significant breakthrough that came much faster than observers expected. Plus, China is steadily reducing its reliance on imported chipmaking equipment, with domestic suppliers now eating into the market share once held by foreign firms.
The US-China trade war has only continually ratcheted upward over time, and the level of industrial policy spending and intensity of trade restrictions in place now would have been unthinkable even 10 years ago. Both countries are currently paying those costs, and it remains to be seen if either will be able to reap rewards from victory.
Trade Policy
The US is far ahead of China on technology, but China is gaining ground faster than anyone thought.
The US wanted to restrict China’s access to 7nm chips but now it appears China is making its own 5bn chips, and the smaller the better.
China Poised to Break 5nm Barrier
On December 8, Tom’s Hardware reported China Poised to Break 5nm Barrier
Chinese foundry SMIC may have broken the 5nm process barrier, as evidenced by a new Huawei laptop listed with an advanced chip with 5nm manufacturing tech — a feat previously thought impossible due to U.S sanctions.
When TSMC began to produce chips made on its N5 (5nm-class) fabrication technology in mass quantities in early Q2 2020, Huawei was not blacklisted by the U.S. Department of Commerce, and the foundry could still ship 5nm chips — which it did in huge volumes. Huawei formally introduced its TSMC N5-based Kirin 9000 SoC in late August 2020 and confirmed that the chip was made in Taiwan.
There are many similarities between the Kirin 9000 and the Kirin 9006C, which some might argue indicates Huawei is leveraging stock it obtained three years ago for its current PCs. While this could be true, keeping a massive quantity of premium processors (which were expensive to make on TSMC’s then leading-edge node) for three years doesn’t make a lot of sense, especially bearing in mind that the original Kirin 9000 featured a built-in 5G modem (something the Kirin 9006C presumably lacks) and could be used for a premium smartphone rather than for an inexpensive laptop. As such, it is possible that the company has turned to SMIC to create the processors.It isn’t entirely surprising that SMIC could have broken through the 5nm barrier, as persistent industry chatter has indicated the foundry is close to further exceeding the limits imposed by US sanctions. “SMIC is preparing a 5nm process through DUV, and photomask usage is expected to increase further,” an expert in the semiconductor industry recently told The Elec.
Sanctions did not restrict China’s access to chips, Instead it forced China to make its own.
The US still has a big lead in the most advanced chips, but 5nm chips are quite good for most purposes.
On March 22, 2022 PC Mag reported Nvidia’s Latest GPU Boasts a 4-Nanometer Process From TSMC, PCIe Gen 5
2nm chips are on the horizon. But expect delays.
On September 24, 2023, Yahoo!Finance reported TSMC’s 2nm Chip Production Potentially Delayed Amid Global Semiconductor Slowdown.
Taiwan Semiconductor Manufacturing Company (TSMC), the world’s leading semiconductor foundry, may experience a delay in its planned 2nm chip production. Originally slated for 2025, the production could be postponed to 2026 due to a slowdown in the construction of a new plant in Hsinchu Baosha, Taiwan. The delay appears to be linked to a broader global deceleration in semiconductor demand.
The transition to 2nm technology is a significant step for TSMC as it will introduce Gate-all-around (GAA) transistors. These transistors, which will replace the existing FinFET transistors, utilize vertically stacked nanosheets that allow the gate to interact with the channel from all sides. This design innovation is expected to reduce energy consumption and current leakage while enhancing drive current.
Samsung (KS:005930) Foundry has already integrated this GAA technology into its 3nm node, but TSMC intends to debut this technology with its 2nm chips. However, TSMC has disputed reports suggesting a delay in their 2nm chip production, possibly due to competitive pressures. Samsung Foundry remains on schedule to launch its 2nm chips in 2025 and has plans to start 1.4nm production by 2027.
The Incentive to Break Sanctions
China lags the US in technology, but the direct result of sanctions is China now produces its own chips instead of buying them from the US.
As Politano notes “The US is continually playing whack-a-mole to wrangle the trading firms that enabled those acquisitions.”
And US imports of semiconductor equipment, despite the Inflation Reduction Act is behind China’s imports of semiconductor equipment.
How Russia Makes a Mockery of US Sanctions in One Picture
Unprecedented US and EU sanctions against Russia have had no impact on Russia’s oil exports or revenue. Who’s the beneficiary?
On December 29, 2023 I noted How Russia Makes a Mockery of US Sanctions in One Picture
On September 19, 2023, I commented Lesson of the Day: Sanctions Don’t Work Because They Create New Markets
Foreign Policy: “Since Russia’s invasion of Ukraine, Greece’s mighty shipping sector has continued to earn good money shipping Russian oil. But Greek shipowners have discovered an apparently even more lucrative source of revenue: selling the ships themselves to mysterious buyers linked to Russia. One publication has declared that a “Great Greek Tanker Sale” is taking place, and no price seems too high for a secondhand tanker. But the formerly Greek ships are entering a Hades-like shadow economy.”
Lesson Number Two
Countries, political leaders, and market makers act in their best interest.
It is in the best interest of Greek shippers to sell ships so they do. It is in the best interest of India and China to buy Russian oil and Greek ships so they do.
It is in the best interest of Dubai middlemen to make a market in ships so they do.
What this boils down to is simple: It is the best interest of middlemen in Greece, Russia, India, China, and Dubai to tell Biden to go to hell, so they do.
Why Sanctions Fail
- Someone always has an incentive to break sanctions.
- Sanctions create new markets.
This is how Russia sells oil and how China gets access to equipment and parts.
In the case of chips, the US has forced China into a path to self-sufficiency. Hooray?!
Two points….
1) The tech guys are sooooo caught up in what was once a major difference in chip performance from one generation to the other. a 5nm process produces probably 95% of all the worlds useful chips. a 2nm process, while technologically better, will not yield the incremental change in performance, other than a few applications. The VAST majority of chips @ 5nm are more than adequate. Yet another instance of politicians not understanding tech with the CHIPS act
2) Speaking of technology, at a nano scale, material properties change. We are going to start bumping into these limits as they use Super Ultraviolet technology to lithograph these wafers.
There is a lot more to be gained by developing the quantum computing capability and commercialize that. When you realize these can crack all known encryption, including SSL, the encryption used on the fedwire system, and even the BtC blockchain….its only a matter of time until some rogue government gets this technology to own/disrupt literally every aspect of modern life. And I am the furthest away from a chicken little you can be….
Russia and Iran were getting around sanctions through insurance. Oil tankers have to show proof of liability insurance against spills and accidents to enter major ports.
From What’s Going on With Shipping?
Feb 11, 2024 and Feb. 16, 2024
US Insurer Covers Oil Tankers Suspected Of Violating Iran, Russia Sanctions
The state of the maritime industry is a disaster.
US Container Import Volumes Surge Amid Global Supply Chain Challenges
Mike Schuler
OPED: The Urgent Need for U.S. Maritime Reform
Editorial
Mike Gallagher Letter to TRANSCOM and MARAD
and wait until China officially takes over the leader in chip production – Taiwan
Interesting analysis by Peter Zeihan explaining why Intel may be about to leapfrog TSMC as the world’s leading high-end manufacturer this year….
link to youtube.com
For some reason I cannot fathom the US Government truly believes that writing up sanctions is the same as a physical embargo. In Washington DC ego and hubris know no bounds.
and for Merika – china then restricts chips to US
how long before XI gambit to bankrupt merika happens??
tic toc
India entered the chip industry, to serve everything digital and their defense industry,
India became a high tech country that competes with China. The globalists are behind
the curve.
America has been using sanctions, restrictions, access, amongst other forms of economic leverage for many decades. China is just one of several Countries, trying to be abused, if you will.
The problem has become the lack of leverage. The days when America was a dominant force in the World are gone. It has gotten much larger, and with many more parts moving, and in many more Countries.
Nuclear war is a deterrent now by the World, and no longer a usable force of strength, and especially when the much smaller Countries gain access to them (Think of S. Korea, and their advantages). The letters WMD have real meaning, and true destruction.
Economic strength is where it’s at. The ability for mass construction of like items, and in a moments time, is where it’s heading worldwide and where we are at now here. Hence the focus on supply chain management (SCM) over the past 4 decades I have spent within it myself anyway. From the early days of excel and others, to JIT etc. as we learned the value of computers and their power.
In many ways, the “Green Initiative” has not only hindered our production abilities, but also our economy in countless and destructive ways. This has also exposed many weaknesses in Americans ability to control our energy, in critical times (Think EU).
America via the Feds (Biden Inc.) sprung, by force backed with incentives, into full blown changes to our economy and economic ways of life. When they did so, we were not yet ready as a nation, and labor cost is too high, the current way it’s structured.
We fell for Windmills and Solar Panels, but no way of building them ourselves, and the quality of such products of the future, for our Countries energy needs. We fell for EV’s, but have no access to the materials we would need, or the manufacturing capabilities at the cost required to do so. In this case, we also have practically zero infrastructure built, even today, to come even remotely close to our requirements. Maybe should have done that first, as we worked on the technology, knowing the need is there to be serviced already?
On top of this, we have speculation now, that people are selling out information about our country, economy, and energy needs including electricity… JS!
The list goes on and on…
America graduates lots of lawyers.
China, Russia and India graduate lots of engineers.
there was a story went round when us began implementing mileage standards. chrysler hired 100 lawyers, toyota hired 100 engineers
And, next up, if Trump wins, MORE TARIFFS! There are plenty of idiots to go around in Government circles.
I am looking forward to America looking after its own interests.
The day foreign labor is more expensive than American, this will happen.
Welcome to “Money is free speech”
Not to rain on this topic’s parade, but a new find in Wyoming amounts to 20 year supply of global rare Earth supply – link to wsj.com
The U.S. has also had two recent gargantuan Lithium discoveries.
What we don’t have is cheap labor, I’ll guess companies like Boston Dynamics are on it.
That fixes our troubles with China’s stranglehold over us, now for Russia & OPEC as Biden has just stopped new contracts for NG exports, which is why domestic NG is plummeting.
I guess all that’s needed is labor. Wyoming doesn’t have enough.
link to cowboystatedaily.com
I’m sure there are a few college grads looking to do the jobs, for the right price, now, back to building that wall!
Yeah about that 20 year of global earth supplies…
– The discovery of 2.34 billion metric tons of rare-earth elements
> How did they weigh that so fast, and so accurately?
– near Wheatland, Wyo.,
> When they are not even sure where it’s at, specifically?
– signals the beginning of a new era in the competition for the raw materials that power the global economy.
> Where is all of this competition of rare earth materials coming from? I wasn’t aware we knew the Worlds Needs either?
– If wisely exploited, this find—
> How wisely exploited specifically, because I wouldn’t count on that necessarily.
– estimated to be the richest in the world—
> Hmm.. so we really and truly have no clue at all, what’s specifically in the ground in all do we?
– will give the U.S. an unparalleled economic and geopolitical edge against China and Russia for the foreseeable future.
> Not sure how an advantage is obtained, when it sounds like they don’t have a clue as to what they are speaking about?
This all reads like conjecture to me…
In reference to Taiwan, here’s a good point made on another blog by an American going by [VXXC]:
A few years ago, the story was that the PRC was hiring lots of Taiwanese chip talent by paying very, very good money. I wonder what happened to that story. Too, I wonder at all talk of blowing up Taiwan chip factories so the PRC can’t take them in an invasion. Long term, who cares? It’s the people – the talent – that count.
Countries need a mechanism to low-level-joust with other countries while avoiding serious warfare. Economic sanctions seem to be popular for this purpose. Gotta be a better way.
China employs over 20,000 engineers from Taiwan still today.
Only a politician, secure in the knowledge that the voters are ignorant, believes in the efficacy of sanctions.
Agreed. Sanctions simply encourage work-arounds.
It’s believed that the sanctions that us imposed on Japan before World War II is what led to Pearl Harbor
Sanctions turn customers into competitors.
It is especially dumb for “Joe Biden” to try to sanction China when the US does not have a monopoly on chip-making. Indeed the US is desperately dependent on other countries for chips and chip-making equipment.
Sanctions might work if a country had an effective monopoly on manufacturing the item. But the US Political Class threw away that advantage decades ago. Yeah! Unilateral Free Trade! It killed the British Empire, so let’s have the US ignore the lessons of history and make the same mistake.
Prohibition and bootleggers. Nothing changes, than and now.
And human trafficking.
“The US still has a big lead in the most advanced chips, but 5nm chips are quite good for most purposes.”
What a word salad, mixing chip design, chip manufacturing technology and processes, and chip categories.
Intel could design processors and outsource all production.
ARM sells mobile processor designs, and makes none.
TSMC uses its most advanced technology to make mobile phone chips, but wouldn’t waste it on anything that require more robust application. Also likely imports most of its equipment and software just like China.
Legal prohibition of medicines and recreational drugs provide the same incentives as sanctions. They create markets for illegal drugs. They create enormous profits for those who supply the market and develop the market. Illegal drugs are promoted by Hollywood and television. Sanctioning recreational drugs also creates do nothing police jobs. All this to satisfy the puritan ethic. Pleasure is bad. Suffering is good.
Not a Calvinist, eh?
This is part of the story. The other part is that western nations seem to be desperately trying to get TSMC to rapidly construct gigafab chip factories in Japan, the US (Phoenix), and elsewhere as fast as possible.
So that when the Taiwan invasion goes down, the loss of the four TSMC gigfab facilities isn’t quite as catastrophic for the world where every state-of-the-art device runs on these critical TSMC advanced microchips.
only problem is Japan has HUGE labor shortages and they aren’t getting any better as time goes by…
link to bloomberg.com
Want to guess what the key problems is? An aging population.
Also: The place where demand is the highest for people well versed in whatever is TSMCs latest cutting edge; is the place where such chips is harder to come by…
Taiwan has a size problem: Unlike the US back when it was the across-the-board chip leader:Taiwan is simply not big enough to host a dominant player like Intel,or even TI and Motorola back when.
The US is still where most chips are designed; since that’s where the most consequential customers and workloads are centered.
China, OTOH, is big enough that it hosts its own full-stack ecosystem. There’s room for manufacturers and engineers across the entire span; from litho like the Dutch; to fabs like Taiwan, to Huawei and TikTok like end user consumer products like the Americans. They even have an “infinite resource” “cost no object” customer in the military,just like the US. AND: Whatever they do, they’ll do it much more efficiently than the current “double the cost of everything to pay rent, lawyers and silly political mandates/lobbying” West.
So the Taiwanese are right to be wary of being too standoffish, despite China’s not exactly confidence inspiring behavior towards Taiwan: TSMC don’t want to be tied to a sinking ingot like The West; once the rest of the world can get effectively the same stuff for half the price, from Chinese makes. It’s going to be hard enough keeping ahead of Chinese upstarts as it is; even without unnecessarily hamstringing themselves in a futile Hail Mary serving no other purpose than extending The West’s delusion of its own centrality for another few increasingly desperate years,