All eyes remain on the U.S.-China relationship as industry waits for the next move in what the Council on Foreign Relations has dubbed one of the world’s most important and complex bilateral relationships. On Tuesday, the U.S. Departments of Commerce and Defense signed a memorandum of agreement intended to strengthen the U.S. semiconductor defense industrial base. The goal: share information to ensure both departments’ investments under the CHIPS for America’s incentive program produces semiconductor chips essential to national security and defense programs.
The agreement comes just three weeks after China announced new export controls on gallium and germanium products - both of which are essential inputs in developing advanced technologies across the electronics, defense, and renewable energy sectors, including semiconductor manufacturing. China’s new export license requirements take effect on August 1.
The new license requirements follow the U.S.’s export controls to restrict China’s access to high-performance chips and semiconductor manufacturing items announced in October 2022. While U.S. action was initially unilateral, both the Netherlands and Japan have followed suit with the announcement of new export restrictions on advanced semiconductor equipment, which are principally aimed at China. While the United States’ export controls apply only to U.S. persons or activities within the U.S., China’s license requirements apply to all exports of controlled gallium and germanium products.
The effect: increased costs for industry. Whether companies decide to continue exporting gallium and germanium from China, attempt to source the metals from other countries, or reconfigure designs to use available substitutes, costs will increase (at least in the short term).
Industry should continue tracking geopolitical developments closely to help anticipate the potential impact of further strained relations between the U.S. and China or global supply chains.