US lawmakers urge Japan to strengthen chip curbs on China

October 19, 2024
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US lawmakers urge Japan to strengthen chip curbs on China

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Key U.S. lawmakers are urging Japan to tighten restrictions on the sale of chipmaking equipment to China, warning that failure to act could lead Washington to impose its own curbs on Japanese companies or bar toolmakers selling to China from receiving U.S. semiconductor subsidies.

Key U.S. lawmakers are urging Japan to tighten restrictions on the sale of chipmaking equipment to China, warning that failure to act could lead Washington to impose its own curbs on Japanese companies or bar toolmakers selling to China from receiving U.S. semiconductor subsidies.

In a letter dated Oct. 15 to Japanese Ambassador to the U.S. Shigeo Yamada, top Republican and Democrat members of the House China Select Committee expressed their concerns.

Committee Chairman John Moolenaar and the panel’s top Democrat, Raja Krishnamoorthi, dismissed arguments that current restrictions have significantly harmed chip equipment companies like Tokyo Electron.

They emphasized the importance of cooperation between the U.S., Japan, and the Netherlands — the homes of the five most crucial semiconductor toolmakers — in curbing China’s chip ambitions.

The lawmakers pointed to increases in stock prices of Tokyo Electron, ASML, Lam Research, and Applied Materials, alongside U.S. and EU chip subsidy programs, as evidence of the limited impact of export controls.

These companies have benefitted from the artificial intelligence boom, and while they haven't received direct government grants from the U.S. Chips and Science Act, their customers like Intel and Samsung Electronics can use tax credits to purchase equipment for U.S. facilities.

Despite these measures, China remains a vital and lucrative market for all chip toolmakers, making officials in Tokyo and the Hague cautious about imposing further restrictions.

U.S. companies argue that tighter curbs from Washington give foreign competitors an unfair edge, highlighting the need for comparable measures from allies to avoid harming American industry.

The Biden administration has pressured Japan and the Netherlands to tighten their chip controls, aiming to prevent Beijing from accessing AI technology that could bolster its military.

U.S. officials want bans on Japanese and Dutch individuals maintaining and repairing advanced gear in China and restrictions on additional tool sales to match proposed U.S. regulations.

However, allies have resisted implementing new rules ahead of the U.S. presidential election. Japan, in particular, is concerned about negative impacts not just on Tokyo Electron but also on Toyota Motor, fearing China's retaliation could restrict Japanese automakers' access to critical minerals.

Export control discussions have so far focused on China’s ability to manufacture cutting-edge chips. Still, the lawmakers' letter also highlighted concerns about China's capacity to produce less-advanced processors — a key focus for Beijing after being cut off from the highest-end equipment. In response, the Biden administration increased tariffs on Chinese chips to 50% starting in 2025, indicating further actions might be necessary.

Moolenaar and Krishnamoorthi described chips as "the lifeblood of a modern economy and a modern military," stressing the need for a multilateral effort.

Without cooperation, they warned that shipments of U.S., Japanese, and Dutch chipmaking equipment could give Beijing a "functional veto over our nations’ ability to produce our weapons systems and modern consumer goods."

While preferring a multilateral solution, the lawmakers noted that the U.S. has other options, including invoking the foreign direct product rule (FDPR) to regulate goods made overseas with American technology.

The Biden administration had considered this during summer negotiations but exempted key allies in the latest proposal.

The letter also mentioned potential Treasury Department actions or additional guardrails on Chips Act funding, suggesting restrictions on funds to companies or countries shipping sophisticated semiconductor equipment to China.

This interest in adding more rules to the Chips Act, signed by Biden in 2022, has been ongoing, with earlier proposals aiming to bar funding recipients from purchasing Chinese tools for U.S. facilities.

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