Chip curbs will backfire to hurt US firms

The United States Department of Commerce recently announced the revocation of the "validated end-user "authorization for TSMC, Samsung Electronics and SK Hynix, which will take effect at the end of the year.

The move, which comes after a similar revocation for Intel, means the four chipmakers will have to apply for licenses to ship US chipmaking tools to their plants in China, dealing another blow to the global semiconductor industry that is still reeling from the disruptive effects of previous US restrictions.

Although the US administration has been hitting the pause button in the Sino-US tariff war of late, that does not mean it has stopped racking its brains to impose new restrictions on the chip trade with China, one of the largest chip markets in the world.

The latest revocation of the VEU status for the four semiconductor companies operating in China is further proof that the US is willing to hurt not only other countries' industries and companies but also its own in its bid to contain China's technological progress.

The VEU system, established in 2007, was designed to facilitate exports of certain items to pre-approved companies in eligible destinations without the need for individual licenses. By canceling the VEU status for the four chipmakers, the US administration is effectively forcing them to go through the time-consuming and uncertain process of applying for export licenses for their China operations.

This will not only disrupt the production of these companies in China, but also affect their US customers and suppliers.

For example, TSMC's plant in Nanjing, Jiangsu province, which generated about 2.4 percent of its overall revenue last year, makes 16-nanometer and other mature node chips. The revocation of its VEU status will likely reduce sales to China by US equipment makers such as KLA, Lam Research and Applied Materials. Moreover, it will increase the costs and risks for the four chipmakers, which have invested billions of dollars in their China facilities and have a significant share of the global market.

The US administration's decision is both ill-timed and illogical. Chinese Vice-Minister of Commerce Li Chenggang just concluded a visit to the US, during which he communicated with not only US trade officials but also representatives of US entrepreneurs. The outcomes of these contacts have served to prove that Sino-US trade is of a win-win nature. The US administration will inevitably hurt US interests with its China-targeted measures.

The US should address its trade disputes with China through consultations rather than applying coercive practices for what it perceives to be gains. By abolishing trade facilitating mechanisms, it is doing nothing but setting obstacles for relevant enterprises.

The US administration should take into account that China's innovation and development, particularly in the middle- and lower-end chip industries that are related to the VEU authorizations, will not be affected as much as it expects.

Besides, the US administration's move to tighten the screws on the four companies at this moment seems to be driven by its desire to fleece them. By canceling the VEU, the four companies' applications to deal with China in relevant sectors will be no different from those that are still awaiting approval in the long waiting list of the US departments. This will provide the US government with leverage to extract concessions from them. It has already imposed a de facto 15 percent fee on Nvidia and AMD for allowing them to trade with China.

China's Ministry of Commerce has voiced clear-cut opposition to the US decision.

"The US move, driven by self-interest, has turned export controls into a tool, and will have a serious negative impact on the stability of global semiconductor industry and supply chains," said a spokesperson for the ministry on Saturday.

As the spokesperson rightly pointed out, the semiconductor industry is highly globalized, having developed over decades into a deeply interconnected ecosystem. The US administration's attempts to disrupt this ecosystem will only backfire, as it will undermine the competitiveness and innovation of the US semiconductor industry in the long run.

China will take necessary measures to firmly safeguard the legitimate rights and interests of its enterprises, and to ensure the security and stability of global industry and supply chains.