The US-China chip war is still escalating

This story first appeared in China Report, MIT Technology Review's newsletter about technology developments in China.Sign upto receive it in your inbox every Tuesday.

The temperature of the US-China tech conflict just keeps rising.

Last week, the Chinese Ministry of Commerce announced a new export license system for gallium and germanium, two elements that are used to make computer chips, fiber optics, solar cells, and other tech devices.

Most experts see the move as China's most significant retaliation against the West's semiconductor tech blockade, which expanded dramatically last October when the US limited the export to China of the most cutting-edge chips and the equipment capable of making them.

Earlier this year, China responded by putting Raytheon and Lockheed Martin on a list of unreliable entities and banned domestic companies from buying chips from the American company Micron. Yet none of these moves could rival the global impact of the gallium/germanium export control. By putting a chokehold on these two raw materials, China is signaling that it, in turn, can cause pain for the Western tech system and push other countries to rethink the curbs they put on China.

But as I reported yesterday, China's new export controls may not have much long-term impact. Export control is not as effective if the technologies are available in other markets," Sarah Bauerle Danzman, an associate professor of international studies at Indiana University Bloomington, told me. Since the technology to produce gallium and germanium is very mature, it won't be too hard for mines in other countries to ramp up their production, although it will take time, investment, policy incentives, and maybe technological improvement to make the process more environmentally friendly.

So what happens now? Half of 2023 is now behind us, and even though there have been a few diplomatic events showing the US-China relationship warming up, like trips to China made by US officials Antony Blinken and Janet Yellen, the tensions on the technological front are only getting worse.

When the US instituted its chip-related export restrictions in October, it wasn't clear how much of an impact they would have, because the US doesn't control the entirety of the semiconductor supply chain. Analysts said one of the biggest outstanding questions was the extent to which the US could persuade its allies to join the blockade.

Now the US has managed to get the key players on board. In May, Japan announced that it is limiting the export of 23 types of equipment used in a variety of chipmaking processes. It even went further than the original US rules. The US limited the export of tools for making the most cutting-edge chips-those of the 14-nanometer generation and under. Japan's restrictions extend to older, less-advanced chip generations (all the way to the 45-nanometer level), which has the Chinese semiconductor industry worried that production of basic chips used in everyday products, like cars, will also be affected.

At the end of June, the Netherlands followed suit and announced that it will limit the export to China of deep ultraviolet (DUV) lithography machines used to pattern chips. That's also an escalation of the previous rules, which since 2019 had only limited export of the most advanced extreme ultraviolet (EUV) lithography machines.

These expanding restrictions likely prompted China to take a page from its enemies' playbook by instituting the controls on gallium and germanium.

Yellen's visit last week shows that this back-and-forth retaliation between China and the US-led bloc is not ending anytime soon. Both Yellen and the Chinese leaders expressed their concern at the meeting about the other side's export controls, yet neither said anything about backing down.

If more aggressive actions are taken soon, we may see the tech war expand out of the semiconductor field to involve things like battery technologies. As I explained in my piece on Monday, that's where China would have a larger advantage.

Do you believe the technological tensions between the US and China will worsen from here? Let me know your thoughts at zeyi@technologyreview.com.

Catch up with China

1. Tesla is laying off some battery manufacturing workers in China as a result of the cutthroat electric-vehicle price competition in the country. (Bloomberg $)

2. China's top EV maker, BYD, is building three new factories in Brazil to make batteries, EVs, and hybrid cars. They will be built at the location of an old Ford plant. (Quartz)

3. Shenzhen, the city often seen as the Silicon Valley of China, is facing population decline for the first time in decades. (Nikkei Asia $)

4. Five people were arrested by the Hong Kong police for involvement in creating an online shopping app to map out local businesses that support the pro-democracy movement. (Hong Kong Free Press)

5. There's now an official app for learning how to do journalism in China-with online courses taught about the Marxist view of journalism, why the party needs to control the press, and how to be an influencer-style journalist." (China Media Project)

6. During her visit, Yellen sat down for dinner with six female Chinese economists. Then they were called traitors online. (Bloomberg $)

7. A new study says a rapidly growing number of scientists of Chinese descent have left the US since 2018, the year the US Department of Justice launched its China Initiative." (Inside Higher Ed). An investigation of the initiative by MIT Technology Review published in late 2021 showed it had shifted its focus from economic espionage to research integrity." The initiative was officially shut down in 2022.

8. Threads, the new Twitter competitor released by Meta, hit the top five on Apple's China app store even though Chinese users have to access the platform with a VPN. (TechCrunch)

Lost in translation

On July 5, the famous Hong Kong singer CoCo Lee died by suicide after having battled depression for several years. The tragic incident again highlighted the importance of depression treatment, which is often inaccessible in China. As the Chinese publication Xin Kuai Bao reported, fewer than 10% of patients diagnosed with depression in China have received any kind of medical treatment.

But in recent years, as several patents for popular Western brand-name depression drugs have expired, Chinese pharmaceutical companies have ramped up their production of local generic alternatives. There's also a fierce race to invent home-grown treatments. Last November, the first domestically designed depression drug was approved for sale in China, marking a new era for the industry. There are 17 more domestic treatments in trials right now.

One more thing

Every time high-profile US visitors come to China, Chinese social media always fixates on one thing: what they ate. Apparently, Janet Yellen is a fan of the wild mushrooms from China's southwest border, which her group ordered four times in one dinner. The specific mushroom, called Jian Shou Qing in China, is also known for having psychedelic effects if not cooked properly. Now the restaurant is cashing in by offering Yellen's dinner choices as a set, branded the God of Money" menu, according to Quartz.