Gina Raimondo Admits China Sanctions a “Fool’s Errand” After 4 Years of Failure but Her Boss Doesn’t Agree
Summary
U.S. sanctions have unintentionally driven China's focus on legacy chips, with domestic production surging and IC imports dropping from $415.6 billion in 2022 to $349.4 billion in 2023, highlighting increased self-sufficiency.
Equipment hoarding by Chinese firms, in anticipation of tighter restrictions, fueled record-high revenues for key suppliers in 2023 and 2024, with China's share of WFE sales exceeding 40% in several quarters.
Sanctions have catalyzed the growth of China's domestic equipment industry, which saw a 37.1% YoY revenue increase in 2024, compared to just 2.7% growth for non-Chinese competitors. This expansion solidifies China's position in legacy chip production while reshaping global market dynamics.
Sanctions against Legacy Chips and Nvidia AI Chip will further damage the U.S. semiconductor industry.
Introduction
The U.S. sanctions on China's semiconductor industry, intended to curb China's access to advanced chip-making technologies, have largely backfired. Instead of hindering progress, these measures have spurred rapid growth in China's domestic legacy chip production and equipment manufacturing industries. While the sanctions restricted sales of cutting-edge tools, they inadvertently catalyzed an expansion in legacy chip production, which is now dominating the global supply chain. This scenario underscores the unintended consequences of U.S. policy, raising questions about its effectiveness and long-term impact on Western semiconductor companies and the global market.
Background to Failure
According to the Oxford English Dictionary, a “Fool’s Errand” is defined as “a task or activity that has no hope of success; a fruitless undertaking.” I bring this up because according to the Wall Street Journal:
“Four years after the Biden administration made the race for chip manufacturing a top priority, Commerce Secretary Gina Raimondo says efforts to restrict China’s access to technology hasn’t held back the country’s progress, and federal funding for domestic innovation is what will keep the U.S. ahead of Beijing.
“Trying to hold China back is a fool’s errand,” she said in an interview.”
Now far be it from me to assume that Raimondo is calling herself a “Fool.” Yet the United States earlier this month launched its third crackdown in three years on China's semiconductor industry, curbing exports to 140 companies.
Similarly, often associated with Albert Einstein is the definition of Lunacy - “Insanity is doing the same thing over and over and expecting different results.”
Now a Biden Probe on Legacy Chips?
Now just three weeks before leaving office, Biden and his administration announced on Monday a last-minute trade investigation into older Chinese-made "legacy" semiconductors. “Legacy" or mature chips are those produced using older technology and larger nodes than chips used in AI applications or sophisticated microprocessors.
Amid U.S.-imposed restrictions on access to advanced technologies, Chinese companies are ramping up production of legacy chips, sparking concerns in the West about the risk of long-term oversupply. ASML's Fouquet highlighted that while global demand for these chips is surging, their production offers slim profit margins, leading to insufficient investment from Western firms.
China's strategic emphasis on enhancing its legacy chip production capabilities is closely linked to its IC import and export activities. The expansion in domestic manufacturing of mature semiconductors aims to reduce reliance on imports, particularly in the face of international trade restrictions and sanctions.
This shift is evident in the declining import values and the substantial increase in exports, as China seeks to bolster its position in the global semiconductor supply chain.
Imports: In 2023, China imported integrated circuits valued at $350 billion. As of October 2024, the import value was lower year-on-year, reflecting a trend towards increased domestic production and self-sufficiency, as shown in Table 1.
Exports: In 2023, China's IC exports amounted to over $136 billion, highlighting the country's growing role as a significant player in the global semiconductor market, according to The Information Network’s report Mainland China’s Semiconductor and Equipment Markets: Analysis and Manufacturing Trends.
