Semiconductors and Export Controls: The Time to Act is NOW

Earlier this week, Reuters wrote in an exclusive that the Biden administration is going to “hit China with broader curbs on U.S. chip and tool exports” next month. There have been several stories that the administration is considering actions of this sort, so suggesting that it is imminent is encouraging. However, the timing and scope are concerning – a point that is underscored by a new report that finds America “is approaching a ‘critical moment’ in the global technology race, and the price of losing could be a world beholden to China.”

Chinese military-aligned fabs like YMTC and CXMT need American-made semiconductor manufacturing equipment (SME) to advance, and they depend on firms like KLA Corp, Lam Research, and Applied Materials – all of which were named in the Reuters piece as companies that would be impacted by the export controls. And as Will Hunt, a former researcher for CSET who is now a Special Advisor for Policy in the Commerce Department’s CHIPS Office, previously told China Tech Threat, “YMTC does actually rely on tools that only the United States can make” and specifically cited an etch tool made by Lam.

While China needs U.S. tools now, it’s no secret that they want to be self-sufficient, so they need to find a way to make these tools themselves. Sending them state of the art chip making tools fast-tracks their ability to reverse engineer the means of production. To that point, Hunt and his then-CSET co-authors, including Saif Khan, who is now Director for Technology and National Security for the National Security Council, wrote that “The United States and its allies should export control advanced SME itself, especially any SME that China has yet to acquire. These controls would deny China the ability to reverse-engineer SME, an important source of explicit knowledge. Controls on SME would also slow the development of advanced Chinese fabs, weakening China’s semiconductor ecosystem.”

The Reuters report is focused on one part semiconductor market, logic, the so-called “brain” functioning of chips, while memory chips perform the “brawn”, or processing functions. Both are critical and deserving of national security scrutiny. YMTC is China’s play for the NAND memory market, and U.S. machines have helped fuel its rise. There were rumors that Commerce was mulling a “crackdown” that focused on memory, and that “U.S. officials would ban the export of tools to China used to make NAND chips with more than 128 layers.”

Just after that news broke, YMTC announced that it could produce a 232-layer chip. This not only put it on the heels of major, global competitors but also shows that the U.S. is moving too slowly. YMTC got another notable boost after it was reported that Apple will use YMTC chips in the iPhone 14. While it seems this will only happen in the Chinese market (for now), that should not be a source of comfort. Without further U.S. action, it’s only a matter of time before YMTC chips enter into Apple products destined for the U.S.

Tom’s Hardware observes, YMTC getting a contract with Apple is a “big deal . . . It is going to take a while for YMTC’s latest products to mature and get into Apple’s other products. But considering specifications offered by the company’s latest 3D NAND devices as well as Apple’s expertise in 3D NAND and controllers, YMTC’s have all chances to land into iPads or Macs at some point.” And, Apple’s endorsement of YMTC gives the state-subsidized chipmaker the stamp of approval for other device makers.

Yesterday, Sen. Tom Cotton called out Apple CEO Tim Cook for his “ill-advised plans to do business with a dangerous Chinese chipmaker.” He’s the latest in a growing, bipartisan chorus of lawmakers – including Senate Majority Leader Chuck Schumer – who are very concerned about YMTC specifically.

If the U.S. government – notably the Commerce Department and its Bureau of Industry and Security – are serious about protecting America’s strategic interests, they need to move quickly. Retaining semiconductor leadership requires controls related to logic and memory chips and putting Chinese military fabs on the Entity List now.