U.S. and Japan face disconnect over further China chip controls

Trilateral with South Korea produces agreement on supply chain cooperation

From left, Japanese Economy, Trade and Industry Minister Ken Saito, U.S. Commerce Secretary Gina Raimondo,
and South Korean Trade, Industry and Energy Minister Ahn Duk-geun in Washington on June 26.
(Photo by Shunsuke Ushigome)

 

WASHINGTON -- The U.S., Japan and South Korea have agreed to work together to strengthen their supply chains for critical goods, including high-tech chips, but stopped short of tightening trade curbs against China despite Washington's efforts.

U.S. Commerce Secretary Gina Raimondo, Japanese Economy, Trade and Industry Minister Ken Saito, and South Korean Trade, Industry and Energy Minister Ahn Duk-geun discussed supply chain cooperation Wednesday at their first trilateral meeting in Washington.

With the presidential election approaching, the Biden administration has toughened its stance on trade with China, taking such steps as raising tariffs on electric vehicles. Alan Estevez, the U.S. undersecretary of commerce for industry and security, put pressure on Japan's trade ministry about its semiconductor export restrictions during a visit there last week.

In a joint statement after Wednesday's meeting, Raimondo and her counterparts made implicit references to China, such as a mention of "concerns over recent non-market measures" that risk disrupting supplies of critical minerals.

In an expanded meeting the same day that also included a European Union official, participants took "great interest" in Chinese overproduction of less-advanced legacy chips, Saito said.

Washington, Tokyo and Seoul agreed to focus on supply chain reliability and sustainability, not just low prices, in the support they provide to their respective semiconductor industries. But the statement mentioned nothing about the tougher export restrictions that the U.S. had pushed for behind the scenes.

The U.S. and Japan have differing intentions for these curbs.

Washington is worried about China's ability to produce cutting-edge semiconductor devices. Japan and the Netherlands followed the U.S.'s lead in 2023 when they limited exports of manufacturing equipment for advanced chips.

Despite this, Huawei Technologies managed to come out with smartphones equipped with 7-nanometer chips made on older equipment.

An increasingly alarmed Washington is calling for more drastic measures that include restrictions on maintenance and inspection services for existing chipmaking machinery.

Chinese manufacturers stocked up on equipment and components before the current controls took effect. Chinese customs data shows a sharp jump in chipmaking equipment imports from Japan and the Netherlands starting shortly before the restrictions were implemented.

But these services are harder to restrict than the equipment itself.

While the U.S. generally bans American engineers from participating in developing and producing advanced chips in China, Japan's curbs aim to keep technology from being transferred across the border. It would be difficult to place new restrictions on the facilities that companies have already set up in China to provide maintenance services.

Some observers also see a possibility that the U.S. could try to further squeeze Chinese production of chips by targeting materials used to make them -- an area where Japan is a major player.

Tokyo worries that if it moves to broaden its controls, Beijing could retaliate by cutting off supplies of critical minerals, for example -- a scenario it is not fully prepared for.

Japan's industry ministry earmarked roughly 4 trillion yen ($25 billion) over the three years from fiscal 2021 to grow the nation's semiconductor industry, and companies have been starting to ramp up investment in the field.

"We oppose an expansion of regulations that would block the industry's development," a senior ministry official said.⍐