The ongoing US semiconductor trade sanctions against China appear to be having an impact. However, the resulting tremors are also being felt by US firms. This begs the question: what is the real cost of these sanctions for American companies?

Japan’s Export Restrictions to China

A pivotal US ally in the region, Japan announced a raft of export restrictions to China this week, primarily targeting chip-making equipment. Although Japan maintains that this decision was not influenced by the US, and is merely an attempt to prevent chips from being repurposed for military use, these claims seem questionable.

South Korea Pleads for Leniency

Simultaneously, South Korea, another key US ally in East Asia, has appealed to the US to allow its semiconductor companies to expand their manufacturing capacity in China. The Koreans argue that their companies should not bear the brunt of economic losses in the name of geopolitical maneuvering by the US.

Following China’s ban on US memory chip maker Micron, Korean chip manufacturers emerged as the leading alternatives for Chinese firms.

Impact on US Companies

The bid to cripple China’s access to chips has had a ricochet effect on US companies. This was highlighted this week when Nvidia’s shares experienced a significant surge after its CEO Jensen Huang expressed confidence in product demand during the company’s quarterly earnings report.

Huang stated, “The computer industry is undergoing two simultaneous transitions — accelerated computing and generative AI… We are significantly increasing our supply to meet the surging demand for our data center products.”

However, Huang also cautioned that US actions against China risk causing “enormous damage to American companies,” signaling that China remains a crucial market for Nvidia.

The Effect of Sanctions

For companies like Nvidia and others in the US tech sector, it seems the sanctions are having some impact. Current observations suggest that the Chinese economy is struggling. While there are many contributing factors, US politicians may find any sign of Chinese weakness encouraging. Xiaomi, a consumer tech company with the majority of its revenues from China, posted negative numbers this week, supporting this perspective.

With China’s limited domestic chip expertise, especially in advanced technology, the sanctions by America and its allies were bound to cause some disruption. However, these actions raise concerns about potentially leading to a pyrrhic victory. The sanctions could result in a global tech economy where everyone, not just China, is poorer.

The narrative of this situation underscores the complexity of the global semiconductor supply chain and how geopolitical machinations can echo across industries and economies. It’s a stark reminder that in an interconnected world, actions against one player often have wider, unexpected repercussions.

Source: Telecoms.com