Cutting Off Our Nose to Spite Our Face: US Policy towards China in Key Semiconductor Industry Inputs, Capital Equipment and Electronic Design Automation Tools

JHU APL Two Worlds Working Paper Series, 2020

38 Pages Posted: 17 Nov 2020

Date Written: August 12, 2020

Abstract

This paper examines semiconductors (also referred to as chips or integrated circuits ) because these are core components in telecommunications equipment and many other high-tech goods, and because US policy has placed semiconductors front and center in its policies designed to crush Huawei. From its May 2019 placing of Huawei and its affiliates on the Entity List, the American government has tried to cut Huawei off from the American technology at the heart of the global semiconductor industry in order to decimate Huawei’s capabilities. On May 15, 2020, the US government doubled down on this gambit by restricting Huawei’s access to two areas of particular American strength in the semiconductor value chain, capital equipment for chip production and electronic design automation (EDA) for chip design.

This paper has four major findings. First, over the next five years even substantial Chinese efforts to replace American capital equipment and EDA tools with homegrown alternatives are very unlikely to succeed. Second, the severity of constraints on Huawei will depend more on the availability of international alternatives to American technology than on the availability of Chinese products. For chip design, the lack of suitable legal alternatives to American EDA tools globally will severely challenge Huawei’s ability to design chips. In contrast, for manufacturing chips, there are alternatives to American capital equipment within a relatively short time-frame so manufacturing firms could relatively quickly produce Huawei’s chips if they chose to eschew American technology to do so. Third, these constraints will most likely knock down Huawei but will not knock Huawei out of the telecommunications industry. Finally, the longer-term costs for American capital equipment and EDA tool vendors could loom large as foreign customers perceive American-made or designed products as carrying significant political risk and strive to develop alternative sources.

Keywords: Huawei, Entity List, China, US, Export Controls, Semiconductors, Integrated Circuits, Technology, Industrial Policy, GVCs

JEL Classification: F51, F50, F52, F13, F23,L6, L63, L88, O38,O33, O53,P45

Suggested Citation

Fuller, Douglas B., Cutting Off Our Nose to Spite Our Face: US Policy towards China in Key Semiconductor Industry Inputs, Capital Equipment and Electronic Design Automation Tools (August 12, 2020). JHU APL Two Worlds Working Paper Series, 2020 , Available at SSRN: https://ssrn.com/abstract=3672079 or http://dx.doi.org/10.2139/ssrn.3672079

Douglas B. Fuller (Contact Author)

Copenhagen Business School ( email )

Department of International Economics, Government
Frederiksberg, 2000
Denmark

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