Commentary: What Trump 2.0 Will Mean for China’s Chip Industry

Donald Trump's return to the U.S. presidency has raised questions about the impact of his policies on China, particularly within the semiconductor industry, a sector that faced significant challenges during his previous term. In 2018, Trump's administration instigated a trade and tech war against China, which ironically spurred the nation to bolster its domestic semiconductor capabilities. This earned Trump the unexpected title of "benefactor" among Chinese semiconductor professionals due to the growth the industry experienced as a result of these pressures [para. 1].

With Trump's re-election, there is anticipation regarding potential shifts in his approach to China. Unlike the previous focus on advanced semiconductor processes by the Democratic administration, Trump may implement sweeping sanctions that encompass all semiconductor processes, from advanced to mature stages. This could include economic measures such as a 60% tariff on Chinese products, potentially causing widespread disruption across the Chinese semiconductor supply chain. Such indiscriminate sanctions would pose significant challenges for China's semiconductor sector as it navigates the repercussions [para. 2].

The U.S. has persistently focused on restricting China’s access to critical technologies within the semiconductor industry, frequently updating sanctions to adapt to new technological developments. This has particularly affected high-value sectors such as graphic processing units and automotive chips. Since October 2022, there has been a systematic introduction of regulations targeting these technological advancements, stalling China's progress in the field. Understanding this strategy is essential as such measures are expected to continue being a core tactic of U.S. policy [para. 3].

Allies play a vital role in the U.S. strategy to counter China’s semiconductor advancement. However, since the sanctions started in October 2022, the ability to strengthen these sanctions significantly depends on the cooperation of U.S. allies. While the Biden administration struggled to gain substantial concessions from allies in Europe, Japan, and South Korea, Trump's potential tariff escalation could further strain these alliances. This might hinder collective efforts to impose joint sanctions, particularly if these impact the mature processes of semiconductors which are crucial to their economies [para. 4].

Reports from American think tanks, including the Peterson Institute for International Economics, suggest that the U.S. tech restrictions against China have not halted its technological advancement. China leads in several key tech areas despite these sanctions, and forecasts suggest its semiconductor self-sufficiency could reach 40% by 2030. In the first half of 2024, China’s export of integrated circuit products rose significantly, indicating a resilient industry poised to achieve global competitiveness akin to its other industrial sectors such as solar and electric vehicles [para. 5][para. 6].

The motivation behind American sanctions lies partly in reviving its waning semiconductor production industry. Despite legislative efforts like the CHIPS and Science Act under President Biden, there has been minimal employment growth in this sector. The U.S. continues to grapple with STEM talent shortages, with further declines in manufacturing jobs anticipated. These persistent challenges imply that American efforts to attract international firms and intensify sanctions on China could escalate [para. 7].

China's semiconductor sector must prepare for the potential increase in pressures by focusing on resilience and high-quality development. As a crucial component of the global supply chain, strengthening core capabilities and adhering to market and international standards will help China counteract U.S. sanctions. By building global alliances, China aims to mitigate the effects of these sanctions and continue its path toward industry self-reliance [para. 8].