Bloomberg reported that China warned Japan about severe economic consequences should Tokyo restrict semiconductor sales and services to Chinese companies.
This threat comes amid intensified US-led efforts by the US to restrict China’s ability to access advanced technology.
The US has been pressing its allies, Japan included, to adopt tighter controls on semiconductors exports as part of a larger strategy to curb China’s progress in tech.
Bloomberg cites sources familiar with the matter who claim that Chinese officials have communicated their position in recent meetings with Japanese counterparts.
Japan fears disruptions to critical mineral supplies
The potential disruption of vital mineral supplies for Japan’s automotive industry is a major concern.
Toyota Motor Corp. (one of Japan’s largest companies) has expressed concern that Beijing could retaliate to new semiconductor controls, by cutting off Japan’s access to these essential resources.
This would have a significant impact on Japan’s automobile production, especially since Toyota is heavily engaged in chip policy. They have invested in a new campus in Kumamoto with Taiwan Semiconductor Manufacturing Co.
The report states that this concern is important for Japanese officials as well as Tokyo Electron Ltd. the semiconductor equipment manufacturer who would be most affected by any new Japanese import controls.
Toyota spokesperson said that the automaker continually evaluates optimal procurement strategy, including mineral resources to meet customer requirements.
US and Japan work together to secure critical minerals
The US has been pressing Japan to impose further restrictions on firms including Tokyo Electron to limit their ability of selling advanced chipmaking tools in China.
This is part a long-standing effort to curb China’s advancements in semiconductors.
Senior US officials have collaborated with their Japanese counterparts during these discussions to develop a strategic approach to ensure adequate supplies.
This effort is especially important after China’s restrictions last year on the export of graphite, germanium and gallium.
The decision by China to suspend rare earth exports from Japan in 2010 following a territorial dispute is still etched in the memory.
Source: Bloomberg
This incident has shaken Japan’s electronics industry and highlighted the dangers of dependence on Chinese resources.
Since then, Japan has tried to diversify its source of rare earths with mixed results.
Although Tokyo has not yet officially commented on the ongoing discussion, the stakes are clear for Japan’s chip companies.
In response to the tensions, shares of major Japanese semiconductor companies, such as Tokyo Electron, Lasertec Corp. and Disco Corp. have already declined.
Further restrictions on semiconductor exports may exacerbate this loss and raise concerns over the broader impact.
The US using FDPR to leverage
In response to possible economic fallout, US has hinted more aggressive measures to secure Japan’s cooperation.
The Foreign Direct Product Rule is one such measure. It’s a powerful tool which allows Washington to control sales of products anywhere in the globe if they use American technology.
The US has not invoked this rule against Japan or other key allies, but it is still a possibility in the event that diplomatic efforts fail.
The Biden administration believes that a diplomatic resolution can be reached before the end of the calendar year.
The timing of any agreement is complicated by the upcoming US presidential elections in November and Fumio Kishhida’s planned resignation as Japanese Prime Minister.
Despite these uncertainties US officials believe Tokyo’s policy regarding semiconductor controls has garnered sufficient support within the Japanese government for it to remain unchanged, regardless of any leadership changes.
The Chinese Foreign Ministry has expressed its opposition to any attempts by individual nations to politize trade and entice others to join a technological blockade against China.
US considering additional restrictions
In October 2022 the US will introduce broad export controls that will target both semiconductor equipment as well as advanced processors.
Japan and the Netherlands quickly followed suit with their own, albeit less strict, measures.
Since then, Washington has pushed these allies to align themselves more closely with the original US restriction.
The focus of the US government has been on limiting the ability for companies like ASML Holding NV, a Dutch supplier, and Tokyo Electron, a Japanese company to service restricted machinery that is already in China. US firms are not allowed to undertake these activities.
According to reports, The Hague plans to impose similar service limitations.
The US is considering further restrictions on high-bandwidth memories chips, which are critical for AI applications. They also plan to limit chipmaking tools, and take targeted actions against certain Chinese companies.
Washington has pushed both countries to adopt new US measures that currently exempt allies.
The Biden administration, under pressure from the domestic industry and certain lawmakers within the Democratic Party is trying to secure agreement from key allies before implementing export controls in the next phase.
In a letter sent to senior Commerce Department officials on August 13, Representative Zoe Lofgren, Senator Alex Padilla and other California Democrats expressed their concern about the harm caused to US companies, and the US leadership in semiconductor innovations, by unilateral export controls that have questionable national-security benefits.
This post China warns of economic backlash in the event that Japan tightens export controls on chips: Report may change as new information becomes available
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