US & Japan Nearing ‘Breakthrough’ Deal To Restrict Chip Tech Exports To China

A new report from the Financial Times details how US and Japanese officials are nearing a deal to curb tech exports to China’s chip industry. This comes two weeks after Beijing threatened severe economic retaliation against Tokyo if it proceeded with new chip export curbs.

FT spoke with insiders who said US and Japanese officials are nearing a ‘breakthrough’ in talks to coordinate new export controls against China’s chip industry. The curbs would target non-US companies, forcing them to obtain licenses to sell products directly to Chinese companies that directly or indirectly connect to the nation’s chip industry. 

The new trade restrictions would close loopholes in existing rules and add additional restrictions at a time when Huawei and other Chinese firms have managed to circumnavigate Western chip trade restrictions in recent years.

One of Washington’s primary objectives is to make it much more challenging for Chinese firms to acquire critical chipmaking tools, such as those from ASML in the Netherlands and Tokyo Electron in Japan. 

Here’s more from FT:

The US also wants them to restrict servicing, including software updates, and maintenance of the tools, in a move that would significantly hurt China. The controls would have a similar impact to those already on US companies and citizens.

Negotiations have centered on aligning the three countries’ export control rules so Japanese and Dutch companies will not be subject to the FDPR, which one person in the Netherlands described as a “diplomatic bomb.”

One of the top concerns, while the Biden administration shines the beacon of democracy that continues to bully its allies, is the real possibility that Beijing unleashes severe economic retaliation against Tokyo.

In a recent but separate Bloomberg report, Toyota Motor told Tokyo officials that new chip export curbs could be devastating because they would halt access to critical minerals from the world’s second-largest economy. 

The question becomes whether Tokyo should fall in line with the Biden administration’s crusade against China’s tech industry.

“Japan shouldn’t tighten its export control just because the US is making such a request,” Akira Minamikawa, an analyst with the research firm Omdia, recently said, adding, “Japan should have its own philosophy, decide what’s best for the country and stand firm.”

Meanwhile…

FT noted that Biden plans to unveil the new export controls before November’s presidential election. 

China’s high-tech advancements, such as domestic 5G smartphones and AI chips, are further evidence that Western sanctions have yet to slow Beijing’s accession to become a global superpower.