China threatens to retaliate if U.S. approves new sanctions for chip supply

As lobbyists for chipmakers seek to prevent the U.S. government from imposing new sanctions on China, Beijing has also resolved to send a clear warning to the Biden administration. This follows previous retaliation by China against US export controls on chips.

China’s ambassador, Xie Feng, said the country does not want a trade or technology war with the U.S., but that from now on it will respond to all restrictions imposed by Washington.

The Chinese government cannot simply sit idly by. There’s a Chinese saying that we won’t… Make provocations, but let’s not run away from provocations.

According to people who work in the White House, the Biden administration is finalizing a text that should further expand the restriction on the export of state-of-the-art machinery and chips to China.

In May 2023, China banned some sales of chips from US company Micron, which was seen as retaliation for Washington’s efforts to cut off China’s access to high-end chips. The ban could have a ripple effect through China’s supply chains as Micron’s Chinese customers seek to replace the US memory chips with homegrown or Korean versions.

The text is expected to mainly affect Artificial Intelligence chips from NVIDIA and AMD. For the Chinese ambassador, the US is appealing to avoid fair competition.

China definitely… will give our answer. But it’s definitely not our intention. We don’t want to… a trade war, technological war, we want to say goodbye to the Iron Curtain as well as the Silicon Curtain.

China’s ambassador, Xie Feng,

It is worth remembering that Beijing’s last retaliation was the limitation on the export of rare earths that are used to make chips. But before that, China also sanctioned Micron by banning the company’s state-owned purchase of chips.

The new US trade restrictions on selling advanced chip technology to China could lead to retaliatory moves, hurting semiconductor stocks. China has many tools it could use to strike back at the US, from vetoing corporate mergers to withholding critical materials used in electronics.

Another way China could respond to the US trade curbs is by imposing tariffs on US imports or restricting exports of rare earth materials, battery components, and pharmaceutical materials3. However, direct retaliation against the chip industry would likely trigger a self-inflicted wound, and some of China’s levers lack sufficient precision. A major chip industry trade group has urged the Biden administration to refrain from further restrictions on trade with China. The Chinese government has criticized the US chip law as a threat to trade.

For now, the White House does not comment on the matter, but sources say the new sanctions are expected to be published soon.

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• Future tech and trade war
• China-United States trade war