Leaders in Washington are preparing to pressure Chinese tech companies including SMIC and Lenovo to cut off their supply of chips and other critical tech components to Russia, according to Bloomberg. Given that Chinese officials have signaled their opposition to U.S.-led sanctions against Russia, the U.S. would need to threaten further sanctions against China to get its way.
Before the war in Ukraine, Russia purchased around 70% of its chips from China. Russia was expected to further rely on China following last week’s wave of U.S. sanctions. This move from Washington would attempt to cut off that backup plan and thereby mount the domestic pressure facing President Vladimir Putin.
China’s premier chipmaker, SMIC, is among the companies expected to be targeted. SMIC is critical to China’s ambitions to become self-reliant on chips. It has reserved $5 billion for capital expenditures this year and plans to open foundries in Shenzhen and Shanghai. These measures would enable SMIC to greatly expand its capacity, even though supply will likely continue to exceed demand for years to come.
SMIC was already blacklisted by U.S. sanctions under the Trump administration. That limited SMIC's ability to obtain specialized extreme ultraviolet lithography equipment from the Dutch supplier ASML. It is still expected to be years away from manufacturing chips as advanced as those made by TSMC and Samsung.
Even after the Trump administration’s sanctions, the Commerce Department granted blacklist exceptions through export licenses. In a six-month period after the blacklisting, the U.S. granted around $42 billion worth of supplier exceptions to SMIC alone. The continuation of that license program means the U.S. still has leverage against SMIC.
China has firmly opposed the U.S. approach toward sanctions. “The position of the Chinese government is that we believe that sanctions have never been a fundamental and effective way to solve problems, and China always opposes any illegal unilateral sanctions,” Foreign Ministry spokesperson Hua Chunying said in a press briefing last week.
In this aggressive sanctions campaign, the U.S. risks eroding its status as global hegemon. Already, the U.S. is at the point of threatening sanctioned companies with more sanctions if those companies don't follow through with more sanctions. Eventually, the U.S. will run out of runway, and the marginal pain of further sanctions will be less and less. This is particularly true as China invests billions of dollars in its domestic supply chains to make them less dependent on U.S. suppliers. And the U.S., for its part, is finding it harder than anticipated to reinvigorate domestic chip manufacturing.