If Japan does not strengthen sanctions against China, Americans threaten to deprive Japanese companies of subsidies

The Select Committee of the US House of Representatives, which controls interaction with China, sent a letter to the Japanese Ambassador demanding that restrictions be strengthened against China in the supply of equipment for the production of chips. If the Japanese side does not support this proposal, then the US authorities reserve the right to deprive Japanese companies of subsidies for the construction of enterprises on American soil.

Image source: Tokyo Electron

The authors of the letter, signed by representatives of both dominant parties in the United States, reject the Japanese side’s arguments about significant damage to Japanese companies caused by restrictions on the supply of equipment to China. In their opinion, it is much more important to expand cooperation between the United States, the Netherlands and Japan in curbing China’s ambitions to develop the national semiconductor industry. According to American parliamentarians, the Japanese side’s arguments about significant harm from existing export restrictions for equipment suppliers from Japan “do not stand up to any scrutiny.”

According to the authors of the letter, suppliers of equipment for chip production are benefiting from increased order volumes, as well as subsidies in Europe and the United States, which more than offset possible damage from sanctions against China. Even if Japanese equipment suppliers do not benefit from direct subsidies, their products are purchased by recipients of such subsidies, such as Intel and Samsung, which build their factories in the United States. American equipment manufacturers, by the way, have repeatedly stated that they suffer from export restrictions in relation to China much more than their Japanese and Dutch competitors.

In addition to a ban on the supply of certain types of chip production equipment from the Netherlands and Japan to China, the American authorities are seeking to stop servicing equipment already in use in China, including the supply of spare parts and components. At the moment, to the obvious considerations of lost profits, partners in the Netherlands and Japan add as counterarguments the uncertainty caused by the upcoming presidential elections in the United States. The authorities of these countries are in no hurry to synchronize their export restrictions with the American ones in anticipation of the results of these elections. Japan is afraid not only of losing revenue in China, but also of facing retaliatory measures from the Chinese side. The automotive industry, which is most important for the country’s economy, risks losing access to rare earth minerals due to possible Chinese sanctions.

The letter to the Japanese ambassador also mentions the need to combat another threat posed by the Chinese semiconductor industry – US authorities fear the ability of Chinese suppliers to flood the world with cheap chips produced using mature lithography technologies. In the United States, for example, to protect the domestic market for electronic components, a duty of 50% will be introduced on Chinese products from 2025. According to American parliamentarians, without a coherent sanctions policy, the United States, the Netherlands and Japan risk depriving their national industries of the ability to produce competitive consumer goods and weapons systems in sufficient quantities. In addition to depriving Japanese companies of subsidies in the United States, local authorities can take advantage of legislative features that allow them to impose restrictions on the supply of equipment from third countries to China if it uses technology of American origin. In the chip production equipment segment, almost all products fall into this category.