Export curbs seen as focus of talks

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The United States' semiconductor export controls toward China have increasingly been viewed as a critical component of bilateral trade negotiations, which experts said could have a bearing on the long-term health of trade relations between the world's two largest economies.

The US government has in recent years imposed and tightened controls on the export of semiconductor technology, devices, and tools to China to limit China's access to advanced technologies and maintain the US leadership in the critical sector.

The US registered an overall goods trade deficit of $119.2 billion in July, but the semiconductor sector posted an $11 billion trade surplus last year, with exports to China serving as a major contributor to this positive balance, according to an analysis by investment platform AInvest. This has led to analysts calling the semiconductors' role a "bright spot" in the US' trade performance.

The US' AI chip exports alone were valued at $57.5 billion last year, with China accounting for about 25 percent of these exports, according to USImportdata, a platform specializing in US import and export data.

Nvidia led the industry with $30 billion in semiconductor exports last year, with China as its biggest export market despite the existing export restrictions on its export of advanced chips to the country.

However, current export controls imposed by the US are creating a paradoxical situation where restrictions designed to protect its national security may turn out to be undermining the country's trade position.

A study by the Center for Strategic and International Studies in July 2024 found that US semiconductor firms captured over 53 percent of China's chip market in 2022, representing billions in potential lost sales as export controls tighten access to the world's largest semiconductor market.

The economic logic for easing the export controls has gained support from industry analyses suggesting that such measures could help mitigate the broader US trade deficit. The semiconductor industry's historical trade surplus performance demonstrates the sector's potential to offset US deficits in other areas, making it beneficial for the US if the issue is included in bilateral trade talks.

The US and China have extended their pause on tariff hikes for another 90 days after the Aug 12 deadline, creating space for further dialogue on bilateral trade relations. More notably, the US government forged an unprecedented agreement with Nvidia and Advanced Micro Devices, requiring them to remit to the US government 15 percent of their revenues from China chip sales.

Unusual departure

This "pay-to-play" revenue-sharing model represents what experts describe as a "highly unusual" departure from traditional export control policies. Some constitutional scholars have raised concerns about the arrangement, comparing it to an export tax prohibited by the US Constitution. The agreement has already generated uncertainty about its implications for the broader tech industry.

The strategic importance of resolving semiconductor trade issues means more than immediate economic benefits, as industry experts emphasize the deep interdependence between the US and China in semiconductor supply chains.

Think tanks and industry groups, such as the Atlantic Council and the Semiconductor Industry Association, consistently underscore the "systemic risks" facing the US as a result of the country's industry-wide reliance on China for assembly, packaging and end-market sales in the case of supply chain disruption.

While the US maintains leadership in research and development as well as high-end chip design, approximately 75 percent of the production process for US-designed semiconductors occurs in the Taiwan region and the Chinese mainland, according to a recent study published by Discover Global Society.

China's growing influence in legacy chip production further complicates the supply chain dynamics.

"Thus, although the US might be enjoying supremacy with regard to advanced semiconductors, the raw materials, the assembly and the labor force needed to create the final product are reliant on a larger supply chain," the article said.

Experts consider resolving the US' chip export controls critical in achieving a long-term workable trade agreement between China and the United States.

"Without clarity and compromise in these areas, a lasting agreement is unlikely," Chris Pereira, founder and CEO of iMpact, a New York-based communications and business consulting group, told China Daily.