China has warned of serious economic repercussions if Japan imposes further restrictions on the sale and servicing of semiconductor manufacturing equipment to Chinese companies. This threat complicates US-led efforts to limit China’s access to advanced technology.
Senior Chinese officials have communicated their concerns to Japanese counterparts, according to sources familiar with the discussions. One particular worry in Japan is that China might retaliate by restricting Japan’s access to essential minerals used in automotive production, a concern reportedly raised privately by Toyota Motor Corp. Toyota, a major player in Japan’s chip industry, is involved in the development of a new chip campus by Taiwan Semiconductor Manufacturing Co. in Kumamoto, making its concerns significant for Japanese policymakers.
The US has been urging Japan to enforce stricter controls on companies such as Tokyo Electron Ltd., which could be impacted by new export restrictions aimed at curbing China’s semiconductor capabilities. In response, US officials have been collaborating with Japanese counterparts to ensure the availability of critical minerals, especially since China has already imposed export restrictions on materials like gallium, germanium, and graphite.
This situation echoes past tensions, such as the 2010 incident when China suspended rare earth exports to Japan following a maritime dispute. This move disrupted Japan’s electronics industry and global supplies of high-power magnets. Since then, Japan has made some progress in reducing reliance on Chinese rare earths.
The Biden administration is optimistic about reaching an agreement with Japan by the end of the year, despite the complexities introduced by the upcoming US presidential election and Japanese Prime Minister Fumio Kishida’s planned resignation. Nevertheless, Kishida’s departure is not expected to derail the negotiations, as Japan has built broad support for the policy.
The US has also considered leveraging the foreign direct product rule (FDPR), which allows it to control the sale of products made worldwide if they contain even minimal American technology. While this option remains on the table, US officials prefer a diplomatic resolution.
Japan’s Ministry of Economy, Trade and Industry, Tokyo Electron, and Toyota have not provided immediate comments on the situation. The US Commerce Department’s Bureau of Industry and Security also declined to comment. The Chinese Foreign Ministry condemned attempts to politicize trade and urged against forming technology blockades against China.
The US first introduced comprehensive chip export controls in October 2022, focusing on both equipment and processors. Following this, Japan and the Netherlands enacted their own, though less restrictive, measures. The US is now seeking further alignment from its allies on new controls concerning high-bandwidth memory chips and additional semiconductor tools.
US lawmakers, including Representative Zoe Lofgren and Senator Alex Padilla, have expressed concerns about the impact of unilateral export controls on US companies and semiconductor innovation. They have called for leveraging all available options to secure cooperation from allies, including potential tariffs on competing chipmaking tools from allied countries.
ASML and Tokyo Electron have seen significant sales increases in China since the US imposed its restrictions. Meanwhile, US companies such as Applied Materials Inc., Lam Research Corp., and KLA Corp. continue to sell considerable amounts of equipment to China, which is stockpiling less advanced machinery. Despite this, US officials assert that China’s ability to innovate has been hindered by the lack of access to advanced technology.
