China has issued a stern warning of significant economic retaliation if Japan imposes additional restrictions on the sale and servicing of chipmaking equipment to Chinese firms, Fortune reports.
This development complicates US-led efforts to restrict China’s access to advanced technology.
Senior Chinese officials have communicated their position to Japanese counterparts, expressing concern about the potential impact of new semiconductor controls. Toyota Motor Corp., a major player in Japan’s automotive and chip industries, has privately expressed concerns that Beijing will retaliate by restricting Japan’s access to critical minerals for automotive production, according to sources familiar with the situation.
Toyota’s involvement in the chip industry includes an investment in Taiwan Semiconductor Manufacturing Co.’s new chip manufacturing campus in Kumamoto. This investment demonstrates Toyota’s significant stake in Japan’s chip policy, as well as concerns from Tokyo Electron Ltd., a semiconductor equipment manufacturer that would be directly impacted by any new export restrictions.
The United States has urged Japan to impose stricter controls on advanced chipmaking tools as part of a larger campaign to limit China’s semiconductor advancements. In response to China’s recent restrictions on the export of critical minerals such as gallium, germanium, and graphite, US officials have been collaborating with Japanese counterparts to ensure consistent supplies of these vital materials.
This scenario echoes previous tensions; in 2010, China temporarily halted rare earth exports to Japan, causing disruptions in the country’s electronics industry. Japan has since worked to reduce its reliance on Chinese rare earths, but it still faces challenges.
Following recent reports of China’s warning, shares of Japanese chip-related companies have fallen. Tokyo Electron’s stock dropped by up to 1.9%, while Lasertec Corp. and Disco Corp. fell by 2.8% and 3.3%, respectively.
The Biden administration remains optimistic that the situation can be resolved diplomatically before the end of the year. However, U.S. officials have not ruled out using the foreign direct product rule (FDPR), which gives them control over global sales of products with even minor U.S. technology.
When contacted, the Japanese Ministry of Economy, Trade, and Industry declined to comment on the matter. Toyota stated that it continuously evaluates its procurement strategies, including those involving mineral resources. The US Commerce Department’s Bureau of Industry and Security also declined to comment.
China’s Foreign Ministry criticized attempts to politicize trade and warned against creating technological barriers. Since October 2022, the United States has implemented significant chip export controls and is currently working with allies, including Japan and the Netherlands, to agree on additional restrictions.
The ongoing negotiations are complicated by upcoming political changes, such as Japan’s Prime Minister Fumio Kishida’s impending resignation and the United States’ presidential election. Despite these challenges, discussions are expected to continue as the United States seeks to reach agreements with key allies.
