China may impose an embargo on US Micron chips

A scenario in which China may ban the sale of products from the American company Micron Technology, one of the leading manufacturers of memory chips, is being considered by the US authorities. The White House has already asked South Korea to urge Samsung Electronics and SK Hynix not to replace their company in the Chinese market in this case, the Financial Times (FT) writes. Thus, Washington hopes to deprive Beijing of the leverage to put pressure on American companies.

It is noted that on April 2, China’s Cyberspace Administration (CAC) began investigating Micron “for reasons of national security.” The official purpose of the investigation is to test the “security of the infrastructure supply chain in the transmission of key information.” So far, there are no results of the check, just as there is no official information about whether the PRC authorities are determined to completely ban Micron’s activities. At the same time, according to Reuters, the American company is cooperating with the Chinese authorities during the audit.

It is known that mainland China and Hong Kong brought to this company in 2022 25% of revenue from total sales of $30.8 billion, and as a result, if Beijing takes a radical action, it will take a significant hit. According to the FT, US officials and business representatives see CAC’s actions as China’s response to US actions to limit access to the acquisition of advanced semiconductors and technologies for their production. In addition, according to the South China Morning Post, Micron was one of the main lobbyists for the US President Joe Biden’s August 2022 Chip Act (which provides for $52 billion to fund local chip manufacturing in the US).

In theory, China can quickly find a replacement for Micron products, since in this case we are not talking about advanced chips. Its main products are DRAM and NAND memory chips, flash memory, SSD drives and CMOS cameras. Micron’s place could be taken by the Chinese Yangtze Memory Technologies Co (to which the United States banned the supply of equipment), as well as two South Korean industry leaders – Samsung Electronics and SK Hynix, which have chip manufacturing plants in China. And that is why Washington, ahead of South Korean President Yoon Seok-yeol’s state visit to the United States, which began on April 24, asked his administration to urge these companies not to increase sales in the Chinese market if Micron is banned there. At the same time, according to Bloomberg, the US appeal to South Korea may be counterproductive for American business, since companies such as Apple and Dell Technologies may also suffer due to a possible shortage of chips in China.

A newspaper source familiar with the situation said the Americans’ request reflects the fact that the Biden team wants to “ensure that China cannot use Micron as leverage on US policy.” At the same time, on April 17, the FT wrote that Beijing was going to launch a sanctions counterattack on the United States, primarily in the field of semiconductors.

So far, the United States has not disclosed the details of negotiations with Korean allies, but their representatives note that the parties have already made “historic progress” in matters of national and economic security. “This includes efforts to coordinate investments in the semiconductor sector, protect critical technologies, and overcome economic coercion,” a spokesman for the US National Security Council said.

The reaction to the calls of the US and South Korean authorities is not yet clear. Yoon Seok-yeol’s administration is considered hawkish about China, but is known to be irritated by US attempts to rally allies for its economic security. At the same time, rallying methods are not always soft: FT, citing sources, writes that the US Department of Commerce may not extend Samsung and SK Hynix permission to export chips to China in 2023 (the Department of Commerce has the authority to do this, since these products use American technology).

Micron has become the first foreign company to be vetted by the CAC, says Aleksey Maslov, director of the Institute of Asian and African Countries at Moscow State University. This trial can be regarded as a warning signal for countries such as Japan and South Korea, which, from the PRC’s point of view, must comply with all previously reached agreements, Maslov argues. Formally, the ongoing investigation against this company in China cannot be considered politicized, but it is such in practice. At the moment, Beijing is trying to show what will happen to those who, as it seems to it, are taking the wrong actions against it, Maslov concludes.

According to the expert, a possible ban on Micron’s activities can be considered the first step in implementing Beijing’s plan to respond to Western sanctions. At the end of 2022, Micron closed a number of its representative offices, primarily the microchip development center in Shanghai, Maslov recalls. This suggests that the owners of the transnational corporation understand that “they will have to leave the Chinese market.” If South Korean companies really do not replace Micron products, then there will still be a shortage of chips in the Chinese market, Maslov believes. At the same time, China has already decided to switch to sovereign cyberspace technologies, but this will not be achieved quickly, he concludes.

The Biden administration, including passing the law on chips in 2022, itself tried to put politics first in relation to the economy, says Vladimir Vasiliev, chief researcher at the Institute for the US and Canadian Studies of the Russian Academy of Sciences. Guided by political and ideological considerations, the administration is thus trying to damage the Chinese economy and strengthen the position of its corporations, he adds. In fact, the balance of positive and negative aspects for the United States is not so unambiguous. The damage that the Americans want to inflict on China can be comparable to the damage that American manufacturers will eventually suffer, Vasiliev believes. The expert adds that the United States, in a situation with a possible ban on Micron in China, behaves aggressively and categorically against South Korea, disregarding its economic interests. Vasiliev is sure that the Korean side will accept the US conditions, but there is a growing feeling that “the sediment will remain.”