The Department of Commerce told American companies in the chip industry that they must first acquire a license to sell technology to SMIC and its subsidiaries. The department said it was taking the action after a review in which it determined that the Chinese company “may pose an unacceptable risk of diversion to a military end use in the People’s Republic of China”.
The move could cut SMIC off from the American software and other technology it needs to make its products, and adds to the list of scalps that the Trump administration has been taking against Chinese technology companies.
For those who came in late, the administration has clamped down on shipments to the Chinese tech giant Huawei, restricted exports to dozens of other Chinese companies by placing them on a blacklist this year and moved to ban the Chinese-owned social media services WeChat and TikTok.
Apparently the Pentagon was worried that SMIC, whose major shareholders include several Chinese state entities, has ties with the Chinese military.
A research report by the US defence contractor SOS International that has been widely circulated within the Trump administration says that researchers at universities associated with the Chinese military appear to have made extensive use of SMIC’s processes and technologies in their research and that other SMIC customers probably have ties to the Chinese defence industry.
However, a SMIC spokeswoman said the company had no relationship with the Chinese armed forces and that it produced chips solely for commercial and civilian use. She added that the company had not received any official notice from the Commerce Department regarding new export restrictions.
Though SMIC is China’s most technologically advanced chip maker, its manufacturing processes are years behind those of industry leaders like Samsung and Taiwan Semiconductor Manufacturing Company in terms of the number of transistors they can squeeze onto a piece of silicon.
Even to produce its less sophisticated semiconductors, SMIC relies on software and machines from American companies. Analysts at the investment bank Jefferies estimate that up to half of SMIC’s equipment currently comes from US suppliers. SMIC could struggle to stay in business if those partners cannot service and upgrade the company’s manufacturing equipment.
If this happens the only recourse the Chinese would have is to take steps against US companies who have a manufacturing presence in China, which is pretty much all of them