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Biden Team Mulls New Clampdown on China’s Largest Chipmaker

(Bloomberg) — The Biden administration is considering imposing tougher sanctions on China’s largest chipmaker, according to people familiar with the situation, building on an effort to limit the country’s access to advanced technology.

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The National Security Council is set to hold a meeting on Thursday to discuss the potential changes, said the people, who asked not to be identified because the deliberations are private. Agencies represented through their deputies will include the Commerce, Defense, State and Energy departments.

The proposal that’s being examined would tighten the rules on exports to Shanghai-based Semiconductor Manufacturing International Corp. If one proposal is adopted, companies such as Applied Materials Inc., KLA Corp. and Lam Research Corp. may find their ability to supply gear to SMIC severely limited.

Current rules specify that machinery “uniquely required” for making advanced chips can’t be exported. One proposal being considered at the meeting would change that to “capable for use,” which would include machinery that’s also used for making less advanced electronic components.

A Commerce Department spokesperson said the agency doesn’t comment on interagency discussions regarding export control policies. But the department is working to adopt controls that promote U.S. national security and foreign policy interests while not undercutting U.S. technology leadership, the spokesperson added. A spokeswoman for the National Security Council declined to comment.

Further U.S. action against SMIC would complicate matters for companies in the chip supply chain. China is the biggest market for semiconductors since it’s home to factories that make a huge chunk of the world’s electronic devices.

Companies from video-game makers to Apple Inc have said they can’t make enough products to meet demand because of the shortage of semiconductors. The auto industry alone is expected to lose more than $200 billion in sales because they can’t get enough chips to build all the vehicles people are willing to buy.

For decades, the Asian nation has largely relied on U.S. chipmaking technology, but China is trying to build up its homegrown semiconductor industry. That would make it an even bigger market for manufacturing equipment.

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Even suppliers outside the U.S. face a dilemma. Companies such as Netherlands-based ASML Holding NV will have to weigh the consequences of ignoring the Biden administration’s push and shipping to SMIC and its local peers.

But the federal agencies need to agree on the approach to take, and that might not be easy. There’s division among agencies, with the Defense Department and National Security Council arguing that the Biden administration should pursue the changes unilaterally.

The Commerce Department, on the other hand, is pushing for coordination with other countries that produce the same technology. It worries that a unilateral change would give an edge to companies such as Tokyo Electron Ltd. in Japan and other rivals from South Korea and Taiwan, whose products could supplant U.S. exports.

U.S. Representative Michael McCaul, a Republican from Texas, has advocated for the SMIC policy change for about a year.

“The update to the SMIC licensing policy has nothing to do with the current chips shortages,” he said in a statement Tuesday. It’s about whether the U.S. should be selling the People’s Liberation Army of China “the tools it needs to make advanced semiconductors.”

The White House is seeking cooperation from other nations, particularly in Asia, to align policies, Commerce Secretary Gina Raimondo told Bloomberg reporters and editors during a roundtable in New York last week.

The administration also has been promoting the so-called Chips Act, a $54 billion program aimed at spurring semiconductor production.

“If America puts export controls vis-a-vis China on a certain part of our semiconductor equipment — but our allies don’t do the same thing, and China can therefore get that equipment from our ally — that’s not effective,” Raimondo said.

“The devil is deeply in the details,” she added. Measures shouldn’t be “overly broad” and deprive companies of the revenue they need for research and development, Raimondo said.

(Updates representative’s comment in 13th paragraph. A previous version of the story corrected the size of the auto industry’s sales shortfall.)

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