Japan Slows Exports of Chipmaking Machinery to China as Tensions Continue to Mount

Written By: Nathan Matsko

Bellefonte-Earlier this year, it was revealed that the United States, the Netherlands, and Japan had reached an agreement to curtail exports of equipment used in the production of computer chips. Now, Japan seems ready to do its part.

The restrictions imposed include nearly two dozen pieces of equipment used in the production of semiconductors-a key component in computer chips. The limits on exports are seen as an effort to slow China’s production of these chips, which are often used in several types of advanced weaponry, though Japanese officials deny that the move is intended to target any single country.

The new policy comes as tensions between China and the United States continue to rise over Taiwan. The United States and its allies have continued to support Taiwanese independence, while China seeks to reintegrate the Island. China has made several shows of force, including military drills in response to US House Speaker Kevin McCarthy hosting Taiwanese President Tsai Ing-Wen in California. Chinese vessels simulated an encirclement of the Island nation with warships and fighter jets, while also firing missiles into the sea just off of the coast.

At least ten Japanese companies are directly impacted by the restrictions and will have to apply for special licenses in order to ship the components. Japan is the third-largest producer of semiconductors, with South Korea and Taiwan claiming second and first, respectively. China is Japan’s largest trading partner, a fact which has led some to ponder the potential impact on the Japanese economy.

Tokyo-based Nikon is one of the ten companies affected by the export limits. Photo by Pdro Khuana on Pexels

“The potential negative effects on Japanese manufacturers of the proposed strict export control by the U.S., Japan, and the Netherlands will be significant initially but will become adaptable for Japanese manufacturers and other countries, as China reorganizes their import demands,” says Masao Nakamura, a professor emeritus of the Sauder School of Business at the University of British Columbia in Vancouver, and a distinguished invited professor of Keio University’s Graduate School of Business and Commerce in Tokyo. “Japanese exporters will specialize to meet China’s new demand schemes in a legal way.”

Though the Japanese government had remained tight-lipped about the inevitable restrictions, China had anticipated such a move and reportedly began to stockpile the equipment in advance. Some anonymous Japanese sources in the industry have even claimed that Japanese companies have rushed orders to China out the door, as the restrictions do not officially begin until this summer. China had urged Japan not to follow the US’s lead in imposing these restrictions.

It has yet to be seen if the move will have any significant impact on China, which has condemned the move. In 2022, Japanese, Dutch, and American sales of chipmaking equipment to China fell for the first time in several years.

“In the short run, these restrictions still work to limit China’s production capacity of high-level semiconductor products,” says Nakamura. “Nevertheless, China has stockpiled relevant machinery and will also increase its efforts on research and development to design and produce its own high-level semiconductor manufacturing machinery.

“I suspect that they have access to a large stock of knowledge base in this area and over time they might become a serious competitor in the area the West is trying to control the export of.”

Though companies based in the trio of countries that are part of the agreement will be limited in regards to how much they may ship to China, it’s entirely possible other entities will move to fill that gap.