China threatens Japan with economic retaliation over new chip curbs
China has issued a stern warning to Japan, threatening significant economic retaliation if Tokyo proceeds with additional restrictions on the sale and servicing of chipmaking equipment to Chinese firms. The move complicates ongoing US-led efforts to curb China’s access to advanced semiconductor technology. Japanese officials have been briefed on the potential consequences by senior Chinese representatives in recent meetings, according to sources familiar with the discussions.
A key concern within Japan is the potential impact on Toyota Motor Corp., which has expressed fears that Beijing could respond to new semiconductor restrictions by cutting off Japan’s access to critical minerals essential for automotive production. Toyota, a major player in Japan’s chip policy, has invested heavily in a new chip campus being developed by Taiwan Semiconductor Manufacturing Co. in Kumamoto. This investment underscores the automaker’s significant influence on Japan’s semiconductor strategy, alongside Tokyo Electron Ltd., which would be directly affected by any new export controls.
The US has been pressuring Japan to align with its efforts to impose tighter restrictions on the export of advanced chipmaking tools to China. American officials have also engaged in talks with their Japanese counterparts to secure adequate supplies of critical minerals, especially after China imposed export restrictions on key elements like gallium and germanium last year. The historical precedent for such concerns dates back to 2010 when China temporarily halted rare earth exports to Japan following a territorial dispute.
The move caused significant disruption to Japan’s electronics sector, highlighting the potential risks of over-reliance on Chinese mineral imports. Despite efforts to diversify, Japan remains vulnerable to similar actions. Shares of Japanese chip-related companies, including Tokyo Electron, Lasertec Corp., and Disco Corp., have declined following reports of the potential China-Japan clash, indicating market sensitivity to the escalating tensions.
While some in Japan argue against blindly following US geopolitical strategies, the Joe Biden administration remains optimistic about reaching an agreement with Tokyo by the end of the year. However, the US has not ruled out the use of the Foreign Direct Product Rule (FDPR), which allows Washington to control sales of products worldwide if they contain American technology, though it prefers a diplomatic resolution.
The upcoming US presidential election and the anticipated resignation of Japanese Prime Minister Fumio Kishida add further uncertainty to the timing of any agreement. Nevertheless, US officials believe that Tokyo’s government has built a broad consensus for the policy, which should help maintain continuity in negotiations.