South Korea's SK Hynix Caught in Crossfire of US-China Trade Conflict

As the economic and military power struggle between China and the US continues to intensify, the US has decided to reduce China's access to advanced technology by announcing plans to ban or restrict semiconductor companies such as SK Hynix from operating in China. With the global demand for chips surging, this move could trigger a Cold War-like conflict, as semiconductors are crucial components for various industries ranging from electronics to automotive and aerospace, making them an essential strategic resource in today's trade landscape. Why is the US trying to stifle Chinese semiconductor capabilities, what has the US recently announced, and is this move further escalation in the ongoing battle between China and the West?

Why is the US trying to stifle Chinese semiconductor capabilities?

Over the past decade, the relationship between China and the US has continued to degrade, with China outwardly expanding its influence across the globe and the US retaliating to what it perceives as a growing danger to freedom. From the Chinese perspective, the US is a hypocritical state that uses its economy and influence to control other countries to preserve its interests. On the flip side, the US sees China as a surveillance state that unapologetically conducts routine industrial espionage, doesn’t enforce international rules on IP, violates airspace and coastlines of neighbouring countries, and actively performs cyberwarfare in an attempt to better its economic and military position.

While there is an element of truth to both sides of the ongoing cold war (sufficient evidence exists that the two are already in a cold war), the evidence against China and its practices is arguably more founded than those claimed against the US. For example, there is no doubt that all states, including the UK and US, actively conduct surveillance, but these activities are often denied, never made public, and rarely, if ever, used to control populations. In the case of China, surveillance is celebrated to the point where citizens are now under the control of social credit scores that govern their life depending on what they do and their loyalty to their government.

At the same time, mountains of evidence have come to light of the Chinese government routinely rounding up ethnic minorities and placing them in re-education camps to eliminate cultures that differ from the majority of Chinese citizens. When comparing such practices to Western civilisations, it becomes clear that China lacks fundamental human rights and fair legislation.

But in all honesty, none of this explains why the US is adamant on limiting Chinese semiconductor capabilities. The real reason why the US is trying to restrict Chinese technological capabilities simply stems from military and economic power. There is no doubt, even by the US’s own admission, that China is home to the world’s most advanced AI systems, and this has those in the US worried. Such hardware requires cutting-edge semiconductors; thus, preventing access to such semiconductors limits China’s ability to advance.

At the same time, recent military action from China over the South China Sea has the US worried that China might look to bottleneck shipping routes. As advanced semiconductors are needed to power defence systems, missiles, and equipment, limiting China’s access to semiconductors will undoubtedly hurt its military capabilities. Thus, should a conflict occur (over Taiwan or the South China Sea), the US would have a technological advantage over China.

US moves to further limit Chinese semiconductor access

Recently, the US announced plans to limit the capabilities of the Chinese semiconductor industry by imposing new restrictions on Western companies operating inside China. One company that has been specifically targeted is SK Hynix (South Korea), which has sites inside of China, and the new restrictions will aim to limit how much SK Hynix can grow.

Even though SK Hynix is a South Korean entity, having manufacturing facilities inside China presents many issues. The first is that such sites will likely have access to cutting-edge technology, which China desperately desires. As such, it would be very easy for China to infiltrate the facility via local workers, steal data, and reverse engineer processes to create Chinese semiconductor foundries. 

The second issue with facilities located in China is that it is very easy for those infiltrating to obtain sensitive designs that could be used to identify backdoors, bugs, and weaknesses in devices. Having access to design files also introduces the possibility for Chinese agents to integrate their own backdoors, allowing for remote access once integrated into consumer products.   

The third issue, albeit less likely, is that China has the power to potentially seize such a facility, whether for phoney investigations or during wartime. In either circumstance, the Chinese government would have access to the facilities in their entirety, thus allowing China to manufacture their own devices or gain access to valuable IP.

Does this move further escalate the situation between China and the US?

While it does appear that this move escalates the situation between China and US, the rules have actually been imposed on Western allied nations. As such, the new announcement is a restriction on how Western companies operate and not directly against China. Of course, the announcement also affects China’s ability to access key technologies, including memory and logic devices. 

In addition to indirectly restricting China’s access to new technologies and devices, it also takes away potential investment from semiconductor businesses looking to set up facilities in China. As such, it can be said that the new action does indeed target China, with the intent of reducing its economic, military, and technological capabilities.

So, where does China go from here? Will this see tit-for-tat retaliation? Could China increase its overseas influence as a show of dominance? Only time will tell…