China Warns Japan of Retaliation for New Chip Curbs

A Bloomberg report claims that China will impose severe economic retaliation against Japan if it further restricts chipmaking equipment sales and servicing to Chinese firms. The move would further challenge US efforts to limit China’s access to advanced technology.

On the other hand, Japan’s biggest fear is that Toyota Motor Corp., one of the most important companies in the country’s chip policy, will lose access to rare minerals from China, which are essential for automotive production.

Starting July this year, Japan has been restricting exports of 23 types of semiconductor manufacturing equipment to conform to US technology trade controls. This is part of a strategy to curb China’s advanced chip-making ability.

US companies face even harsher restrictions regarding trade and servicing China. However, that hasn’t stopped tech giants from doing business with the US opponent. For example, Nvidia agreed to make a custom AI chip specifically designed for the Chinese market to comply with stringent US export controls.

The US is now urging Japan to tighten restrictions on selling advanced chipmaking tools to China. Meanwhile, since China imposed stricter export limits last year, senior US officials have been working with their Japanese counterparts to secure a steady supply of critical minerals like gallium, germanium, and graphite.

Some in Japan disagree that the Tokyo government should support Washington’s latest geopolitical strategy. “Japan should have its own philosophy, decide what’s best for the country and stand firm,” said Akira Minamikawa, an analyst with the research firm Omdia.

According to Bloomberg’s report, the Biden administration is positive they could reach an agreement with Japan by the end of this year. If not, the US might take a more aggressive approach, imposing the foreign direct product rule (FDPR) on Japan, which allows it to control sales of products using American technology, regardless of where they’re made. FDPR, perceived as too limiting by the US allies, is currently not in the talks. According to a senior administration official, the US would prefer a diplomatic solution.

However, the negotiations are further challenged by two major political events – the US presidential election in November and the resignation of Japanese Prime Minister Fumio Kishida taking place this month.

The Chinese Foreign Ministry said in a statement that it opposes attempts by any nation to politicize economic trade and cooperation and lure other countries to participate in a scientific and technological blockade of China. US and Japanese officials have declined to comment on Bloomberg’s report. Toyota responded diplomatically that its focus is on optimal sourcing strategies that satisfy its customers’ needs, not necessarily limited to mineral resources.