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US warns Chinese chipmakers: Sell to Russia, suffer Huawei's fate

Secondary sanctions well and truly in play now

US Commerce Secretary Gina Raimondo has suggested Chinese companies consider Huawei's recent history before they sell their wares to Russia.

In an interview with The New York Times, Raimondo singled out China's top chipmaker, Semiconductor Manufacturing International Corporation (SMIC), and said sales to Russia could see America "essentially shut SMIC down because we prevent them from using our equipment and our software."

SMIC need not look far to see what that would mean. Since sanctions were imposed on fellow Chinese giant Huawei, that biz has forecast a 29 per cent revenue slump, sold its x86 server business unit, and has scrambled to assemble an alternative stack based on its own software and Arm processor designs for its consumer products.

China's leadership will also be acutely aware of what a hobbled SMIC – and wider semiconductor sector – would mean for Beijing's ambition to achieve silicon self-sufficiency. China has set itself the goal to end its dependence on imports.

SMIC has gone on the record with promises to be a good global citizen. In its FY 2021 Q4 financial results announcement, it promised it would "consistently adhere to compliant operations, continuing internationalization and deeply integrate into the global ecosystem, in order to service customers across the globe, seek progress in a steady manner, continue to strengthen strategic cooperation with customers and suppliers, and steadily advance capacity expansion projects."

But the US doubts the sincerity of those sentiments, alleging that China's chip makers and designers use intellectual property without permission – sometimes after obtaining it through industrial espionage.

The US has friends who say the same. The Quad Alliance – America, Australia, India, and Japan – last year sought to create more resilient supply chains for commodities including semiconductors and called out China's IP theft.

Which is where things get even trickier, given India is yet to oppose Russia’s invasion of Ukraine – perhaps because it has planned to purchase Russian missiles.

But that purchase has become even more contentious, because Raimondo's remarks about SMIC raise the prospect of the US using "secondary sanctions." Such measures see sanctions imposed on the primary target also imposed on entities in nations that choose not to adopt similar measures.

An example of such sanctions could be a US ban on a bank that is based in a nation that has not sanctioned Russia and continues to serve Russian clients. A secondary sanction would be directed at that bank to prevent it from interacting with US-based companies, effectively forcing it to decide between continued dealings with its American or its Russian customers. The United States feels that the might of its financial system makes that an easy choice, and has seen secondary sanctions work as a measure to strengthen its actions against Iran.

India may be a Quad member, but describes [PDF] its relationship with Russia as a "special and privileged strategic partnership."

If Uncle Sam uses secondary sanctions to smack SMIC, or other Chinese chipmakers, India will have plenty to think about – especially as it ramps up efforts to create a tech manufacturing industry that sells to the world. ®

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