The U.S. Commerce Department has announced a significant policy change regarding the sale of semiconductor equipment to China. Initially, certain companies were granted exemptions from the extensive restrictions imposed in 2022. However, these exemptions will be revoked in 120 days, as detailed in a recent statement from the department. The revocations are part of a broader strategy aimed at controlling the flow of advanced technology to China.
According to the Commerce Department, while the United States plans to process license applications for companies to maintain their existing facilities in China, it will not permit any expansion of capacity or technological upgrades. SK Hynix has expressed its commitment to maintaining open lines of communication with both the Korean and U.S. governments to mitigate the impact of these changes on its operations. In contrast, Samsung has yet to respond to requests for comment regarding the situation.
The South Korean government has conveyed to the U.S. Commerce Department the critical nature of stable operations for its semiconductor companies in China. The country's industry ministry emphasized that the stability of these operations is vital for the overall health of the global semiconductor supply chain. Consequently, South Korea will continue discussions with Washington to alleviate the adverse effects on its semiconductor sector.
A spokesperson for China's commerce ministry has expressed opposition to the U.S. decision, stating that Beijing will take necessary measures to protect the legitimate rights and interests of its enterprises. Following this announcement, shares of major semiconductor equipment manufacturers such as Lam Research fell by 4.4%, Applied Materials dropped by 2.9%, and KLA shares decreased by 2.8%.
In June, the U.S. Commerce Department hinted at the possibility of revoking authorizations for semiconductor equipment sales, prompting speculation that the U.S. was preparing for potential breakdowns in trade negotiations with China. Although a tariff agreement was discussed in July, South Korean President Lee Jae Myung left a summit with U.S. President Donald Trump without a formalized deal. The ongoing trade war has imposed 30% tariffs on Chinese imports to the U.S. and 10% tariffs on U.S. goods exported to China, with these rates set to remain in place until November.
This policy shift presents challenges for Korean chipmakers operating in China, as noted by Chris Miller, author of "Chip War." He stated that without additional measures against Chinese firms like YMTC and CXMT, there is a risk that the market will open up for these Chinese companies at the expense of their Korean counterparts. The situation is further complicated by a backlog of thousands of license applications from U.S. companies waiting to export goods and technology to China, including critical semiconductor manufacturing equipment.
Currently, foreign chipmakers such as Samsung and SK Hynix hold a status known as Validated End User (VEU), which simplifies the process for U.S. suppliers to ship goods to them. However, the revocation of exemptions means that this VEU status will be removed, complicating future transactions. As this situation develops, the semiconductor industry is closely monitoring the implications of U.S. policy changes and their potential impact on global supply chains.
Reporting by Karen Freifeld; additional reporting by Jack Kim in Seoul and Casey Hall in Shanghai; editing by Chris Sanders, Diane Craft, and Jamie Freed.
