China threatens retaliation against Japan for chip restrictions

China recently threatened serious economic retaliation against Japan if it imposed further restrictions on the servicing and sales of chip making equipment to Chinese companies. It’s reported that China could react by cutting Japan’s access to minerals which are essential for automotive production.

Cars are one of Japan’s biggest exports, and Toyota is one of the most influential organizations in the country. Toyota has also invested heavily into Taiwanese chipmaker TSMC’s plant in Kumamoto, so would certainly be amongst the most affected by the potential new Japanese export restrictions.

This comes as the US has applied pressure on Japan to align more strictly with its efforts to curb China’s technological power, specifically in semiconductor strategy. The US previously imposed an embargo on China to halt exports of the most sophisticated chips (primarily used in military hardware) from reaching the country, but it’s reported that some companies were working around the ban.

Chip War

Chinese domestic industry is not yet able to produce the most high tech chips which power some of the technologies that it leads in (especially AI), but has been able to access the capabilities through cloud computing services to circumvent US export restrictions.

The US has recently funded a program to establish chip manufacturing on US ground, but as it stands, Taiwan accounts for 68% of the semiconductor market. US senior officials are said to be working with Japanese counterparts to protect the supply of crucial materials.

Toyota and chip maker Tokyo Electron are amongst the most at risk if exports are affected, with the latter’s shares falling almost 2% following the news of the strained Japan/China relationship.

It’s not yet clear whether Japan will bow to US demands and introduce export restrictions, or what specific repercussions this would have on Japanese industry. Biden is said to be confident that an agreement will be reached by the end of the year.

Via Bloomberg.