A teardown of the new Mate 60 Pro smartphone reveals a Chinese-made seven nanometer chip. Washington is worried. It has imposed a series of sanctions designed to prevent China from manufacturing such sophisticated semiconductors.

But Huawei’s breakthrough does not mean US sanctions are failing. A close look suggests that Beijing’s technology lags the West by at least a few years. Instead of declaring that sanctions are a failure, Washington and Brussels should tighten them — focusing on what China exports, not what it imports.

Huawei semiconductors are larger and consume more power than the most advanced Western models, limiting the battery life of the phones designed with them. They also are produced with outdated imaging technology – DUV (Deep Ultraviolet) lithography, which predates the EUV technology that world-leader ASML has been banned from selling to China. The choice is costly. DUV produced seven nanometer chips result in 50% yield. EUV made chips obtain 90% yields.

For any profit-minded company, such low yields would render a mass-market chip loss-making and unviable. The conclusion is inescapable. China is producing the chips for strategic, not commercial, reasons — to undermine US export restrictions. Politics played an important role. Huawei’s launch coincided with a visit to Beijing by US Commerce Secretary Gina Raimondo.

Even so, Washington should avoid celebrating. Huawei and China are not alone in lagging on seven nanometer production. The US is also falling behind. The culprit is not sanctions, but US national champion Intel’s late adoption of EUV. The delay put Intel a generation behind Taiwan Semiconductor (TSMC).

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Intel has tried to catch up with a $20 billion investment to build two Arizona fabs producing seven nanometer chips. Originally scheduled to open this September, Intel has now delayed them to September 2024. Without US government subsidies in the Chips Act, Intel might not even have been able to go ahead.

Intel’s missteps led the US to make subsidies available to non-US semiconductor companies. TSMC and Samsung fabs in the US are scheduled to come online in 2024 and 2025, the former reportedly capable of making five nanometer chips. In the meantime, smartphone chip designers Apple and Qualcomm will continue to rely on Taiwanese production.

The policy consequences are significant, though not straightforward. Although US export controls appear to have been unsuccessful in stopping China Inc., from producing sophisticated chips, Beijing has paid a high price for a foothold, and will have to pay much more to climb up the ladder.

The Western goal should be to increase this cost — and make sure that China is unable to subsidize its way to industrial domination. Western weakness allowed China to flood Europe and the US with solar panels made with forced labor. We should not allow the same disaster to happen with semiconductors and smartphones.

Some might argue that the Huawei Mate 60 Pro should be banned in both the EU and US, accusing China of using stolen process technology and stolen intellectual property or of threatening national security. That would be overreach. It is impossible to link these actions directly to this model, or to show that the Huawei phone is more dangerous than any other Chinese-brand smartphone.

A preferable response would be to impose a 50% import tax on the Mate 60 Pro and derivatives, on grounds of unfair trading. State-subsidized production of the key chip is distinct from a state investment in a production facility, or research and development.

Export restrictions cannot win chip wars. They can only change the playing field. We cannot prevent Huawei from selling in China. We can only help save our own chip industry and help our phone designers to stay ahead in the global tech race.

Christopher Cytera is a non-resident senior fellow with the Digital Innovation Initiative at the Center for European Policy Analysis and a technology business executive with over 30 years of experience in semiconductors, electronics, communications, video, and imaging.

Bandwidth is CEPA’s online journal dedicated to advancing transatlantic cooperation on tech policy. All opinions are those of the author and do not necessarily represent the position or views of the institutions they represent or the Center for European Policy Analysis.

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