Micron Aggression: The Right Response to Beijing’s Ban on the U.S. Chipmaker
On May 21, the Cyberspace Administration of China (CAC) determined that Micron Technology, Inc., a U.S. semiconductor firm, failed its cybersecurity review and that “critical infrastructure operators in China must halt procurement of Micron’s products,” (author’s translation). Many observers and policymakers in the United States view CAC’s decision as thinly veiled retaliation for recent U.S. actions restricting China’s access to advanced semiconductor technologies. The reality may be more complex and call for a more nuanced response from Washington.
It might be tempting for U.S. policymakers to respond forcibly to CAC’s action, retaliating against China or pressuring South Korea to prevent Samsung and SK Hynix, Micron’s primary competitors in China, from “backfilling” demand, i.e., selling similar chips to Micron’s customers. However, either response would play into China’s primary aim in targeting Micron: complicating Washington’s efforts to build an allied coalition to cut off China’s access to advanced semiconductor technologies.
To understand China’s motivations in targeting Micron, it is necessary to go back to October 7, 2022, when the Biden administration unveiled an extensive set of export controls on the most advanced types of semiconductors and the complex equipment needed to manufacture them. However, for the October 7 controls to be effective, the Biden administration would need to multilateralize them to prevent foreign competitors from backfilling demand. Japan and the Netherlands announced their own similar sets of controls on semiconductor technology exports earlier this year, but South Korea, whose firms play critical roles in the semiconductor manufacturing supply chain, has not yet followed suit.
South Korea’s top semiconductor firms, Samsung and SK Hynix, are global leaders in memory chip manufacturing, but they both also have significant sales and production platforms in China. Seoul has been reluctant to align its export controls with Washington. Instead, one-year exemptions from the October controls were granted to both Korean firms, and it seems these exemptions will be extended for another year as Washington and Seoul work to negotiate a longer-term solution.
Considering this background, the targeting of Micron appears to be a relatively savvy tactical play by China. Beijing is likely hoping to increase tensions between Washington and Seoul. Indeed, with Micron now at least partially prohibited from selling to Chinese buyers, it has been reported that the United States has asked South Korea to prevent its firms from backfilling behind Micron. Some U.S. lawmakers have even called for the administration to leverage extraterritorial measures should the Korean government not acquiesce to U.S. demands. In short, because of Beijing’s action, the United States is now asking South Korea to incur an even greater cost to align its semiconductor policy with Washington’s, when it was already hesitant to incur the initial price of expanded export controls.
That said, in keeping with Beijing’s demonstrated aversion to incurring domestic costs from its use of economic coercion (a central finding of a recent CSIS report), CAC’s new prohibitions on Micron seem unlikely to be very costly for Micron. This in turn makes it unlikely that China will achieve its aims of creating friction between Seoul and Washington. Even the high-end estimate of Micron’s revenue loss would amount to only a fraction of Samsung’s and SK Hynix’s total annual revenue, so forgoing backfilling should be a relatively small concession compared to the October 7 controls. Moreover, larger structural forces are pushing South Korea and the United States into closer alignment on China policy, epitomized by President Yoon Suk Yeol’s recent state visit to Washington.
China may receive some deterrent effect from its coercive actions against Micron. But insofar as the action undermines Beijing’s narrative that it is welcoming to foreign business, it could carry long-term costs for China, since U.S. allies and partners may be more willing to go along with Washington’s export strategy if they feel their firms will eventually lose access to China’s market anyway.
The main risk to U.S. interests posed by China’s targeting of Micron, then, is an overreaction. CAC’s prohibitions do not appear existential for Micron, and the chips that are impacted are presumably not those restricted by the October 7 controls themselves, making the national security imperative against backfilling not as compelling. Even if it may seem like a small ask, given the relatively small amount of revenue a firm like Samsung or SK Hynix stands to gain, the risk of further frustrating Seoul is not worth it precisely for the same reason.
The United States should instead exercise equanimity in its response. Diplomatic efforts should focus on drawing attention to the opaque and capricious manner in which China targets foreign firms, rather than on convincing South Korea to prevent backfilling. This will increase the costs on China for its use of economic coercion by countering Beijing’s narrative that it is open for foreign business. It also preserves diplomatic capital needed to bring South Korea into alignment on the October 7 controls, which focus on the most advanced semiconductors and the equipment needed to manufacture them. At the same time, it would demonstrate to Seoul that Washington understands the delicate political and economic situation in which the administration’s semiconductor controls put its key ally.
Matthew Reynolds is a fellow with the Economics Program at the Center for Strategic and International Studies in Washington, D.C.
Economics Program research intern Gregory Wood assisted in researching and drafting this article.