This piece is part of the series “All About China”—a journey into the history and diverse culture of China through short articles that shed light on the lasting imprint of China’s past encounters with the Islamic world as well as an exploration of the increasingly vibrant and complex dynamics of contemporary Sino-Middle Eastern relations. Read more ... 

Semiconductors — chips that can process digital information — have become an essential part of daily life. They can be found in almost everything from computers and mobile phones to cars, home appliances, and medical equipment. They are a key enabling technology that will shape the future of digital economies worldwide. But the semiconductor market is notoriously cyclical, subject to gluts and shortages.[1] The current chip shortage,[2] which began in early 2020, is the result of surging demand for products containing chips and pandemic-driven production disruptions, as well as other unforeseen events that have snarled supply chains and logistics.[3]

The US Department of Commerce reported that shortages of semiconductors dented economic growth by nearly a quarter-trillion dollars in 2021 and revealed the worrying extent to which the US relies on Taiwan for the most advanced chips.[4] The economic fallout and heightened concern about vulnerabilities and dependencies resulting from the disruptive shortage has also fueled the tech war between the United States and China. Spurred to action, Washington has adopted a strategy that not only seeks to boost US competitiveness and tackle supply chain fragility but to thwart China’s aim to produce advanced semiconductors.

What began in 2019[5] as an effort by the Trump administration to cripple Huawei has lately expanded, as the US has introduced sweeping rules aimed at cutting China off from key chips and components for supercomputers. Washington has signaled that it will not hesitate to pursue extraterritorial measures if partners fail to fall in line with the new restrictions. Thus, the US-China battle over microchips has emerged as a proxy for geopolitical competition which Washington’s allies and partners might prefer to avoid but are nonetheless likely to be drawn into. For America’s Gulf allies and Israel, this development poses fresh challenges and difficult choices.

Critical Chips and Chokepoint Threats

Semiconductor chips and chip-making equipment are the backbone of modern digital economies. A multitude of applications, such as artificial intelligence and machine learning (AI/ML), Internet of Things (IoT), autonomous and electric vehicles, high-performance computing (HPC), aerospace, satellite communications, 5G/6G, and smart cities depend on advancements in semiconductor technologies. Semiconductors are also the raw material for nearly every aspect of modern warfighting and battlefield management — radar systems, satellites, GPS receivers, missiles, tanks, and planes.

Semiconductors are produced in a capital-intensive, time-consuming, and complex value chain[6] — a value chain characterized by chokepoints and critical dependencies. Advanced semiconductor manufacturing capabilities are highly concentrated among relatively few countries and companies.[7] Nearly three-quarters of fabrication capacity for logic chips lies in East Asia.[8] Taiwan, led by Taiwan Semiconductor Manufacturing Co. (TSMC), dominates the foundry industry with a 53.6% global share of the market.[9] Korea’s Samsung Electronics Co., though a distant second to industry leader TSMC, nonetheless has captured 16.5% of the market.[10] ASML Holding NV of the Netherlands has a near-monopoly on high-end semiconductor equipment fabrication.[11] Japanese companies Shin-Etsu Chemical and Sumco alone control 60% of the global market for silicon wafers.[12]

The industry-wide shortage of chips was a wake-up call for American policymakers, confirming US supply chain vulnerabilities and the dire risks they pose to the economy. Although five of the world’s biggest eight semiconductor companies — Intel, Micron, Qualcomm, Broadcom, and Nvidia — are based in the US, microchip production largely takes place in Asia. The United States once led the world in manufacturing and as recently as the 1990s 37% of microchips were made on US soil, but today just 12% are made in America.[13] US companies have maintained a strong grip on the Fabless IC segment (i.e., design and sale of hardware and chips), though America’s edge in microchip design has been eroding.[14]  

American chipmakers are “highly dependent” on sales to China.[15] Under the “Made in China 2025” initiative, launched in 2015, Beijing has targeted US dominance in chips, artificial intelligence (AI), and supercomputers. Since then, China has closed the gap with the United States in state-of-the art technology.[16] But foreign dependence is not a one-way street. China relies heavily on foreign suppliers for critical equipment and software at each stage of the value chain. China’s high degree of external dependence, especially for high-end chips, has not substantially changed despite massive investments.[17] China imports more than $300 billion in semiconductors and relies on equipment from the US and its allies.[18] In fact, China has no viable alternative to using American technology, at least in the short term.[19] This dependence has left the Chinese semiconductor industry greatly exposed to US export restrictions — a vulnerability that the Biden administration, building upon the actions of its predecessor, is determined to exploit. Indeed, as a recent CSIS report put it: “In weaponizing its dominant chokepoint positions in the global semiconductor value chain, the United States is exercising technological and geopolitical power on an incredible scale.”[20]

Choking Off China’s Chip Capacity

Over the past decade, US officials have come to view technological interdependence with China as a threat and have sought to decrease the flow of technology products, services, and inputs to and from China.[21] The semiconductor sector has emerged as a focal point of these efforts, with concerns centering on military end use (MEU) diversion and commercial exploitation of American technological innovation. Both the Trump and Biden administrations have tightened export restrictions;[22] added Huawei and its affiliates[23] as well as China’s top chip producer SMIC to the Entities List,[24] thereby limiting their access to key US enabling technology; and blocked Chinese attempts to acquire US-listed technology companies.[25]

But with the passage of the CHIPS and Science Act of 2022 in August and the regulatory filing issued by the Commerce Department Bureau of Industry and Science (BIS), the United States entered a new era of industrial policy and took its tech war with China to a new level.[26]

On August 9, after more than two years of wrangling and revisions, the Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 (CHIPS Act) was signed into law, having garnered strong bipartisan support in the otherwise polarized Congress.[27] The ACT aims to surge production of US-made semiconductors, revitalize America’s scientific research and technological leadership, and bolster economic and national security. But in addition to seeking to foster a robust domestic semiconductor manufacturing ecosystem, the CHIPS Act takes aim at China. The Act prohibits funding recipients from expanding semiconductor manufacturing in China for a period of ten years from receipt of the award and countries defined by US law as posing a national security threat to the United States.[28]

On October 7, the Commerce Department’s Bureau of Industry and Security (BIS) issued a comprehensive package of export restrictions targeting China’s indigenous development of critical technologies, with an emphasis on semiconductors.[29] Under the rules, US companies must cease supplying Chinese chipmakers with semiconductor manufacturing equipment (SME) — including SME components — that can produce relatively advanced chips unless they first obtain a license. In addition, the new regulations add controls on some semiconductor production items and transactions for specific end-uses. The rules also require a license for any “U.S. persons” (i.e., citizens, permanent residents, or green-card holders) to work with Chinese companies contributing to advanced semiconductor production in China. A second set of regulatory actions added China’s top memory chipmaker YMTC and 30 other Chinese entities to a list of companies that American officials cannot verify as trusted to receive sensitive US technology exports.[30]

The new regulatory measures reflect Washington’s concern that cutting-edge chips and equipment are fueling China’s development of new weapons and enhancing its surveillance network.[31] They also reflect the firm conviction that seems to be widely shared among US policymakers, that enhancing America’s long-term economic competitiveness requires a determined effort to prevent China from producing leading-edge chips. Here, the speech delivered in September by National Security Adviser Jake Sullivan is telling. Sullivan stated the administration was seeking to shed the old approach of maintaining a “relative” advantage in key technologies to achieving “as large of a lead as possible.”[32] Chinese officials slammed the administration’s move, calling it “sci-tech hegemony.”[33] Experts have referred to it variously as “tech containment,”[34] “a new U.S. policy of actively strangling large segments of the Chinese technology industry,”[35] and “a massive escalation of technology decoupling.”[36]

Within a week of the filing, American chip equipment suppliers Lam Research, Applied Materials, and KLA Corporation had suspended sales and services to Chinese semiconductor manufacturers.[37] Yet, although the US remains the undisputed overall leader in the semiconductor industry,[38] other countries possess highly advanced technologies and lead in critical niches. For the new US approach to prevail will require bringing allies on board. Washington appears to have made some initial headway in doing so. Taiwan’s Economy Ministry issued a statement signaling its chip companies would abide by the new regulations.[39] Bloomberg reported in mid-December that Japan and the Netherlands were planning to announce curbs on the sale of advanced SME to China, thus aligning their policies with US restrictions.[40]

US Mideast Allies: On the Cutting Edge or the Bleeding Edge?

Israel is already one of the world’s leading innovation hubs,[41] while digital transformation is at the center of economic diversification strategies across the GCC.[42] For Israel — deeply burrowed into the global semiconductor supply chain — and for the Gulf Arab states — seeking to accelerate the digital transformation of their economies — the recent US curbs on semiconductors cannot have been welcome news.

The Israeli semiconductor industry, several decades in development, is flourishing.[43] The “startup nation,” which has become a significant player in the intricate semiconductor global supply chain, has placed its focus on the R&D aspect of semiconductors. Almost all the major international chip developers have a presence in Israel, including American tech giants Intel, Apple, Amazon, and Microsoft. In fact, over the past decade, Intel has acquired a half dozen Israeli chip companies.[44] Chinese tech companies’ engagement with the Israeli semiconductor sector has grown as well,[45] drawing increasing US  scrutiny and pressure to “develop risk mitigation” measures to protect research and technology.[46] Plugged as they are into the global chip ecosystem, some Israeli semiconductor companies face potentially substantial revenue losses and staff layoffs as the result of the new US export restrictions.[47]

Although the technology landscape in the Gulf differs from and is far less mature in the semiconductor space than that of Israel, US export controls nonetheless do pose challenges. Digital transformation is central to the national strategies of all six GCC states. Earlier this year, for example, the UAE Cabinet approved the creation of the Council for Digital Economy and launched a Digital Economy Strategy that seeks to double the contribution of the sector to the national GDP from 9.7% (2022) to over 20% by 2031.[48]  Indeed, UAE and the Kingdom of Saudi Arabia (KSA) are in many ways the Gulf pace-setters — forging ahead in efforts to digitalize their economies, including by attempting to breaking into the global semiconductor market through the localization of production and talent. Investing in and localizing the manufacturing of critical products and semiconductors is perforce high on the list of priorities of the UAE,[49] as it is for Saudi Arabia,[50] if only to guard against delays in achieving their economic diversification goals but also to fulfill their ambitions to establish themselves as tech powers.[51]

Within the Gulf, the UAE was the first-mover in pushing the localization agenda, with prominent players such as Mubadala investing in tech services, including artificial intelligence (AI), cloud computing, space systems, and telecommunications. Likewise, Saudi Arabia has launched ambitious programs and megaprojects. The Kingdom’s NEOM Tech & Digital Company is building advanced digital infrastructure in Oxagon[52] to support new data centers, Artificial Intelligence (AI) and advanced robotics operations, and high-speed networking. These activities by the Gulf’s economic heavyweights have dovetailed with China’s Digital Silk Road (DSR) efforts to create a digitalized, supporting environment for Chinese Belt and Road port-production activities in the region.[53] It is this alignment of interests and ambitions that has enabled China to embed its physical and digital technology into the economies of the Gulf states,[54] in turn lending momentum to US efforts to curb the use of Chinese technology.

Yet, Huawei has participated in building 5G networks in most Gulf states despite US concerns.[55] Furthermore, Gulf officials have plainly stated that they remain open to cooperating with China in AI, for example, “as long as it makes economic sense.”[56] Against this backdrop, it seems likely that the recent US semiconductor export restrictions will test the resilience of Gulf-China technology cooperation and incur the risk of further straining US-Gulf relations.

At the same time, it is important to take note of new and promising areas of cooperation in the semiconductor space involving US Mideast allies that do not run counter to Washington’s efforts to hobble China’s capabilities. UAE’s strategic investments in the semiconductor sector have been deployed in the United States.[57] Taiwan-based Foxconn, Apple Inc.’s biggest assembler, has been in discussions to set up a chip foundry in NEOM.[58] Last March, Saudi Arabia’s Advanced Electronics Company (AEC), Tokyo-based Yokogawa Electric Corporation, and Aramco signed an MoU aimed at accelerating the Kingdom’s digital ecosystem development, including localization of semiconductor chip manufacturing.[59] International Semiconductor Consortium (ISMC) — a joint venture between Abu Dhabi-based Next Orbit Ventures and Israel’s Tower Semiconductors (recently acquired by Intel Corp) has reportedly partnered to invest in the establishment of India’s first semiconductor manufacturing plant, in Mysuru, Karnatika.[60] Ultimately, US interests would be best served by a balanced approach, one that seeks not just to starve Chinese tech companies of cutting-edge chips and equipment but promotes cooperation among its Mideast and other allies to develop and maintain access to trusted, assured, and state-of-the-art semiconductors.


Heightened concerns about lagging competitiveness plus critical vulnerabilities and dependencies have converged with intensifying strategic competition to spur US policymakers to action. Whichever way one chooses to label or describe these recent efforts, they lead to the same conclusion: Washington has pivoted from an “outcompete” to a “damage-and-delay” approach to addressing the China challenge in the semiconductor space. This not only serves as additional confirmation that the ‘China hawks’ are ascendant in Washington but portends harsher US measures in other tech sectors, a further attenuation of US-China relations, and a ratcheting up of the pressure on third parties, including MENA countries and companies, to choose sides or take cover.


[1] “Why is there a shortage of semiconductors?” The Economist, February 25, 2021.

[2] Severe chip shortages also occurred in 1988, 2000, 2004, and again in 2011.

[3] The March 2021 fire at the Renasas facility in Japan, for example, took production offline for three months. See: An intense winter storm in February 2022 caused Samsung, Infineon, and NXP to shut down their plants in Texas. See:   

[4] US Department of Commerce, “Analysis for CHIPS Act and BIA Briefing,” Press Release, April 6, 2022,; Ana Swanson and Katie Edmondsen, “Commerce Dept. Survey Uncovers ‘Alarming’ Chip Shortages,” New York Times, January 25, 2022,; and White House, “FACT SHEET: Securing America’s Critical Supply Chains,” Press Release, February 24, 2021,   

[5] “BIS Publishes Final ‘Direct Product’ Rule for Huawei and Entity List Compliance Obligation Clarifications,” Crowell, August 21, 2020,

[6] Ian King, Adrian Leung, and Demetrios Pogkas, “The Chips Shortage Keeps Getting Worse. Why Can’t We Just Make More?” Bloomberg, May 6, 2021,

[7] Michaela D. Platzer, John F. Sargent Jr, and Karen M. Sutter, “Semiconductors: U.S. Industry, Global Competition, and Federal Policy,” US Congressional Research Service (CRS) Report, October 26, 2020,

[8] Ibid.

[9] Alan Crawford et al., “The World is Dangerously Dependent on Taiwan for Semiconductors,” Bloomberg, January 25, 2021,

[10] Jeong-Soo Wang, “Samsung Elec to expand foundry business to tackle TSMC,” Korea Economic Daily, October 24, 2022,

[11] Katie Tarasov, “ASML is the only company making the $200 million machines needed to print every advanced microchip. Here’s an inside look,” CNBC, March 23, 2022,

[12] Julian Ryall, “Japan strengthens hold on semiconductor materials amid global chip shortage,” South China Morning Post, September 28, 2021,

[13] US Department of Commerce, “Analysis for CHIPS Act and BIA Briefing,” Press Release, April 6, 2022,

[14] Ramiro Palma, Raj Varadarajan, Jimmy Goodrich, Thomas Lopez, and Aniket Patil, The Growing Challenge of Semiconductor Design Leadership, Semiconductor Industry Association (SIA), November 2022,


[16] Sam Kim, “How China Became a Threat to the US’s Tech Leadership,” Bloomberg, October 20, 2022,  

[17] Alicia García-Herrero and Pauline Weil, “Lessons for Europe from China’s quest for semiconductor self-reliance,” Bruegel Policy Contribution 19 (November 2022),; and Mathieu Duchâtel, “The Weak Links in China's Drive for Semiconductors,” Institut Montaigne Policy Paper 1 (2021),

[18] Christopher Thomas, “Lagging but motivated: the state of China’s semiconductor industry,” TechStream, January 7, 2021,; and “China to import $300 billion of chips for third straight year: industry group,” Reuters, August 26, 2020,  

[19] Ben Murphy, “Chokepoints: China’s Self-Identified Strategic Technology Import Dependencies,” Center for Security and Emerging Technology (CSET), May 2022,

[20] Gregory C. Allen, Choking Off China’s Access to the Future of AI,” Center for Strategic and International Studies (CSIS) (October 2022): 7,

[21] Jon Bateman, US-Technological “Decoupling”: A Strategy and a Framework, Carnegie Endowment for International Peace (2022): 9,

[22] Matt Sheehan, “Biden’s Unprecedented Semiconductor Bet,” Carnegie Endowment for International Peace, October 27, 2022,

[23] Shawn Donnan, “U.S. Places Huawei and Scores of Affiliates on Export Blacklist,” Bloomberg, May 16, 2019,

[24] US Department of Commerce, “Commerce Adds China’s SMIC to the Entity List, Restricting Access to Key Enabling U.S. Technology,” Press Release, December 18, 2020,

[25] “U.S. blocking Chinese acquisitions of global tech firms a ‘red flag’ - Chinese state-backed tabloid,” Reuters, September 2, 2021,

[26] US Federal Register, “Implementation of Additional Export Controls: Certain Advanced Computing and Semiconductor Manufacturing Items; Supercomputer and Semiconductor End Use; Entity List Modification,” October 13, 2022,

[27] US Congress, 136 STAT. 1366 PUBLIC LAW 117–167—AUG. 9, 2022,; and White House, FACT SHEET: CHIPS and Science Act Will Lower Costs, Create Jobs, Strengthen Supply Chains, and Counter China, August 9, 2022,

[28] See Act Sec. 103(b)(5) (amending the NDAA 2021 Sec. 9902 by adding (6)(C)(ii)).

[29] US Commerce Department, Bureau of Industry and Security (BIS), “Commerce Implements New Export Controls on Advanced Computing and Semiconductor Manufacturing Items to the People’s Republic of China (PRC),” October 7, 2022,

[30] Karen Freifeld and Alexandra Alper, “U.S. adds China's YMTC and 30 other firms to ‘unverified’ trade list,” Reuters, October 7, 2022,; and Stephen Nellis, Karen Freifeld, and Alexandra Alper, “U.S. aims to hobble China's chip industry with sweeping new export rules,” Reuters, October 10, 2022,

[31] John D. McKinnon and Asa Fitch, “U.S. Restricts Semiconductor Exports in Bid to Slow China’s Military Advance,” Wall Street Journal, October 7, 2022,; and Ana Swanson, “Biden Administration Clamps Down on China’s Access to Chip Technology,” New York Times, October 7, 2022,

[32] White House, “Remarks by National Security Advisor Jake Sullivan at the Special Competitive Studies Project Global Emerging Technologies Summit,” September 16, 2022,

[33] Foreign Ministry of the People’s Republic of China, “Foreign Ministry Spokesperson Mao Ning’s Regular Press Conference on October 8, 2022,”

[34] Mohammed Soliman, “Tech Containment is Core to Washington’s Cold War 2.0 Strategy,” National Interest, October 27, 2022,

[35] Gregory Allen, “Choking Off China’s Access to the Future of AI,” Center for International and Strategic Studies (CSIS), October 11, 2022,

[36] Bill Bishop, “Plenum communique and Party Congress chatter; Response to US semiconductor decoupling; Another defense of dynamic zero-Covid,” Sinocism, October 12, 2022,

[37] Qianer Liu, Kathrin Hille, and Yuan Lang, “World’s top chip equipment suppliers halt business with China,” Financial Times, October 13, 2022,

[38] Antonio Varas, Raj Varadarajan, Jimmy Goodrich, and Falan Yinug, “Government Incentives and U.S. Competitiveness in Semiconductor Manufacturing,” SIA/BCG, September 2020,

[39] “Taiwan signals its chip firms will follow new U.S. rules on China,” Reuters, October 8, 2022,

[40] Takashi Mochizuki, Cagan Koc, and Peter Elstrom, “Japan to Join US Effort to Tighten Chip Exports to China,” Bloomberg, December 12, 2022,

[41] Israel ranked 7th in Bloomberg’s Innovation Index and 15th among high-income countries and 1st in the MENA region in the World Intellectual Property Organization (WIPO) Innovation Index for 2021. See, respectively, “South Korea Leads World in Innovation as U.S. Exits Top Ten,” i24News, February 11, 2021, and Global Innovation Index 2021,

[42] Jad Haddad, Jean Salamat, Charbel Trad, and Amanda Tu, “The Eight Digital Trends Defining the GCC’s Future,” OliverWyman (March 2022),

[43] Neal Leavitt, “Israeli Semiconductor Industry Continues to Thrive, but Some Clouds May Be on Horizon,” IEEE Computer Society, n/d,

[44] Ricky Ben-David, “Intel to acquire Israeli firm Tower Semiconductor for $5.4 billion,” Times of Israel, February 15, 2022,

[45] Agmon David Porat, “Israel’s Semiconductor Landscape,” Linkedin, August 22, 2021,; Tova Cohen and Steven Scheer, “Exclusive: Israel’s chip sales to China jump as Intel expands,” Reuters, March 19, 2019,; Jia Shaoxuan, “Israel: The Next Strategic Point for Sino-US Semiconductor Competition?” AI Insights Weekly, December 13, 2022,

[46] US Deputy Assistant Secretary of State for Global China Issues Dr. Jung H. Pak, quoted in Lahav Harkov, “US wants ‘more action’ from Israel on China tech investments,” Jerusalem Post, December 8, 2022,

[47] Assaf Gilead, “‘Globes’ examines the ramifications for Israel’s tech sector of the latest US chip export controls.” Globes, October24, 2022,

[48] “UAE approves strategy to double digital economy's contribution to GDP,” Zawya, April 11, 2022,

[49] Mohammed Soliman, “Strategic Start-Ups: The UAE Is Betting Big on Semiconductors,” National Interest, July 16, 2022,

[50] “Saudi Arabia Launches First Regional Program for Electronic Chips,” Asharq Al-Awsat, March 31, 2022,

[51] Soliman, “Strategic Start-Ups: The UAE is Betting Big on Semiconductors.” 

[53] Andre Wheeler, “China’s Digital Silk Road (DSR): the new frontier in the Digital Arms Race?” Silk Road Briefing, February 19, 2020,

[54] Mordechai Chaziza, “China-GCC Digital Economic Cooperation in the Age of Strategic Rivalry,” Middle East Institute, June 7, 2022,; “Gulf states go digital with China,” East Asia Forum,; John Calabrese, “China’s digital inroads into the Middle East,” East Asia Forum, October 19, 2022,; and N Janardhan, East Asia Forum, November 30, 2022,

[55] Aziz El Yaacoubi and Eduardo Baptista, “Saudi Arabia signs Huawei deal, deepening China ties on Xi visit,” Reuters, December 8, 2022,

[56] Nesreen Bekheit, “UAE open to China AI despite U.S. concerns: minister,” Nikkei Asia, October 15, 2022,

[57] Soliman, “Strategic Start-Ups: The UAE Is Betting Big on Semiconductors.” 

[58] Stephen Kalin and Summer Said, “Apple Supplier Foxconn in Talks to Build $9 Billion Factory in Saudi Arabia,” Wall Street Journal, March 14, 2022,

[59] “AEC Signs MoU with Saudi Aramco and Yokogawa to Localize the Fabrication of Semiconductors and Manufacturing of Digital Products,” SAMI Advanced Electronics, March 30, 2022,

[60] Leslie D’Monte and Prasid Banerjee, “Karnataka may become the first state to have a chip fab,” Mint, November 17, 2022, See also: John Reed, “India’s high-stakes bid to join the global semiconductor race,” Financial Times, September 1, 2022,


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