China Sues U.S. for Choking Off Semiconductor Industry

China has launched a World Trade Organization (WTO) case against the United States after the Biden administration imposed export controls on its semiconductor industry in October, the Chinese commerce ministry said on Monday.

It was Beijing's first material response to Washington's far-reaching sanctions, a decision the White House said was taken on national security grounds. The unprecedented intervention sought to retain American primacy in emerging technologies by kneecapping China's advanced chip-makers in the process, industry experts said at the time.

"China's lawsuit in the WTO is a necessary way to address our concerns through legal means and to defend our legitimate rights and interests," said the ministry's statement, which accused the U.S. of vague national security definitions and abusing export measures.

The "protectionist trade practice" threatened the stability of global industrial supply chains, the ministry argued.

China is the world's largest producer of commercial electronic devices, but U.S. and allied companies control critical chokepoints in semiconductor technology. Washington's sanctions blacklisted Beijing's manufacturers from accessing the chip-making know-how needed for cutting-edge processors.

Biden officials said the advanced chips, used in everything from supercomputing to artificial intelligence, were powering China's military modernization at the expense of U.S. national security.

The WTO's dispute settlement mechanism could take years to make a ruling, if at all. As part of the first step in the lengthy process, the U.S. now has 60 days to consult with China. If their disagreements aren't resolved, Beijing can request a panel to review the case.

Under international trade law, member states are granted exceptions when imposing trade restrictions on national security grounds. However, as the criteria are hard to accurately assess, the relevant clauses were expected to be cited in exceptional cases, and the world trade body typically has been loath to define them more rigidly.

China's decision to challenge American chip export controls came shortly after a WTO ruling against U.S. metal tariffs. The U.S. rejected the verdict, arguing the trade body had "no authority" to arbitrate cases involving threats to security. It has taken a similar position against Beijing's latest legal proceedings.

"As we have already communicated to the [People's Republic of China], these targeted actions relate to national security, and the WTO is not the appropriate forum to discuss issues related to national security," Adam Hodge, a spokesperson for the Office of the U.S. Trade Representative, said in a statement to the press.

If China were to secure a ruling in its favor, it could have the legal footing to impose retaliatory sanctions, but the WTO wouldn't be able to force a rollback of the controls in question. The U.S. would likely appeal the decision at the organization's appellate body.

But another WTO defeat for Washington could have significant demonstration value on the global stage to back Beijing's argument that the U.S. flouts international law when it wants to.

However, U.S. allies do appear to sympathize with the Biden administration's concerns about enabling China's access to next-generation technology.

Washington's hopes to get key players in the chip supply chain onside—at the expense of losing some Chinese market share—were boosted this week when both Japan and the Netherlands agreed in principle to join the export measures, Bloomberg reported on Monday.

With Japan's Tokyo Electron and Dutch lithography specialist ASML on board, the sanctions would conceivably cut off Chinese companies from the most-advanced chip-making hardware and expertise, and keep China's chip industry at least three generations behind.

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