The U.S. threatened a chip blockade if Russia invaded Ukraine. Now Biden must weigh the pros—and cons—of following through

The U.S. is home to the world’s biggest names in the semiconductor industry—such as Intel, Qualcomm, and Nvidia—and U.S. companies create software that foreign rivals use to design their own chips. Blocking Russian access to key U.S. design tools and brand-name chips could cripple the Russian tech industry. All modern tech, including cars, smartphones, and missiles, are dependent on semiconductor supplies.

But U.S. industry leaders have cautioned that using the nation’s strength in computer chips as a stick against Russia would place the industry in “uncharted waters.”

“We are still trying to assess what the ripple effect may be to global supply chains,” the U.S. Semiconductor Industry Association said in a statement in January, when the White House first raised the possibility of weaponizing U.S. chip supplies.

In the short term, blockading Russia’s access to chips could spark countermeasures from Russia, which dominates the manufacture of components vital to chip production. In the long run, the move might weaken U.S. chip supremacy altogether.

What has the White House said?

On Wednesday, U.S. Deputy Treasury Secretary Wally Adeyemo told CNBC that if Putin invades Ukraine the U.S. would “cut him off from Western technology that’s critical to advancing his military.”

The White House hasn’t explicitly said how it would isolate Russia from Western tech, but analysts expect controls on semiconductor exports to be a core component of any new measures unveiled by Washington.

Currently, it remains unclear whether the U.S. would attempt to cut off semiconductor supplies to all Russian business or whether the White House would target companies related to Russia’s military, as well as industries that Putin has identified as vital strategic interests.

Putin has identified artificial intelligence and quantum computing—two fields heavily reliant on foreign chip imports —as strategically important to Russian development.

Has this happened before?

The U.S. has previously used its dominance in semiconductor production as a weapon against Chinese telecom equipment manufacturer Huawei Technologies.

In May 2020, as the Trump administration continued a campaign against Huawei that labeled the company a national security threat, the U.S. Department of Commerce prohibited suppliers from selling Huawei computer chips if U.S. technology had been used in any part of the chip development process.

The embargo effectively severed Huawei’s access to cutting-edge chips, which the company designed in-house using U.S. software. The blockade decimated the company’s smartphone business, forcing Huawei to sell one of its budget phone units and pivot its consumer unit to focus on smart car technology.

However, targeting a single company is more manageable than placing a blanket export ban over an entire country.

Will it work?

Although the U.S. dominates the market for chip design software, the world’s leading chip manufacturers are actually in Asia. Even U.S. chip giants like Intel outsource production to the world’s largest contract chip manufacturer, Taiwan Semiconductor Manufacturing Corp. (TSMC).

When the U.S. placed a blockade on chip sales to Huawei, it was TSMC that complied and severed ties with Huawei. While TSMC lost Huawei as a client, the company was able to patch the resultant revenue loss with gains from sales to U.S. companies, like Apple.

However, the U.S. has never before launched a chip blockade against an entire country—or entire industries within a country. Paul Triolo, technology policy lead at consulting group Albright Stonebridge Group, told Politico that if the U.S. weaponizes its lead in chip design, the fallout could encourage rivals to accelerate development of their own design businesses.

“At a minimum it adds to industry concerns around the unintended consequences of the U.S. government weaponizing U.S. technology dominance in the semiconductor sector,” Triolo said.

That risk might still take a few years to play out. China has spent hundreds of billions of dollars over decades in an attempt to catch up with U.S. chip supremacy and is still decades behind. That means Russia will have few allies to turn to if the U.S. does impose a ban. While China is capable of producing low-end chips for automobiles, it can’t produce the cutting-edge processors vital to supercomputer and quantum computer development, which Putin has flagged as strategic industries.

Meanwhile Japan, Singapore, and Taiwan had reportedly indicated support for a broad scale embargo against Russia in the event of a Ukraine invasion. Taiwan is the world’s leading chip manufacturer, while Japan has prowess in automotive chip production. Singapore is also a major production site for Qualcomm, and a Singaporean company owns U.S.-based manufacturer Broadcom.

Will it hurt the U.S.?

Although the U.S. dominates in chip design and has a decent amount of domestic manufacturing, semiconductor production is a global industry, and the U.S. is not immune to attacks on its own chip supply.

Ukraine is a major exporter of purified neon gas, which is used in the laser equipment that etches circuit designs onto silicon wafers, creating chips. Ukraine refines neon and other gases vital to chip production from the byproducts of Russian steel manufacturing. When Russia annexed Crimea in 2014, the cost of neon shot up 600% overnight.

Russia is also the world’s leading producer of the metal palladium, which is used in semiconductors, producing more than 45% of global supply. The cost of the commodity increased 52% since mid-December, as tensions between Russia and Ukraine escalated.

If the U.S. tries to sever Russia’s access to chips, Russia could easily retaliate and put a squeeze on the industry choke points it controls.