Some companies are resisting pressure to take sides in the “chip war”

A new study has shown why German companies are refusing to take part in the US trade war with China over semiconductor chips, a key component of modern electrical devices.

Researchers at King’s College London and the University of Sussex have discovered links between German carmakers such as Mercedes-Benz, BMW and Volkswagen and the country’s semiconductor firms. Since car companies have become dependent on Chinese markets and suppliers, the researchers say this explains why Germany is resisting US demands to exclude China from semiconductor supply chains in the ongoing global trade dispute known as the “chip war.”

Dr Joseph Baines of the Institute of European and International Studies at King’s College said: “Although the technology conflict is primarily driven by governments, it is being fought through companies. This makes corporate interests a key variable in US attempts to isolate the Chinese semiconductor industry.”

Semiconductors are used in modern electronic devices such as smartphones, medical devices and routers, and are called the “world’s most important technology” in a 2022 book on the subject. The industry is worth more than $500 billion and is expected to double by 2030.

Dr. Steven Rolf of the University of Sussex Business School said: “China spends more money on importing semiconductors than on oil, and the US is using all its influence to get European companies to turn off the money tap. The pressure is enormous. That’s why it’s so interesting to see how German players ignore the calls for a separation or decoupling from China.”

“When you see how closely intertwined the interests of the German automotive and semiconductor industries are, it makes sense. They are stuck in the middle, exposed to US powers in technology and China in automotive. At the moment it looks like they are sticking with the latter.”

The study finds that German semiconductor firms are no more dependent on Chinese markets than those in Japan or South Korea, countries that support American efforts and have even withdrawn from China altogether. But what the researchers call “secondary engagement,” through ties to other key industries such as the automotive industry, has led them to defy the U.S. embargo.

Dr Julian Germann of the University of Sussex’s School of Global Studies added: “Germany’s semiconductor industry may not be the largest, but its strategic importance to the US-China chip war is undeniable. The calculated disregard by companies on the front lines of US-China competition suggests that the next American president must increase pressure on Germany to enforce tech sanctions against China.”

The paper, published in Politics and Governanceanalyzes new trade data sets and corporate annual reports. It is part of an ongoing study on the role companies around the world are playing in the US-led initiatives to decouple their economic relations with China.