Germany's Possible Export Ban On Semiconductor Chemicals To China: What It Means For The U.S

Germany could be moving forward with a plan to limit exports of key chemicals to China used in the manufacturing of semiconductors.

German leaders are taking lessons from recent history, as the country continues to face the consequences of an over-reliance on Russian gas imports.

People familiar with the matter told Bloomberg that the move is part of a package proposed by German Chancellor Olaf Scholz in an effort to limit the country's dependence on Chinese commerce, as CCP leader Xi Jinping continues to show friendliness to Russia's Vladimir Putin.

Parallel to the shadow of Russia's expansion efforts looming over Europe is an increasingly explicit race between the U.S. and China to lead the supply of semiconductors, which have become some of the most ubiquitous pieces of technology of present times, making them a key element in everything from consumer electronics to military instruments.

Merck KGaA and BASF SE BASFY, two German giants of the chemical industry, with a combined market value of over €111 billion ($122 billion), produce key elements used in the semiconductor supply chain, which has already experienced disruptions in recent years due to difficulties in global transportation and sourcing of raw materials.

Merck KGaA's website states that "almost every chip in the world uses one of [its] products or services," as the company also provides very specialized solutions for semiconductor manufacturing, like cleaning, etching, photolithograpy, chemical mechanical planarization, and wet deposition.

Related: US-India Ink Semiconductor Deal To Counter China’s Growing Tech Dominance Under Xi Jinping

The German government could bar the companies from exporting semiconductor products and services to China by adding those products to the country’s dual-use list, which imposes export controls on civilian-use items that are also liable to be used in military operations, according to Bloomberg.

This would further stall China's development of an advanced semiconductor industry, which today continues to lag behind Taiwan's and Korea's. China has been investing heavily in developing its own advanced chip making capabilities, including a $143 billion investment plan announced late last year.

If Germany were to only supply to the U.S. and its allies, the move could help boost the U.S. government's plan to onshore chip manufacturing, part of the CHIPS Act that President Joe Biden signed in 2022. The plan includes massive subsidies for the development of two plants in Arizona by Taiwan Semiconductor Mfg. Co. Ltd TSM, which are expected to cost about $40 billion to build.

Based on the news, BASF SE was down 3.8% at the time of publication on Thursday.

ETFs in the semiconductor sector were moving slightly higher.

• VanEck Semiconductor ETF SMH was up 0.7%.
• BlackRock’s iShares Semiconductor ETF SOXX was up 0.2%
• Direxion Daily Semiconductor Bull 3X Shares SOXL was up 0.45%

Other major stocks in the semiconductor sector experienced diverse trends.

• Micron Technology Inc MU was up 1%.
• Advanced Micro Devices, Inc. AMD was up 1%.

• Qualcomm Inc QCOM was down 0.1% .
• Intel Corporation INTC was up 2.1%

• TSMC TSM was up 1.7%
• Broadcom Inc AVGO almost didn't experience any change.

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