Given the changing role of China’s involvement in Hong Kong, the United States Department of Commerce has cancelled the preferential treatment it gave to sales of electronics to that country, Evertiq reported.

The report noted, “as Hong Kong is a major site of chip warehousing for manufacturers and distributors worldwide, the U.S. government’s withdrawal of preferential treatment is meant to directly curtail the risk that companies may export products that contain sensitive information, through Hong Kong, to China. This action is thus expected to drastically change the current geographical concentration of semiconductor products and the production strategy of chip manufacturers.”

In late April, 2020, the Commerce Department, to stop China, Russia and Venezuela from buying American products that could be used in making weapons and surveillance technology, expanded its export controls. The Expansion of Military End Use/User Controls (MEU) and the Removal of License Exception Civil End Users (CIV) have been put into effect. The Elimination of License Exception Additional Permissive Reexports (APR) Provisions had an implementation date of June 29, 2020, but as of yet were still under review.

Under its preferential treatment Hong Kong “saw the emergence of a substantial semiconductor spot market and became a warehousing hotbed for many chip manufacturers”. With this change, it is expected that the semiconductor and chip manufacturing and warehousing strategies will geographically change.

Taiwanese semiconductor companies may become of increasing importance as these changes are fully implemented and enforced. These changes will impact the semiconductor and chip industries substantially going forward.