New U.S. Export Controls Aim to Curtail China’s Access to Advanced Semiconductor Technology

Over the past two weeks, the Biden administration has issued a series of regulations intended to halt China’s development of advanced technologies. The measures restrict the export of advanced chips, design software, and semiconductor manufacturing equipment that are crucial to China’s military, AI, and supercomputing initiatives. While the impact of these regulations remains to be seen, this “major watershed” demonstrates a significant U.S. policy shift towards a more aggressive approach to China, and risks accelerating technological and economic decoupling between the two countries across a wider swath than the targeted industries. In The New York Times on Thursday, Ana Swanson and Edward Wong reported on Biden’s global campaign against China’s tech ambitions:

The administration’s concerns about China’s tech ambitions culminated last week in the unveiling of the most stringent controls by the U.S. government on technology exports to the country in decades — an opening salvo that would ripple through global commerce and could frustrate other governments and companies outside China.

[…] The controls could be the beginning of a broad assault by the U.S. government, [Matthew Pottinger, deputy national security advisor in the Trump administration,] said.

“The Biden administration understands now that it isn’t enough for America to run faster — we also need to actively hamper the P.R.C.’s ambitions for tech dominance,” he said, referring to the People’s Republic of China. “This marks a serious evolution in the administration’s thinking.” [Source]

Previewing the administration’s approach last month, National Security Advisor Jake Sullivan stated that the U.S. needed to change its previous policy of maintaining only “relative” advantages over China in key technologies: “We previously maintained a ‘sliding scale’ approach that said we need to stay only a couple of generations ahead. That is not the strategic environment we are in today. Given the foundational nature of certain technologies, such as advanced logic and memory chips, we must maintain as large of a lead as possible.” Justifying this new approach in its announcement of the export controls last week, the U.S. Commerce Department argued that these technologies help the Chinese government create advanced military systems, including weapons of mass destruction, and commit human rights abuses

At the Center for Strategic and International Studies, Gregory C. Allen summarized the “chokepoint” technologies in the global semiconductor supply chain over which the U.S. is exerting control with these new regulations

The most important chokepoints in the context of this discussion are AI chip designs, electronic design automation software, semiconductor manufacturing equipment, and equipment components. The Biden administration’s latest actions simultaneously exploit U.S. dominance across all four of these chokepoints. In doing so, these actions demonstrate an unprecedented degree of U.S. government intervention to not only preserve chokepoint control but also begin a new U.S. policy of actively strangling large segments of the Chinese technology industry—strangling with an intent to kill.

[…] There are four interlocking elements of the new policy targeting different segments of the semiconductor value chain, and all elements must be understood simultaneously to grasp the scope of what the Biden administration plans on achieving. In short, the Biden administration is trying to (1) strangle the Chinese AI industry by choking off access to high-end AI chips; (2) block China from designing AI chips domestically by choking off China’s access to U.S.-made chip design software; (3) block China from manufacturing advanced chips by choking off access to U.S.-built semiconductor manufacturing equipment; and (4) block China from domestically producing semiconductor manufacturing equipment by choking off access to U.S.-built components. [Source]

In addition to these export controls, the administration fired a volley of other competitive measures against China. The Commerce Department added 31 of China’s top chip makers to the Unverified List, a government trade watchlist that makes companies ineligible to receive goods subject to U.S. export regulations. It also announced that those companies unable to provide required data for its verification process would be moved to the Entity List, a government trade blacklist. In September, Biden issued a series of executive orders aimed at boosting the domestic semiconductor and biotech industries, reducing reliance on foreign countries, and clarifying the scope of the committee charged with preventing Chinese companies from acquiring U.S. companies and technologies critical to national security. Last week, Biden also touted IBM’s $20 billion investment in semiconductor research and development as part of a “manufacturing boom” fueled by the CHIPS and Science Act, signed in August, which provides $52 billion in federal subsidies for advanced technologies in order to “counter China.”

Experts and industry insiders say the implications of the new export controls are significant. “To put it mildly, [Chinese companies] are basically going back to the Stone Age,” said Szeho Ng, Managing Director at China Renaissance. Another unnamed industry executive stated, “They are not just targeting military applications. They are trying to block the development of China’s technology power by any means.” Senior Fellow at the Council on Foreign Relations Edward Alden wrote, “[A] choice has now been made: For the first time in a generation, weakening China is now more important to the United States than working with China. […] Blinken’s claims notwithstanding, a growing raft of U.S. measures now aims at slowing China’s development as a high-technology economy” via “the sort of sweeping technology export [restrictions] that were a central feature of the Cold War.” Jon Bateman, a senior fellow in the Technology and International Affairs Program at the Carnegie Endowment for International Peace, argued in Foreign Policy that Biden has gone “all-in” on thwarting China’s ambitions and pursuing rapid decoupling:

In short, America’s restrictionists—zero-sum thinkers who urgently want to accelerate technological decoupling—have won the strategy debate inside the Biden administration. More cautious voices—technocrats and centrists who advocate incremental curbs on select aspects of China’s tech ties—have lost. This shift portends even harsher U.S. measures to come, not only in advanced computing but also in other sectors (like biotech, manufacturing, and finance) deemed strategic. The pace and details are uncertain, but the strategic objective and political commitment are now clearer than ever. China’s technological rise will be slowed at any price.

[… T]he U.S. government’s latest move reveals a strategic mindset that cannot help but influence future China tech policy. U.S. officials have focused intently on possible threats, imposed disproportionate measures, downplayed the complications, and strong-armed others into compliance. This mindset all but guarantees a continued march toward broad-based technological decoupling.

[…] In this high-stakes game, Washington has been both card player and card dealer, making its own moves while constraining the choices of others. Now the United States has gone all-in—wagering like never before and placing its cards on the table for all to see. The decisive American gamble: to openly block China’s path to become an advanced economic peer, even at significant risk to U.S. and allied interests. Bigger U.S. moves are probably coming in the future. [Source]

Some effects of the export controls were felt almost immediately. On Tuesday, Asia’s top chip stocks plummeted and erased over $240 billion from the sector’s global market share. The CEO of a leading Apple supplier with most of its production in China warned the tech world to brace for “casualties” after witnessing Washington’s “determination to decouple.” This week, several major American chip-equipment suppliers suspended supplies and services in China and pulled out their staff from China’s leading memory-chip makers, since part of the new regulations requires any U.S. citizen or entity to seek permission from the U.S. Commerce Department before providing support to Chinese fabrication plants. While companies can apply for exemptions, applications will be reviewed on a case-by-case basis with a “presumption of denial” standard. One of China’s top semiconductor-equipment makers has also told its American employees to stop taking part in component and machinery development.

Taiwan Semiconductor Manufacturing Company (TSMC) and South Korean memory chip giant SK Hynix obtained a one-year waiver to continue to transfer chip-making equipment to their plants in China, in a U.S. effort to maintain partnerships with allies that play important roles in the semiconductor supply chain. Officials acknowledged that without buy-in from allies and foreign partners, the new export control strategy could backfire. However, while the Biden administration consulted allies prior to taking action, the export controls are “fundamentally unilateral,” as Gregory Allen stated. In this week’s China Talk podcast, former official from the Commerce Department’s Bureau of Industry and Security (which produced the recent export controls) Kevin Wolf unpacked the U.S.’s diplomatic strategy and argued that “the solution lies in cooperation with allies”:

There are those that say you shouldn’t act until the allies are on board, because if you go first and you go alone, then the allied companies are going to say, “Woohoo, they’ve just opened up a gap in a market for us to fill.” There’s absolutely truth to that […] But I do see from a broader diplomatic perspective the need to signal how serious the US government is, which this rule does in spades, in order to get a really serious discussion going with the allies about the need for them to change their rules to achieve common national security objectives.

[…O]ver the long term, if the effort to get the allies on board fails, the incentive for non-US companies to produce, develop, sell, and do R&D outside the United States will just accelerate. Over a very long period of time, they will achieve advantages that they wouldn’t have but for the unilateral controls. [Source]

The Chinese government criticized the Biden administration’s actions. “Out of the need to maintain its sci-tech hegemony, the U.S. abuses export control measures to maliciously block and suppress Chinese companies,” said Foreign Ministry spokeswoman Mao Ning. Expressing its disappointment, the China Semiconductor Industry Association also published a letter stating, “Not only will such [a] unilateral measure harm the further global supply chain of the semiconductor industry, more importantly it will create an atmosphere of uncertainty.” Che Pan at the South China Morning Post described how the export controls are a direct threat to Beijing’s AI ambitions:

[Major technological] achievements by China’s most powerful technology players would [not] be possible without the powerful graphic processing units provided by Nvidia Corp, the Santa Clara-based GPU giant that has played a pivotal role in powering China’s progress in AI, data analysis and computing power.

The US government’s sudden decision last month to restrict Nvidia from selling its two most advanced chips, the A100 and the upcoming H100, to clients in China has therefore sent jitters across China’s AI, cloud computing and smart vehicle sectors, as there is no immediate substitute for the Nvidia GPUs that train AI models for autonomous driving, semantic analysis, image recognition, weather variables and big data analysis, according to industry insiders and tech analysts. [Source]


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