Biden Turns a Few More Screws on China’s Chip Industry – DNyuz

Biden Turns a Few More Screws on China’s Chip Industry

For the second year running, the United States has marked the onset of autumn with a salvo against China’s technology sector.

The Biden administration on Tuesday announced additional curbs on the export to China of advanced semiconductors and the equipment used to make them, honing in further on Chinese artificial intelligence capabilities that have potential military applications and closing loopholes that Beijing could exploit to get what it needs from third countries. The updated export controls came almost exactly a year after the administration’s first restrictions on semiconductor sales to Chinese companies, which altered the trajectory of U.S.-China tech competition significantly enough that they have come to be known in trade policy circles simply as “October 7.”

The new rules–which aim to iron out kinks in the original Oct. 7 armor–include a wider range of AI-capable semiconductors, making it harder for Chinese firms to game the system by bunching together several chips that aren’t subject to the restrictions. Put simply, according to the 295-page regulatory filing, it “prevents the workaround of simply purchasing a larger number of smaller datacenter AI chips which, if combined, would be equally powerful as restricted chips.”

In a statement announcing the curbs, the Commerce Department’s Bureau of Industry and Security detailed what it’s worried China will use the technology for, including “electronic warfare, radar, signals intelligence, and jamming,” as well as “facial recognition surveillance systems for human rights violations and abuses.”

The main target of the new restrictions is processing power, specifically the processing power that large language models like ChatGPT need to operate. More advanced chips mean better and faster AI models, which Washington is concerned China could use to power autonomous weapons, crunch battlefield data, and supercharge its cyberattacks.

“You basically limit the overall ‘compute’ in the economy and therefore the number of AI model copies being run and how fast they’re run,” said Lennart Heim, a research fellow at the U.K.-based Center for the Governance of AI. Heim said that China’s capacity to adapt to the changes will be determined by its ability either to jury-rig its AI systems with chips they can (or cannot) legally procure, or to make its own advanced chips.

Washington is making life harder on both fronts. The new rules expand the types of semiconductor manufacturing equipment subject to export restrictions and also extend those restrictions beyond China to 21 other countries with which the United States has an arms embargo, including Russia, Cuba, Iran, and North Korea. The chips will be restricted in these countries, and companies will need to obtain a special license before selling them. Nearly two dozen countries the United States has designated as potential national security risks or exporters of missile technology will face similar licensing restrictions.

“Essentially, that represents the Kyrgyzstans or the Georgias of the world, who have demonstrated pretty anomalous trade data in the past year–all of a sudden, they’re showing huge upticks in imports and exports of goods that contain chips,” said Emily Benson, director of the project on trade and technology at the Center for Strategic and International Studies in Washington. “I think the one surprising aspect is the geographic expansion of these licensing requirements,” she added.

And while last year’s export controls came as a bolt from the blue, this week’s have been more of a slow burn. The Biden administration has incrementally added obstacles to China’s path since its initial curbs, placing restrictions on outbound investment and targeting sectors such as quantum computing that have potential national security implications, in an approach that National Security Advisor Jake Sullivan has repeatedly described as “small yard, high fence.” The new rules are more about patching holes than tearing China new ones.

“I don’t think that they shift the landscape as significantly” as last year’s, said Emily Kilcrease, director of the energy, economics, and security program at the Center for a New American Security. “Those rules really were kind of a fundamental shift in policy, which the administration seems to have backed off of a little, at least in terms of rhetoric,” she added.

The U.S. semiconductor players likely to be most impacted by the new controls don’t appear to be pressing the panic button, at least publicly.

” “We are aware of the importance of protecting national security, and we believe that maintaining a strong U.S. Semiconductor industry is essential to achieve that goal,” said the Semiconductor Association in a press release. However, the association warned against unilateral measures that could end up harming American semiconductor companies by encouraging their customers to purchase elsewhere. The association also urged the administration to improve coordination with its allies in order to create a level-playing field for companies.

ASML, the leading manufacturer of cutting-edge chipmaking equipment, said the new controls would apply to “a limited number of [factories] in China” without expecting a “material impact on our financial outlook.” Nvidia, the dominant player in advanced AI chips, acknowledged that many of its new products aimed at circumventing earlier restrictions would be subject to the new ones, but it anticipates that the global AI boom will ensure it can manage the churn. “Given the strength of demand for our products worldwide, we do not anticipate that the additional restrictions will have a near-term meaningful impact on our financial results.”

China has played both offense and defense in response to previous curbs, banning exports of two key minerals used in chipmaking earlier this year and quietly launching a new Huawei smartphone last month powered by an advanced chip seemingly made entirely in China. “The U.S. needs to stop politicizing and weaponizing trade and tech issues and stop destabilizing global industrial and supply chains,” China’s Foreign Ministry spokesperson, Mao Ning, said in a press briefing this week.

China’s continued economic slump will make like-for-like retaliation a challenge, however. Benson stated that China’s economic condition does not allow it to adopt policies which would discourage future investments in the country.

The U.S. government has also given itself wiggle room to do more, establishing a “gray zone” that would subject chips just below even the new computing threshold to a 25-day additional export review and outlining a plan to review and update export restrictions annually. At the same time, it is seeking to continue its de-risking over decoupling approach by exempting chips used in commercial applications such as smartphones and cars from the rules.

“As we implement these restrictions, we will keep working to protect our national security by restricting access to critical technologies, vigilantly enforcing our rules, while minimizing any unintended impact on trade flows,” said Commerce Secretary Gina Raimondo.

Washington may be turning from sledgehammer to scalpel after months of tensions with China. A meeting between U.S. president Joe Biden, and his Chinese counterpart Xi Jinping is expected at the Asia-Pacific Economic Cooperation Forum later this year in San Francisco.

“If [meeting] does not materialize for whatever reason, I believe we should look more closely at possible retaliatory actions, but it isn’t as extensive as it could be,” Benson stated.

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