The latest volley of U.S. export controls aimed at slowing the advance of China’s semiconductor and AI industries is the strongest yet in the tech war between the two nations, but the U.S. initiative may still fall short, according to analysts who spoke to EE Times.
Within days of the Dec. 2 U.S. announcement, China took retaliatory measures, including bans on exports of key semiconductor materials that the nation controls, as well as a call on domestic companies not to use American chips because they are not “safe.” China’s market watchdog has started an antitrust investigation of Nvidia, the South China Morning Post reported today. For now, both sides are waiting for the smoke to clear.
In a statement released on Dec. 2, the U.S. Department of Commerce Bureau of Industry and Security (BIS) rules are “designed to further impair the People’s Republic of China’s capability to produce advanced-node semiconductors that can be used in the next generation of advanced weapon systems and in artificial intelligence and advanced computing, which have significant military applications.”
This third round of export controls under the Biden administration may turn out to be the toughest yet. U.S. officials have moved the goalposts multiple times on the rationale for restrictions on China, Paul Triolo told EE Times. Triolo advises global tech clients at Washington, D.C.-based Albright Stonebridge Group.
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“If the goal was to slow the ability of Chinese companies to develop advanced AI models, the jury is definitely still out,” said Triolo, who was also an electronics engineer who previously worked in China for the U.S. government. “Chinese commercial, private-sector firms stockpiled advanced GPUs and have been able to continue to make progress on AI model development, actually significantly closing the gap with OpenAI’s ChatGPT that existed in November 2022.”
He noted that the commercial efforts in China are focused on civilian and not military applications.
Odd mix
The U.S. rules are an odd mix of tighter restrictions and exemptions that weaken their overall effect, SemiAnalysis analyst Jeff Koch told EE Times.
“Removing the de minimis threshold such that equipment containing any U.S. integrated circuits or even ICs produced on U.S.-origin equipment is controlled by the Foreign Direct Product Rule is a broad expansion of controls,” he said. “Same with HBM sales, which effectively block all current HBM types. At the same time, Japan and the Netherlands, the two most important advanced toolmakers outside the U.S., are exempt from the tightened Foreign Direct Product Rule. Similarly, there is a carveout for CXMT, China’s DRAM champion, to receive certain HBM-specific equipment. Ultimately, there is a lot of compromise in the rules, and they are severely weakened as a result.”
Some in the U.S. government remain concerned about Beijing’s military civilian fusion initiative, and the potential for China to use advanced chip tech in weapons or supporting systems, such as satellite networks. The latest round of restrictions, which were widely expected, may be followed by stronger measures under the incoming Trump administration.
The new Dec. 2 rules include controls on 24 types of chipmaking equipment and three types of EDA tools. Exports of high-bandwidth memory (HBM) also fall under the new controls. The U.S. added 140 companies to its Entity List, as well as new measures on PRC tool makers, chip fabs and investment companies involved in advancing the PRC government’s military modernization, the BIS said.
People in Washington are primarily concerned that Huawei especially has the resources, newly backed by Beijing, as well as the engineering and managerial skills needed for the Chinese chip industry to develop its own advanced capabilities, including the advanced lithography that only Netherlands-based ASML provides today, Triolo said. U.S. government officials are desperate to throw more sand in the gears of China’s effort, he added.
Failed system?
The U.S. needs to rethink its entire export administration regime to take China into account, according to Nazak Nikakhtar, an international trade and national security attorney at Washington, D.C., law firm Wiley Rein.
“We just have more rules on top of other rules that have open doors for circumvention,” Nikakhtar told EE Times. “We’re substantially increasing compliance costs for companies without really preventing exports to China.”
China has proven its ability to make leading-edge chips just decades after establishment of the domestic industry, she notes.
“What does that tell us?” asked Nikakhtar, who also used to be a former Commerce Department official. “They’re good. They’re running way faster than us. This argument that we’re keeping them a few generations behind, it’s not recognizing the fact that they’re running faster than us.”
The U.S. needs to recognize that China is an adversary that is fighting a hybrid war, she added.
“China is really good at preventing exports of antimony and germanium and gallium and other things to the United States, but somehow it can’t prevent exports of deadly fentanyl? This is not a friendly actor.”
China has aimed to eliminate reliance on imports of chipmaking equipment long before the U.S. expanded tech export controls, according to Gregory Allen, director of AI and Advanced Technology at Washington, D.C., think tank Center for Strategic and International Studies (CSIS).
Reducing dependence on foreign chips and chipmaking tools was official Chinese policy before the Trump administration’s April 2018 export controls that restricted sales of U.S.-designed chips to ZTE, one of China’s largest telecom companies, Allen noted in a November CSIS report.
China’s Made in China 2025 roadmap, published in 2015, sets market-share targets for localization of chipmaking tools, including lithography equipment for deep ultraviolet by 2025 and extreme ultraviolet by 2030.
More HBM, AI restrictions?
“The breadth of the new rules represents a significant escalation of the U.S.-China technology
competition outlined by Biden administration officials over the past three years,” Triolo said in a report provided to EE Times. “A second rule covering global sales of AI-capable server chips, designed to prevent Chinese company or individual access to restricted hardware, will likely be issued later in December, and is expected to include additional controls on HBM.”
South Korea’s SK Hynix is by far the world’s largest HBM supplier with more than half of the business.
Chinese retaliations
Over the past two years, Beijing has developed and tested new policy tools to retaliate. China’s responses, which so far have been measured, may become stronger.
A day after the U.S. announcement, China said it will ban exports to the U.S. of gallium, germanium, antimony and other key materials used in the semiconductor industry. Researchers estimated the U.S. GDP could lose $3.4 billion from a total ban on exports of gallium and germanium.
Before the release of the new restrictions, Beijing signaled a possible cybersecurity review of struggling U.S. chipmaker Intel, Triolo said. In October, China also cut off supplies of batteries to leading U.S. drone maker Skydio for trading with Taiwan.
Beijing has signaled that it will target major U.S. technology companies with significant operations in China, Triolo said.
“Intel is likely to be the first target. A major cybersecurity research organization associated with the Cyberspace Administration of China last month made strong recommendations around launching a cybersecurity review of Intel. The language in the recommendations—claiming Intel had sold products that ‘constantly harmed’ China’s national security—suggested that Intel could be a target of punitive measures, similar to U.S. memory leader Micron, which was targeted last year in what was seen as a direct retaliation for the Entity List designation of Chinese NAND memory leader YMTC. We assess that, given the scope of the new controls, Beijing could up the ante here, going after more than one major U.S. technology firm’s China-based operations.”
Who’s winning?
The U.S. is winning the tech war and needs to stay ahead, Koch says. Triolo is less certain.
“America and its allies are ahead in AI, ahead in advanced semiconductors, and doing it in an economically sustainable way,” Koch said. “Still, loose export controls allowing advanced technologies to be sold into China means we throw away some gains as quickly as others are made.”
Triolo said the U.S. will be unable to block China’s advance while Taiwan remains the primary source of the world’s most advanced chips. China has escalated its threats to forcefully capture the island, which China considers a renegade province.
“It is naïve in the extreme to believe that Beijing would sit idly by while the U.S. and its allies race forward to develop advanced human-level artificial intelligence, designed in part to keep China perpetually behind technologically, contain China economically, and ensure military superiority, all based on uninterrupted Western access to the most advanced semiconductor manufacturing capabilities concentrated on Taiwan, which Beijing claims sovereignty over,” Triolo said. “Something has to give here, but no one in Washington appears to understand this dynamic or what to do about it.”