GIna Raimondo When she took the stage at the Reagan National Defense Forum in California in December, she seemed frustrated. The Commerce Department she led had just tightened regulations on sales of U.S. semiconductors to China. But her Nvidia, the world’s most valuable chipmaker, soon began developing a new, slightly less powerful artificial intelligence (A.I.) Restrictions do not apply to chips destined for the Chinese market. “If we redesign the chip… we can do that. [China] to do A.I.we’re going to control it the next day,” Raimondo warned.
That was an exaggeration, considering it took her department a full year to rework the restrictions to discontinue Nvidia’s previous workaround. But the United States’ five-year campaign against Chinese technology is intensifying. Earlier this month, it was reported that Nvidia CEO Jensen Huang and two fellow chip executives were subpoenaed to testify before Congress about the company’s China operations. January 19th ABBA Swiss industry group said U.S. lawmakers are investigating the company’s ties with China. ABB He said he is cooperating with the investigation. Nvidia said it is working closely with the government to ensure compliance with export regulations.
It is unlikely that both the Democratic Party and the Republican Party will relent. In a presidential election year, unpopular Democratic President Joe Biden cannot afford to be soft on China. Donald Trump, his Republican predecessor and chief rival, was for years America’s chief China basher. China hawks in Washington want to thwart China’s efforts to circumvent the rules and rebuild needed technological capabilities at home. But the mixed record of export controls to date shows why tougher measures are difficult and not necessarily more successful.
China has found several ways to circumvent existing regulations. Unfortunately for Raimondo, it is possible to train e.g. A.I. Models using chips that don’t necessarily have to be cutting-edge, as long as there’s enough of them. If “capable chips” are sold, A.I.“Should be banned,” as she implied, means the U.S. must restrict the broader flow of chips to China.
It’s hard to know how wide it is. Trade statistics are not classified under graphics processing units (GPUs) used for training and running A.I. Create a model from the large flow of integrated circuits. But you can get a sense of the scale of such a ban by looking at the financial statements of Nvidia, which sells a variety of products. GPUs. The company has generated 21% to 26% of its revenue from China in the past few years. In the nine months to October, the company earned $8.4 billion from the Chinese market. Almost all of Nvidia’s products can be used to “do.” A.I.”. Huang said his company has no “contingency” to be cut off from China.
Another difficulty for the United States stems from enforcement. The Department of Commerce has the authority to punish any violations it discovers. Last year, the company fined hard drive maker Seagate $300 million for violating export controls by sending parts to blacklisted Chinese technology champion Huawei. However, the primary responsibility for enforcement lies with the semiconductor companies themselves. This includes ensuring that effectively no customers of prohibited Chinese companies are purchasing from them. This is tough. “Coin-sized devices and technologies are widely available on the market and indistinguishable from controlled technology distributed around the planet,” says Kevin Wolf, an American lawyer and former government official.
As a result, conditions have become more conducive to smuggling, which experts say is impossible to quantify but is certainly widespread. It also facilitates transshipment. Companies from countries that are not signatories to the U.S. export control system, such as Singapore, can buy chips and send them to Chinese companies without the knowledge of U.S. companies or the Commerce Department. According to Nvidia’s latest quarterly results for 2023, sales to Singapore were five times higher than they were for the same period in 2022 and grew faster than anywhere else.
Of all China’s customers, the People’s Liberation Army is best suited for such workarounds to obtain the chips it needs.If one of America’s main objectives is to deny China access to advanced technology for military development A.I., is probably failing. Instead, regulations are making it more expensive for Chinese buyers to acquire American companies. A.I. Chips. This, in turn, will align China’s technology sector with the government’s indigenous technology development policy. Chinese tech giants used to prefer buying high-quality American technology rather than investing in research and development. Their incentives have changed.
The clearest evidence that this is happening comes from Huawei. The company, whose core business is manufacturing communications equipment, was first targeted by the United States in 2019 for allegedly violating sanctions against Iran. A measure called the “Foreign Direct Product Rule” (FDPR) cut off Huawei from any chips manufactured using US technology (i.e. virtually all advanced chips). In 2022, FDPR deployed throughout China A.I. Expanding the industry further, it was expanded to cover a wider range of sectors in October. A.I. It requires licenses to ship chips and chip-making tools, as well as products to countries such as the United Arab Emirates (but not Singapore), where it is believed to act as an intermediary for Chinese buyers.
Before being blacklisted, Huawei had its microprocessors manufactured by the following companies: TSMC, a contract chip manufacturer in Taiwan. spent $5.4 billion TSMCIt manufactured the chip in 2020, before U.S. export restrictions extended to Taiwanese companies.We are doing more business now SMICChina’s largest chip manufacturer. SMICwas thought to be many years behind that of . TSMC.But last year, the company announced that the Huawei-designed A.I. The chip, Ascend (and the Kirin smartphone chip, raised many Western eyebrows when Huawei unexpectedly released a device equipped with it in September).
With access to foreign chips restricted, Chinese A.I. Companies are now paying attention to Huawei. SMIC For chips. The Chinese government is encouraging them and continues to subsidize the industry in hopes of creating an industry to rival Nvidia and other U.S. companies. Export restrictions have effectively forced China to accept import substitution.
American controller designers had some of this in mind. That’s why, from the beginning, they also targeted China’s ability to reproduce advanced technologies domestically. This regulation restricts trade not only in the chips themselves, but also in the tools used to manufacture them. That includes bringing on board allies such as the Netherlands and Japan, home to many tool makers. Similar to chips, this tooling control imposes limits on the sophistication of equipment that can be sold to Chinese buyers. And like chips, there has been intense debate about how sophisticated a tool needs to be to be regulated.
The key machine is the one used to etch transistors onto silicon wafers. This kind of state-of-the-art equipment is manufactured and sold exclusively. ASML, a Dutch company that has been blocked from China for years. However, older generations of such lithography tools are still sold there. ASML‘s sales to China have increased dramatically over the past year, as have other companies that make chip-making tools. In the most recent quarter, sales in China accounted for nearly half of sales. ASMLtotal income. Other tool manufacturers also sell many products to China (see graph).
But as with chips, export controls give Chinese tool makers strong incentives to invest to catch up technologically with foreign rivals. Sales of domestic tool manufacturers are already increasing. On January 15th, one of them NowraThe company, which makes other etching tools, said it expects revenue to increase by nearly 50% in 2023.
Therefore, US campaigns against Chinese technology may be ineffective and counterproductive. China is ineffective because it is adept at exploiting loopholes. That would be counterproductive because it would lead to the creation of a more sophisticated Chinese industry. It may also be based on false assumptions on which the future economic and military balance of power depends. A.I.and it A.I. Depends on your computing power. “These are both speculations,” says Chris Miller, a technology historian at Tufts University in Boston.it’s not clear A.I. It will be of strategic importance. Even if it does, computing power may not be the most important factor in its development. As Miller points out, vitality is expensive; A.I. Developers strive to use it as sparingly as possible.
Despite this situation, it seems likely that the United States will tighten export controls in the future. love Raimondo will serve chips, much as he promised in December. And Republican lawmakers are eyeing even broader regulations. Some of them believe new threats will come from the other end of the sophistication spectrum. It is China’s economic power rather than its technological military power. Chips are in increasing demand as components in everything from electric cars and heat pumps to power grids. By 2027, China could manufacture nearly 40% of these semiconductors, according to estimates by research firm TrendForce. Current export controls do nothing to curb China’s control of the business, which uses much of America’s old technology.
So three Congressional Republicans, Mike Gallagher, Elise Stefanik, and Michael McCaul, are pushing for legislation that would force the Commerce Department to cut China off from all U.S. chip technology, not just the most advanced ones. We are working. It will be difficult to gain support from allies for such extreme policies. Companies and their governments in Japan and the Netherlands are even outraged by the porous regulations currently in place. But if Trump, who is skeptical of alliances, returns to power, the lack of support is unlikely to matter at all. ■