AI Rivalry Fuels Broader Restrictions on U.S. Chip Sales to China

The Lede: The Biden administration is considering further restrictions on sales of advanced chips used for artificial intelligence (AI)

What We Know:

• The additional curbs would affect sales of high-end chips made by major U.S. technology companies including Nvidia and Advanced Micro Devices (AMD) that are necessary for running data centers that power AI. The additional measures would impose further controls that may restrict the export of Nvidia’s downgraded A800 and H800 products to China. A drop of 1.8% in Nvidia shares followed the announcement of the tighter measures. Qualcomm, Intel, and AMD experienced similar drops.
• The measures have been proposed on the grounds that China’s AI capabilities run counter to the national security of the U.S. through the enhancement of its military and security technologies. AI could be used in weapon guiding, cyber warfare, and facial recognition systems for tracking dissidents and targeted minority groups. They also have uses in autonomous vehicles and robotics.

The Background: In October, the Biden administration announced sweeping export controls that banned Chinese companies from buying advanced chips and chip-making equipment without a license. For Nvidia, the high-end A100 and H100 chips were blocked. Revenues from China and Hong Kong accounted for 22% of Nvidia’s revenue last year, making it a key market for the company. In May, China banned purchases from Micron Technology as a retaliatory measure against U.S. and Western sanctions on its chip sector. Nvidia has been experiencing a significant rise in valuation due to the recent boom in generative AI technology, which companies have been rushing to incorporate into their products.

Likely Outcomes:

• The U.S. will have to carefully consider whether the pain for these sizeable and important firms is worth inflicting given the AI rivalry underway between the two superpowers. The current lead that the U.S. and its allies have in AI and chip technology, while significant, is still not wide enough for Western countries to breathe easily. The rapid growth and development of AI will continue to be a concern in domestic matters as well as in the scope of international competition.
• These stricter bans on even the downgraded versions of chips would be destabilizing for the U.S. tech companies in their long-term revenues as well as future research and development given the scale of the China market for their products. The latter is also a matter that should be carefully considered. Lawmakers may consider both implementing stricter bans on selling chips to China as well as further boosting subsidies to the manufacturing companies along the lines of the CHIPS Act.
• If it was not urgent enough, China has even greater incentives to pick up the pace of its technological development. Beijing’s lag will push the issue even further up the priority ladder. Other countries involved in chip manufacturing will feel continued pressure to play the balancing act between the U.S. and China moving forward.

Quotables:

“Over the long-term, restrictions prohibiting the sale of our datacenter GPUs to China, if implemented, would result in a permanent loss of opportunities for US industry to compete and lead in one of the world’s largest markets and impact on our future business and financial results. Given the strength of demand for our products worldwide, we do not anticipate that such additional restrictions, if adopted, would have an immediate material impact on our financial results. We do not anticipate any immediate material impact on our financial results.” – Colette Kress, chief financial officer of Nvidia

“How is it in our interest to allow them to get technology that they may turn around and use against us? If they were in our shoes, they would do exactly the same thing.” – Antony Blinken, U.S. Secretary of State

Good Reads:

U.S. Considers New Curbs on AI Chip Exports to China (WSJ)

Biden Administration Weighs Further Curbs on Sales of A.I. Chips to China (NYT)

Nvidia says US curbs on AI chip sales to China would cause ‘permanent loss of opportunities’ (CNN)