The Right Time for Chip Export Controls

“The primary goal of this part of the rule is to freeze China’s indigenous logic semiconductor fabrication capabilities at above the 16/14 nanometers (nm) or smaller technology nodes and non-planar technologies. The controls are also designed to degrade the Chinese industry’s ability to advance its development of technologies at these levels. The 16/14 nm threshold is the most advanced planar, two-dimensional technology node.” Rasser and Wolf note.

· The fourth part of the rule aims to prohibit the export of any type of U.S.-origin commodity, software, or technology to China for the development or production of any type of semiconductor production equipment, or related parts or components. The purpose of this part of the rule was to prevent companies in China from producing any type of semiconductor production equipment, regardless of technology node, that contains elements that were manufactured in the United States.

· The fifth part of the rule prohibits the shipment of foreign-made items made directly from U.S. technology or software or produced with U.S. equipment to China if destined for use in producing supercomputers in China or to any of 28 companies that have provided high-performance computing support for China’s military.

Rasser and Wolf write:

China is entirely dependent on foreign sources for the types of semiconductor manufacturing equipment necessary to produce advanced node semiconductors. Companies based in the Netherlands, Japan, and the United States are the major producersof such semiconductor manufacturing equipment and account for 90 percent of global supply of these essential machines. These firms comprise a major technology chokepoint in Beijing’s efforts to develop a world-class domestic chip industry, providing the United States and allies with tremendous leverage.

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The chip export controls are aimed squarely at China’s military modernization and weapons development efforts, and monitoring, tracking, and surveilling of Chinese citizens. The near-term availability of new highly capable chips was certainly a key factor in timing. The rule specifically targets GPUs, a type of semiconductor that has been optimized for deep learning by speeding up computational processes. The American firm NVIDIA has been one of the main providersof such chips, producing the A100 chip, which was the most sophisticated chip available until the company releaseda significantly improved GPU, the H100, in October.

Those opposing the controlson specific chips may argue that they prioritize a short-term effect in setting China back over long-term U.S. leverage over AI developments by Chinese researchers. There are two main thrusts to this argument.

The first is the well-documented trend that the amount of compute required for the final training run of a machine learning model doubles around every 10 months. Should that trend hold, that could mean that the United States would have more leverage in the future.

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The second thrust of the argument against the chip-specific restrictions is that it will accelerate China’s semiconductor industry indigenization efforts and encourage the development of chips that are not produced with U.S. technology, software, or equipment and thus would not be subject to the FDPR. There is little doubt that the new export controls will increase the urge in Beijing to reduce reliance on non-U.S. technology in this critical field. But China cannot willits way to autarky. It has fallen well shortof domestic capability targets set in 2015, and corruptionin the chip sector has been a major headwind. Beijing faces considerable dependencies and shortfalls in tech, components, talent, skills, and knowledge—all of which will be bigger issues because of the new export controls and U.S. persons restrictions. These are not problems that can be solved simply by throwing more money at them.  

Rasser and Wolf write:

There is no crystal ball that can divine the outcome, given how unprecedented and wide ranging these actions are. What is clear, however, is that the near-term impact will be significant and the ability to decipher when to act in the future is too tenuous and risky. The Biden administration made the right call by acting now, particularly if it is successful at getting allied cooperation on the essence of the rules soon.