Joe Biden’s Chip-Export Controls to Give US Advantage Over China?

The Biden administration’s restrictions on semiconductor technology exports to China are designed to help the US maintain as large a lead in technology as possible over rivals, said an official, who also addressed national security concerns such as China’s efforts to develop artificial intelligence that has military uses.

The new rules laid out last week stem from US concerns that China can use AI to improve military capabilities, support surveillance for human rights abuses and “disrupt or manufacture outcomes that undermine democratic governance and sow social unrest,” Assistant Secretary of Commerce for Export Administration Thea D. Rozman Kendler told an audience on a public call on Thursday.

“China’s military-civil fusion strategy seeks to eliminate barriers between its military and civilian research and commercial sectors, which has resulted in additional controls on China,” she added.

Kendler’s comments were the first since Washington unveiled sweeping regulations to curb the sale of semiconductors and chipmaking equipment to its chief geopolitical rival, sending shockwaves through the $550 billion industry. Markets plummeted as investors pondered the wider impact on China’s economy as well as the fallout for the world’s biggest chip firms. On Thursday, Kendler tried to calm investors.

“We scoped our measures narrowly, to focus only on the equipment, activities and entities of greatest national security concern and that ensures that our actions will have the least possible impact on commercial activity and not cause disruptions to global supply chain,” she said.

The Philadelphia Semiconductor Index turned positive and gained 2.6% after earlier falling as much as 5%.

Kendler also highlighted that the US is working with allies on export control measures, after Taiwan Minister of Economic Affairs Wang Mei-hua said in an interview on Wednesday that Taipei and Washington have been discussing joint steps to verify the end users of the chip technology and ensure key products aren’t sold to the Chinese military.

“We recognize that multilateral controls are more effective than unilateral control,” Kendler said. “And let me assure you foreign engagement on these controls” is a priority for the Bureau of Industry and Security, which is responsible for implementing the US export control policy.

The US’s actions, which incensed Beijing and provoked accusations of unfair targeting, threaten to disrupt a global economy already dealing with a potential recession, soaring inflation and lingering supply chain constraints.

Signs of trouble are growing. Applied Materials Inc. slashed its outlook for the fourth quarter, Intel Corp. is said to be firing thousands of people, and US firms including Applied Materials, KLA Corp. and Lam Research Corp. are pulling employees from China’s top memory chipmaker. On Thursday, Taiwan Semiconductor Manufacturing Co. cut its 2022 capital spending target -- an important indicator of its own expectations for growth across sectors from smartphones to servers and electric vehicles -- by roughly 10%.

Depending on how broadly Washington enforces the restrictions, the impact could extend well beyond semiconductors and into industries that rely on high-end computing, from electric vehicles and aerospace to gadgets like smartphones.

The new US regulations broadly limit chipmakers from selling to China artificial intelligence semiconductors and those that can be used for supercomputers. Nvidia Corp. warned in September that government restrictions on exporting AI chips to China could affect hundreds of millions of dollars in revenue, sending its stock tumbling.

Chipmakers can request a Commerce Department exception to those rules. But they should presume such requests will be denied, senior officials have said.

Commerce also put in place a raft of restrictions on supplying US machinery that’s capable of making advanced semiconductors. It’s targeting the types of memory and logic chips that are at the heart of state-of-the-art designs.

Specifically, the restrictions cover production of logic chips using so-called nonplanar transistors made with 16-nanometer technology or anything more advanced than that, 18-nanometer dynamic random access memory chips and Nand-style flash memory chips with 128 layers or more. Generally speaking, the smaller the number of nanometers, the more capable the chip.

On Thursday, Kendler said the US is also restricting the export of items that will be used to develop or produce indigenous semiconductor manufacturing equipment in China.

This move could further pummel China’s ambition to build a domestic chip industry as it has been aggressively fostering alternatives to US chip equipment suppliers including Applied Materials and Lam Research.

The new rules also ban “US persons” from supporting chip development or production at Chinese-based plants.

Kendler said that includes US citizens, a permanent US resident alien, or a protected individual as defined by law, any juridical person organized under the US laws or any jurisdiction within the US, including foreign branches, and any person in the US.