Biden hits China with new export rules to curb its AI ambitions

Tighter export controls sound good on paper, but experts aren't convinced

by · TechSpot

Serving tech enthusiasts for over 25 years. TechSpot means tech analysis and advice you can trust.

The big picture: Tech pundits broadly agree that advanced chipmaking and AI applications will be pivotal in shaping the 21st-century economy. The US and its allies, along with China, are investing staggering amounts of resources into these fields. However, maintaining a competitive edge over China in these critical areas is becoming increasingly challenging, even with aggressive government intervention. This difficulty stems from the complexity of global supply chains and China's ability to rapidly identify alternative methods for acquiring the materials and tools needed to meet future demands.

The US has announced a new set of sanctions designed to restrict China's access to critical Western technologies that could enhance its AI and military capabilities. Predictably, China's Ministry of Commerce accused the US of "abusing export controls" and is reportedly considering a ban on the export of materials such as germanium, gallium, antimony, graphite, and diamonds. These materials are essential for producing fiber optics, electronic components, and batteries, potentially disrupting supply chains for US industries.

Although the primary aim is to cut off Chinese entities from advanced chipmaking tools, the new restrictions are expected to have ripple effects on some American companies and their international partners in the semiconductor industry. A key focus of the sanctions is limiting the export of high-bandwidth memory (HBM) products, which are vital for developing AI hardware solutions in data centers.

For China, the sanctions pose a significant hurdle in its drive for technological self-sufficiency amid what experts describe as a "Chip Cold War." US Commerce Secretary Gina Raimondo emphasized the gravity of the measures, calling them "the strongest controls ever enacted by the US to degrade the People's Republic of China's ability to make the most advanced chips that they're using in their military modernization."

Pictured: China's rapidly expanding chip industry

The latest set of US export controls will add at least 140 Chinese organizations to the "Entity List," which now includes companies like Wingtech Technology and chip investment firm Wise Road Capital. Any US-based companies or international firms seeking to do business with entities on this blacklist must apply for export licenses, which are notoriously difficult to obtain.

// Related Stories

For the Biden administration, this marks the third major effort to curb Beijing's AI ambitions, coming just weeks before President-elect Donald Trump is set to be sworn into office. During his previous term, Trump also advocated for stricter export rules targeting companies like Huawei and SMIC while pushing for increased government funding to revitalize US semiconductor manufacturing.

The new regulations expand the scope of export controls to include 24 additional types of chipmaking equipment that were not previously restricted. Moreover, the US will invoke the Foreign Direct Product Rule (FDPR), which affects nearly every non-US company utilizing US-made or US-designed components in their products.

This indicates that the Biden administration may have previously underestimated China's ability to bypass US export controls and is now taking stronger measures to close those loopholes. However, the new rules could also pose challenges for US companies like Applied Materials and Lam Research, making it harder for them to grow their international manufacturing of chipmaking tools.

An industry insider, speaking to the Financial Times, revealed that Japan and several European nations have secured exemptions from the FDPR by committing to implement their own export restrictions. South Korea is reportedly pursuing a similar agreement, given the significant investments by Samsung and SK Hynix in the production of high-bandwidth memory (HBM) products.

That said, experts like Greg Allen from the Center for Strategic and International Studies and Dylan Patel of SemiAnalysis remain skeptical that the revised export controls will achieve their intended objectives. They argue that the Biden administration has designed an overly complex set of rules, riddled with potential loopholes and overly dependent on international cooperation to implement multilateral export controls effectively.

Allen and Patel point out that the poor timing of each regulatory iteration has allowed Chinese companies to adapt and stay one step ahead, significantly diminishing the impact of these measures. For instance, a company like Huawei can easily create a network of subsidiaries or source materials and tools from entities not yet listed on the Entity List. By the time sanctions catch up, Huawei and similar companies have often already established fully operational facilities equipped with technology they technically shouldn't have been able to acquire.

While the current export controls may have their flaws, it will now fall to the incoming Trump administration to explore more effective enforcement strategies. In the meantime, Chinese firms are expected to stockpile as many high-bandwidth memory chips as possible before the new regulations come into effect next month.