What to Know About the U.S. Curbs on AI Chip Exports to China

The Biden administration has announced it is tightening export controls on semiconductor chips used for artificial intelligence and the equipment used to manufacture them, in an effort to prevent China from acquiring or producing advanced chips.

The rules update restrictions that the U.S. announced a year ago prohibiting the sale of chips above a certain capability threshold in China and other restricted countries, and banned the sale of specific chip manufacturing equipment. The new rules aim to close loopholes that emerged from the 2022 export control curbs, and to account for technological developments since then. 

The export restrictions announced Tuesday have been extended to chips that have fewer capabilities than those that were previously subject to the rules. They also imposed controls on additional types of chip manufacturing equipment. Additionally, the U.S. will compile a list of slightly less advanced chips, and will require manufacturers to notify the U.S. government if chips from this list are being sold to restricted countries such as China.

Chipmakers including Nvidia, AMD and Intel, which make the most popular chips for the AI industry, are among those expected to be affected by the rules.

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Security concerns

Announcing the 2022 restrictions, the Bureau of Industry and Security (BIS) said that semiconductor chips are used to “produce advanced military systems including weapons of mass destruction” and “commit human rights abuses.”

The Biden administration has since argued that the clampdown on advanced chip exports is part of a policy of “protecting our foundational technologies with a small yard and high fence,” implying that the rules are tailored to only affect advanced technology with relevance to national security. 

However, some commentators say that the restrictions are less targeted than the administration claims. A report by Gregory Allen, director of the Wadhwani Center for AI and Advanced Technologies at think tank the Center for Strategic and International Studies, argued that because the restrictions are industry-agnostic and aim to prevent China from ever matching U.S. capabilities, they “marked the beginning of a new era in U.S.-China relations.”

Speaking to reporters on Monday, Secretary of Commerce Gina Raimondo said “the goal is the same goal that it’s always been, which is to limit P.R.C. [People’s Republic of China] access to advanced semiconductors that could fuel breakthroughs in artificial intelligence and sophisticated computers that are critical to P.R.C. military applications,” the New York Times reported.

In response to news of the rules, China's foreign ministry spokesperson Mao Ning told Reuters that the U.S. is politicizing trade issues and destabilizing global supply chains, adding that China would continue to safeguard its rights and interests.

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After the 2022 rules were brought in, U.S.-based chip design company Nvidia developed new chips, the A800 and H800, that were slower than its state-of-the-art A100 and H100 chips but complied with the criteria for chips that could be sold to China. A senior Biden official told the New York Times that, under the updated rules, the sale of the slower chips would also be prohibited.

In a statement, the Semiconductor Industry Association (SIA), an industry group, urged the government to ensure that the controls weren’t excessively restrictive.

“We are evaluating the impact of the updated export controls on the U.S. semiconductor industry. We recognize the need to protect national security and believe maintaining a healthy U.S. semiconductor industry is an essential component to achieving that goal,” said the SIA in the statement. “Overly broad, unilateral controls risk harming the U.S. semiconductor ecosystem without advancing national security as they encourage overseas customers to look elsewhere.”

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'Major loopholes'

Since the restrictions came into force, analysts and policymakers have argued that the restrictions allowed the sale of chip manufacturing equipment to companies like Semiconductor Manufacturing International Corporation, a Chinese state-owned chip manufacturer, and were not properly enforced, and there have been accusations of Chinese AI developers smuggling chips into the country. This, they say, allowed Chinese chip developers to continue catching up with the technological frontier and Chinese AI developers to continue developing AI models. 

The restrictions from Oct. 2022 contained “major loopholes,” says Dylan Patel, chief analyst at semiconductor industry analysis firm SemiAnalysis. “[Semiconductor manufacturers’] business was not really impacted at all. There was a temporary decrease as everyone had to figure out the loopholes, stop existing shipments that were going to go there, and ship whatever they wanted to ship instead that wouldn't break the regulations, get licenses from the government, etcetera.”

The updates announced Tuesday have made restrictions on the sales of chips much tighter, but Patel says they still have left possible loopholes for the sale of chip manufacturing equipment. “I think that's a function of the administration listening to industry too much—being lobbied. And I think it's because equipment is far more complex.” 

With further restrictions on the types of chips it can import but lenience around chip manufacturing equipment, Patel predicts that the latest rules will encourage the development of China’s domestic chip industry.

Speaking with reporters, Raimondo said that the changes were designed to ensure the rules are as effective as they can be and that the export controls were likely to be updated at least annually, as the technology continues to advance.

BIS is seeking public comment on a number of questions, suggesting there could be further updates and offering some clues to the strategic direction the Commerce Department unit might take next. For example, it asks whether restrictions on cloud service providers selling computing capacity to Chinese firms might be required.

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“My interpretation of this is that the administration remains determined that they're going to have to take an approach that is flexible and adaptable to how the industry responds,” says Paul Scharre, executive vice president and director of studies at the Center for a New American Security, a military-affairs think tank.

“On one level, this can seem really technocratic and boring—the chip performance thresholds and interconnect bandwidth—but at the end of the day, these most advanced chips are a huge area of geopolitical competition,” says Scharre. “I think we're going to continue to see Chinese actors and other global companies, including U.S. companies, be responsive and change their behavior, but also find ways to continue to make money and advance their own interests despite this.”