Chipmate: Solving US Policy Dilemma Amid China's Tech Drive, and Industry Concerns
Will US AI Chip Policy Cripple Its Industry to Contain China?
The trajectory of US policy on artificial intelligence (AI) chip exports is shifting, with the Trump administration signaling plans to rescind and modify a Biden-era rule that restricted the export of sophisticated AI chips. Amidst concerns that the Trump administration might pursue broad restrictions, US semiconductor industry leaders and allies advocate for a more balanced and coordinated approach.
Reuters report cites a Commerce Department spokeswoman saying that officials "didn't like the tiered system" of the Biden rule and deemed it "unenforceable." The spokeswoman did not provide a specific timetable for the implementation of the new rule, indicating that debate about the best course of action is still ongoing.
The Biden rule, known as the Framework for Artificial Intelligence Diffusion, was issued in January and was set to take effect on May 15. This policy shift occurs against the backdrop of China's determined technological advancement, fueled by initiatives like Made in China 2025 (MIC25), adding complexity to the delicate balance between national security and the economic interests of the semiconductor industry.
China's Ambitions and MIC2025
To understand the context of these policy decisions, it's crucial to consider China's technological trajectory. Reports from the Rhodium Group and Taiwan's Research Institute for Democracy, Society, and Emerging Technology (DSET) offer key insights. The Rhodium Group's analysis of MIC2025 reveals a mixed bag of outcomes. While China has achieved success in reducing import dependence in certain sectors, particularly electric vehicles (EVs), its progress in other critical high-tech fields, including semiconductors, has been uneven.
DSET's perspective emphasizes China's strategic prioritization of expanding capacity in "foundational chips" (mature node technologies) as a cornerstone of its pursuit of technological dominance. This state-driven approach raises concerns about potential market distortions and the long-term implications for global competition.
Industry Response to Export Controls
US semiconductor companies operate at the intersection of these complex forces, caught in the middle of this geopolitical tension. AMD has publicly acknowledged the financial repercussions of export restrictions, with CEO Lisa Su advocating for a balance between national security and ensuring widespread access to their technology, acknowledging China's significance as a market. The company has even quantified the financial impact of these restrictions, reporting that it would see a $1.5 billion hit this year from China export controls.
Nvidia's CEO Jensen Huang has been more vocal in advocating for less restrictive measures, emphasizing the immense market potential of China. Nvidia is expected to face a US$5.5B hit this quarter due to a new U.S. licensing requirement on the primary chip it can legally sell in China. Department of Commerce officials last week told Nvidia it must obtain licenses to export its H20 chips to China because of concerns they may be used in supercomputers there.
Navigating the Path Forward
The evolving US policy on AI chip exports, along with China's technological ambitions and the semiconductor industry's response, underscores the situation's complexity. The central question remains: how can the US effectively safeguard national security and maintain its competitive edge while also fostering innovation and economic growth? Finding a sustainable answer necessitates a comprehensive approach that encompasses industrial policy, export regulations, and strategic global partnerships.
The United States faces a critical dilemma in its approach to the semiconductor industry. On one hand, there's a push for stricter controls on chip exports to China, driven by national security concerns and the desire to maintain technological leadership. On the other hand, semiconductor industry players, including companies in America and allied countries such as the Netherlands and Japan, are cautioning against overly restrictive measures, since the Chinese market is the main contributor to their growth and innovation, and China would be happy to replace American suppliers with its national champions.
Adding to this complexity, China's semiconductor industry is reportedly making strides in developing its own high-end chip manufacturing capabilities, potentially lessening its reliance on foreign suppliers, according to a Rhodium report on MIC 2025.
There are concerns about China's growing technological prowess, particularly in semiconductors. Reports indicate that Huawei is building a 7nm chip supply chain, signaling its ambition to produce its own high-end chips. This development could have significant implications for the effectiveness of export restrictions and the competitive landscape of the semiconductor industry. Taiwan’s think tank DSET also advocates more should be done on China’s ambition to dominate the foundational chip supplies.
Re-focus on Allied Collaboration
To navigate this complex situation, the US needs a multifaceted strategy that goes beyond unilateral restrictions. Here are some policy recommendations with a focus on collaboration with allies:
Strengthening Alliances: The US should deepen its collaboration with key allies like Taiwan, Japan, and South Korea, which are also major players in the semiconductor industry, instead of waging tariffs as a weapon to push allies further away. Seeing the threat of a US tariff on imported semiconductors, companies have formed a “Taiwan-Japan Semiconductor Technology Promotion Association” on May 7. Currently, the association has been jointly initiated by dozens of technology companies as well as dozens of experts from industry, academia, and research institutions. Imposing heavy tariffs on allies risks provoking alienating behaviors, diminishing the US's prospects in winning the competition with China over semiconductor dominance. Enhanced collaboration with allies, including coordination of export control policies, information sharing on technology trends, and joint investment in research and development, could offer a more effective strategy.
Resilient Supply Chains: Though it is important for the US to strengthen its semiconductor capabilities, it takes time for the ecosystem to rebuild. The US needs its allies to work together to build more resilient and diversified semiconductor supply chains across the globe. This could involve encouraging investment in domestic manufacturing, promoting regional production hubs, and reducing reliance on any single source of critical components.
Targeted Innovation: Rather than solely focusing on restricting China, the US should prioritize investments in its own technological innovation, particularly in areas where it wants to maintain a competitive edge. This includes supporting research and development in advanced chip design, manufacturing processes, and new materials.
Balanced Approach: The US should strive for a balanced approach to export controls, carefully calibrating restrictions to address specific national security concerns while minimizing harm to the competitiveness of its semiconductor industry. This requires ongoing dialogue with industry stakeholders and a willingness to adapt policies as the technological and geopolitical landscape evolves.
The semiconductor industry is at the heart of the strategic competition between the US and China. The decisions made today will have far-reaching consequences for the future of technology, economic prosperity, and global security. By pursuing a strategy of collaboration, innovation, and balanced restrictions, American industries and the economy can navigate this complex landscape and secure their long-term interests.