US-China Chip War Escalates
October 19, 2023

The US and China are in a tech war. This is not news to any of us who have closely followed the trajectories of the two powerhouses. However, what is news to us is the pace at which the attacks are escalating. The most recent development that has the entire world holding their breath is the Biden administration’s announcement about new restrictions on exports of advanced chips to China, including two chips that were exclusively made for China by Nvidia. Ensuing the punch that was thrown by the US, things have gotten heated inside the boxing ring.

Attacks after attacks 

The latest round fired by the US administration is an export restriction imposed as a part of a dual strategy. One facet of this strategy is to prevent China’s technological advancements, given concerns that these innovations could potentially enhance its military capabilities. Simultaneously, the US government is investing significant funds to entice more chip manufacturing back to the United States. Additionally, while the US is making life difficult for China they are also giving breathing space to other companies that are based elsewhere.

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The new regulations introduce restrictions on the computational capabilities a chip can have within a given size, aiming to prevent any potential workarounds through the utilisation of the new “chiplet” technology that China has identified as a key component of its semiconductor industry’s future. The latest measures announced on 17 October 2023, aim to strengthen existing restrictions and address any loopholes identified in a set of rules introduced in October of the previous year. These new rules, set to take effect within 30 days are an upgrade of the previous ones and have a wider coverage. They impose restrictions on an extensive range of advanced chips and chip manufacturing tools, extending their applicability to additional countries such as Iran and Russia. The rules also designate Chinese chip designers Moore Threads and Biren as entities to be blacklisted. These companies, whose US suppliers will now face stringent licensing requirements when shipping products to them, are both startups founded by former employees of Nvidia, with the goal of competing against the US AI chip giant. As a result of the stipulations put forth by the US administration, their growth will be stagnated or perhaps even stopped altogether. Therefore, both companies have strongly opposed them being blacklisted and are firm in appealing to the US government for a revoking of the decision. 

As mentioned in Reuters, the latest developments in these restrictions can be attributed to the US’s goal to curb China’s access to cutting-edge computer chips with the potential to shake the world of AI and highly advanced computers, which are vital components for Chinese military technology. Commerce Department Secretary Gina Raimondo stated that these regulations will probably be renewed annually. She also clarified that these measures are in no way an attempt to maim the Beijing economy. 

The US government brought sanctioning of chips into the picture somewhere around last October. Ever since the decision was made to gate-keep China from navigating its way through advanced AI capabilities, the US has been tightening the restrictions. However, with every tug of the knot, China has retaliated in ways that would irk the US. As a result, the back and forth continues. This time around the reason why the Biden administration decided to take stronger and sturdier measures is because they believed that whatever the regulations they had imposed had its weak points through which China was able to sidle. They had used the loopholes of the sanctions and bans to slip through the reins of the US in order to counterattack. The motive behind such efforts was to exhibit that despite the lack of support, they are still capable of rattling the world of AI, a domain that the US assumed was their personal playfield. However, the novel restrictions that have been imposed seemed to be hermetically sealed, allowing no mishaps to occur. But the downside to it is that the attack that they launched has also backfired in numerous ways, especially because Nvidia is in the picture.

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An attack that may boomerang

The repercussions of the new regulations have tossed Nvidia into a pickle. The US-based tech company stated in a filing that the new export ban would hold back the sale of two high-end AI chips, the A800 and H800, designed specifically for the Chinese market. As stated by BBC, one of the gaming chips would be adversely impacted by these restrictions. 

The Semiconductor Industry Association, representing the majority of the US semiconductor industry in terms of revenue, shared their disdain about the new measures, deeming them “overly broad” and expressing concerns that they might damage the US semiconductor ecosystem without improving national security. This will also ultimately pave the way for overseas customers to divert their attention from Nvidia and look for resources elsewhere. 

Two months ago, China responded by imposing restrictions on the exports of two materials, gallium and germanium, which are essential for the semiconductor industry. China is a major global supplier of these materials, producing 80% of the world’s gallium and 60% of germanium, according to the Critical Raw Materials Alliance (CRMA). An interesting fact about gallium and germanium is that they are metals that are identified as ‘minor metals’, indicating that they are typically by-products of various industrial processes and are not commonly found in their original state from nature. 

This persistent tug-of-war between the United States and China has raised concerns about “resource nationalism,” where governments manipulate critical materials to exert influence over other nations. Japan and the Netherlands have also imposed restrictions on chip technology exports to China.

The thing about the US-China tech brawl is that it will always lead to a cascade of other events that will negatively affect not just the two parties involved, but everyone in the vicinity. Almost all countries will be caught in the crossfire until one party waves the white flag. But if history has taught us anything, it is that a ceasefire is never an option and it never will be. The only option available is to keep our eyes and ears wide open to be aware of the latest advancements in this tit-for-tat, hoping that it would not transform itself into something that is larger than what it already is.

(Sandunlekha Ekanayake)

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