U.S. Industry Group Warns Against Potential Backfire from Imposing Sales Restrictions on Chips to China

The Biden administration is considering implementing new curbs on chip sales to China to disrupt the country’s use of artificial intelligence for hacking and weapons development. Concurrently, the administration is introducing $39 billion in grants for new U.S. chip-making plants after the passage of the Chips Act last year.

In a written statement, the Semiconductor Industry Association (SIA), the industry body in Washington, D.C., expressed the importance of allowing continued access to the China market, which is the world’s largest commercial market for commodity semiconductors. The SIA believes this is crucial to avoid undermining the positive impact of the government’s efforts.

U.S. chip companies have consistently argued for careful evaluation of export restrictions due to the fact that sales in China support investments in the U.S. and help fund research that maintains their technological advantage.

Leading chip companies, including Nvidia, have been urging the administration to avoid stricter export controls as tensions between the U.S. and China intensify, particularly in the semiconductor and electric-vehicle industries. Nvidia’s CFO warned about the potential “permanent loss of opportunities for the U.S. industry” in China if sales of AI chips were prohibited.

The SIA criticized the described restrictions as overly broad, ambiguous, and unilateral, and claimed that they risk diminishing the U.S. semiconductor industry’s competitiveness, disrupting supply chains, causing market uncertainty, and prompting continued retaliatory actions by China. The SIA called on the Biden administration to consult with the industry before imposing any further restrictions.

Last October, the U.S. imposed some of the strictest restrictions to date on chips and chip-making equipment, requiring chip companies to obtain licenses from the Commerce Department in order to sell their most advanced products to Chinese customers.

These measures are aimed at preventing the advancement of China’s military power using U.S. technology.

Biden administration officials believe that China is utilizing U.S. chips and related technologies to enhance its military modernization efforts, including the development of weapons of mass destruction, as well as for large-scale surveillance activities that violate human rights.

In response, China has barred major domestic companies from purchasing from U.S. computer-memory company Micron, and has recently imposed restrictions on the export of metals used in cellphone communication chips.

The Biden administration is now contemplating additional restrictions that would affect AI chips developed by Nvidia for the Chinese market. It is also considering severing Chinese access to AI chips through cloud-computing companies. An executive order from Biden is expected to restrict U.S. investment in advanced Chinese chip-making and other technologies.

This industry push occurs as the Biden administration seeks new diplomatic opportunities with Beijing. Treasury Secretary Janet Yellen recently traveled to Beijing, although progress appears to be limited.

Several chip companies have announced plans for large chip-making projects in the U.S. following the passage of the Chips Act last year. Intel, Micron, Samsung, and Taiwan Semiconductor Manufacturing Co. are among them, collectively investing billions of dollars in new plants that policymakers hope will reverse the industry’s shift towards Asia in recent decades.

Write to Asa Fitch at [email protected]