The US government has warned Nvidia against exporting advanced AI chips to China that could skirt recent trade restrictions, escalating tensions between the two superpowers over next-generation technologies.
Commerce Secretary Gina Raimondo said on Sunday that Nvidia’s potential efforts to evade export controls for high-end AI chips would be met with strong opposition from regulators. Her comments come as the Biden administration increasingly views China’s technological rise as a core national security threat.
Backdrop of intensifying US-China chip rivalry
The US and China have been locked in an escalating battle for dominance over advanced semiconductors, especially those powering cutting-edge applications like AI and supercomputing.
China currently lags behind in designing and manufacturing the world’s most sophisticated chips, relying heavily on imports from the US and allies like the Netherlands and Japan. However, through massive government subsidies and protectionist industrial policies, Beijing aims to achieve self-reliance in advanced logic chips by 2025 and become a global leader in AI by 2030.
This has alarmed US officials who fear China could leverage next-gen technologies to strengthen its military, surveillance apparatus and economic might at America’s expense. Export restrictions on advanced tools and components have thus emerged as a key strategy to stymie China’s progress.
| Year | Action |
|---|---|
| 2018 | US bans sale of chipmaking gear to Chinese state-owned chipmaker SMIC |
| 2022 | US enacts sweeping controls on export of AI and supercomputing chips to China |
| Oct 2022 | US tightens grip with curbs on advanced chipmaking equipment exports |
Yet gaps remain, with companies like Nvidia still allowed to sell advanced AI accelerators to China for civilian purposes like machine learning research.
Commerce chief Raimondo has now indicated the administration could move to close these remaining loopholes amid signs of China’s rapid AI advances.
Nvidia warned over potential AI chip workarounds
Over the weekend, Raimondo stated the US "cannot tolerate" Nvidia enabling Chinese firms to work around export rules, vowing harsh penalties for attempting to evade restrictions.
“If Nvidia alters its product strategically to get around U.S. export controls … we will pursue them vigorously,” she said at the Reagan National Defense Forum.
While not addressing any specific allegations, her remarks were likely in reference to recent reports that Nvidia asked partners to limit AI chip performance for China sales. By removing advanced interconnect features, the chips could potentially dodge the strict licensing processes for sophisticated AI accelerators destined for China.
Nvidia CEO Jensen Huang also admitted the company can make "easy modifications" to produce chips compliant with US regulations during last month’s quarterly earnings call.
This apparent admission that Nvidia is willing and able to tweak designs to skirt export rules likely triggered Raimondo’s sharp rebuke. She emphasized the US would constantly monitor and update restrictions to close off any technical workarounds companies like Nvidia may devise. Regulators will swiftly add redesigned chips to control lists before they can be shipped overseas if needed.
The warning shot against Nvidia signals tech export policy could become even more aggressive and expansive under the Commerce Department’s tightened oversight. Firms leveraging engineering ingenuity to bypass controls can expect no quarter from regulators moving forward.
China denounces "enemy" designation
On the heels of Raimondo’s hawkish remarks, Chinese officials lashed out on Monday against America’s hardline stance pitting the two nations as strategic competitors.
Foreign Ministry Spokesperson Mao Ning expressed China’s "strong dissatisfaction and firm opposition" to the portrayal of Beijing as an "enemy" and national security threat by US leaders.
Chinese state media also published numerous articles condemning Raimondo’s speech, accusing Washington of fear-mongering and treating China as an "imaginary enemy" to curb its rise.
The war of words signals further deterioration in an already strained bilateral relationship. It reflects US frustration towards China rapidly closing the tech gap as well as China’s indignation at being labelled an adversary despite its non-alliance policy.
Without signs of either side backing down on tech leadership ambitions or threat perceptions, semi-conductor controls seem destined to broaden. Firms like Nvidia hoping to continue serving both markets will find themselves walking an increasingly precarious tightrope.
No easy solutions for reconciliation
With US-China chip tensions at an all-time high, de-escalation looks unlikely as strategic rivalry deepens across economic, political and military domains.
Despite Secretary Raimondo stating “China’s growth and prosperity can be compatible with American economic success”, a reconciliatory off-ramp remains elusive with bipartisan hawkishness persisting in Washington. Republicans are attacking the Commerce Department for reacting slowly to China’s rise. Democrats too are lining up behind export restrictions despite initially divided views.
Fundamentally contrasting ideologies and governance models make finding common ground extremely difficult on technology issues intertwined with national power. And with President Xi staking his legacy on capturing semi-conductor high ground, China also seems primed to push forward at any cost.
Biden officials are realizing they need much more resourcing to have a chance at slowing China’s ascent. Raimondo has called for "tens of billions" in semiconductor funding so America can "out-innovate, out-produce and out-compete anyone else in the world."
But with over $150 billion invested in its chip industry including hefty incentives under the CHIPS Act, the US still spends just half of what China does in percentage-of-GDP terms. America’s fractious political environment also makes executing long-term industrial strategies challenging compared to China’s centralized efficient planning.
No winner in damaging bifurcation
While export curbs slow China’s progress, they carry high costs at home by starving US firms of a major growth market. And the asymmetric decoupling risks backfiring by making China double down on achieving self-reliance.
Nvidia blamed US licensing delays for a $400 million loss of potential Chinese sales last quarter. Its stock price has plunged nearly 50% this year off its November 2021 peak. Intel and AMD face similar share slides as China trade risks mount.
With China the global AI leader by research output and implementation, US chip firms are losing out on invaluable data and revenue needed to compete as restrictions cause market exit. And for commercial customers, having access to only US embargoed technology reduces options and drives up costs.
Rather than selective decoupling, the US and allies may be better served by a strategy of managed economic interdependence with China. This allows tapping into the multiplier effect from both economies pushing the technological frontier outwards together.
A bifurcated world where two separate semi-conductor ecosystems emerge carries dire consequences for all. Costs and inefficiencies rise while the collaborative innovation underpinning human progress stalls amid distrust sown by harmful rhetoric on both sides.
With so much at stake for US competitiveness and prosperity, officials should explore if targeted controls rather than blanket bans can mitigate security risks while enabling industry growth. Else America courts strategic overreach at tremendous self-harm for marginal security gains.
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