How the US Plans to Control Semiconductor Exports, Transfer of Chip Technology to China

The Biden administration announced a dramatic expansion of controls on the export of US semiconductor technology to China, making it 'illegal' for any American company to trade semiconductor chips with Chinese companies.

The step is being taken to bring a pause in the Chinese tech sector and innovative ecosystems, as the Biden administration considers further advances in Chinese semiconductor technology, as counter to US national interests, Christopher Miller, a professor at Fletcher School wrote in Los Angeles Times.

If we look at the past, several US administrators including Donald Trump tried to impose restrictions on telecommunications equipment maker Huawei. Now, President Biden is taking on China's entire computing industry.

The limits aim to limit the transfer of cutting-edge graphics processing units, known as GPUs, a type of chip that is considered very crucial to running artificial intelligence applications in data centres.

For a decade, the US has failed to stop the flow of computing technology to the Chinese military. It is considered easy to limit technologies like missiles or radars when they solely have a military purpose, Miller said.

The US had tried to stop certain Chinese firms with military links from accessing advanced chips while letting tech flow to commercially oriented firms. But that policy clearly left gaps, after which the Biden administration placed new controls not merely on specific Chinese firms, but on the whole country.

The reason of US being sceptical about allowing sales of chips even for civilian purposes is the fact that once chips enter China, the US has no control over where they end up, Miller further said.

But Miller says that the US tech industry will also have to face the effect of the restrictions.

US citizens have often been legally engaged with Chinese chip firms, servicing their machines, selling them materials or in some cases, even working as chief executive officers.

Now, Americans will have to face legal penalties for conducting business with Chinese firms, just like they are sanctioned while conducting business with companies from Iran or North Korea.

Per Miller, the US companies are also feeling the heat, as several stock prices slumped after the US President announced the restrictions. Although the company will be able to make revenue outside China, still the lost revenue will hurt them.

Besides that, even the American buyers of Chinese chips will also be hit, and one of the prime examples of the case is Apple.

Earlier Apple was planning to use chips from Yangtze Memory Technologies, a Chinese government-backed company at subsidised prices, but now it will have no other option to buy chips from non-Chinese companies at market prices, Miller said.

"However, other than Silicon Valley, China to is expected to be facing a blow after the decision. It will take China's chip firms at least a decade to develop advanced chipmaking capabilities at home if they ever succeed," he said.

The Biden administration's new restrictions on China's chip sector may finally succeed in closing this loophole, Miller added.