US expands curbs to dozens of countries, aims to deny Nvidia chips to China

The Biden administration announced on Tuesday that as part of a series of steps to prevent Beijing from obtaining cutting-edge American technologies to bolster its military, it intends to prohibit shipments of more sophisticated artificial intelligence chips made by Nvidia and others to China.

The regulations ban Chinese chip designers Moore Threads and Biren and limit access to a wider range of sophisticated processors and chipmaking tools to more nations, including Iran and Russia.

Gina Raimondo, secretary of the Commerce Department, told reporters late on Monday that the new measures, which aim to close regulatory loopholes and will likely be modified “at least annually,” are intended to impede China’s military growth.

She emphasised that the administration was not aiming to harm Beijing economically, only to restrict Beijing’s access to “advanced semiconductors that could fuel breakthroughs in artificial intelligence and sophisticated computers that are critical to (Chinese) military applications.”

The extensive limitations announced last year increased tensions between the superpowers despite the fact that the United States and China have been engaged in a long-running technology battle.

Leading AI chip designer Nvidia (NVDA.O) stated in a statement that it conforms with legislation and does not anticipate “a near-term meaningful impact” to its financial results.

The business has produced chips like the A800 and H800 that strictly adhered to the prior regulations in order to continue selling to China, and AMD (AMD.O), too has said it plans a similar strategy.

Shares of Nvidia dropped 6%, while those of AMD and Intel (INTC.O), two major competitor manufacturers of AI chips, fell 3.4% and 3.8%, respectively.

Because its China-only processors are still superior to alternatives, Nvidia’s business has increased dramatically since the rules were implemented last year. The Silicon Valley company is now selling nearly every chip it can find as global demand exceeds supply, but would suffer in the long run as Chinese chip firms compete to fill any gaps left by U.S. corporations.

Due to a change in chip features aimed to catch more chips, the new restrictions will have an impact on Nvidia’s A800 and H800 chips.

Most consumer processors used in computers, cellphones, and gaming devices will be excluded from the regulations, but some may be subject to licencing and notification requirements by U.S. authorities.

“The fact is, China, even after the update of this rule, will import hundreds of billions of dollars of semiconductors from the United States,” Raimondo said, emphasizing that the goal of the measures was not to hammer U.S. companies.

The prior regulations mandated a two-pronged test that assessed a chip’s processing performance as well as its interprocess communication capabilities, a crucial factor in AI supercomputers where hundreds of chips are connected to process enormous amounts of data.

For the Chinese market, Nvidia and Intel developed specialised CPUs with advanced computational capabilities but constrained communications rates to comply with earlier regulations.

The new regulations place restrictions on how much computer power a chip may fit into a given size. This precaution is meant to stop workarounds utilising the new “chiplet” technology, which China has stated would be essential to the future of the semiconductor industry.

Both Biren and Moore Threads are Chinese businesses created by former Nvidia workers who seek to compete with the American AI chip giant. Their U.S. suppliers will now have to meet a strict licencing requirement before delivering goods to them.

Biren said it vehemently disagrees with being placed on a blacklist and will ask the American government to reconsider its position. Moore Threads stated that it vehemently objects to its inclusion on the trade blacklist.

The new regulations also increase licencing requirements for exports of cutting-edge chips to more than 40 additional nations that pose a threat of being diverted to China and are restricted from receiving American armaments.

This action appears to be a follow-up to a letter Nvidia claimed restricted the export of its A100 and H100 chips to nations outside of China, including several in the Middle East, when it was received in August.

Chips won’t be allowed to be shipped to businesses with locations anywhere in the globe if their parent company are based in China, Macau, or other nations subject to a weapons embargo, according to a Reuters report. The action is a part of an effort to prevent the chips from being remotely accessed by Chinese parent businesses or being smuggled illegally into China.

Additionally, the Biden administration imposed a licence requirement for chipmaking equipment on 21 nations outside of China.

Additionally, it was put to the list of items whose import into that nation is prohibited.

Modern extreme ultraviolet (EUV) equipment, which has already been withheld from China, is more advanced than DUV but can produce chips that are nearly as advanced at a higher price.

In a statement, ASML stated that while the firm anticipated the new rules to have an effect on “the regional split of our system sales” over the medium to long term, it did not anticipate a “material impact” on its financial outlook for 2023 or the longer term.

Competing American equipment manufacturers Lam Research, Applied Materials, and KLA saw their shares fall by 3%, 2%, and 3%, respectively. Requests for feedback from such businesses as well as the Chinese Embassy in Washington went unanswered right away.

According to American officials, Raimondo, National Security Advisor Jake Sullivan, and Treasury Secretary Janet Yellen all informed their Chinese colleagues that new laws will soon be implemented.

In a statement, the Semiconductor Industry Association asked the government to cooperate with friends while “evaluating the impact” of the new regulations. “Overly broad, unilateral controls risk harming the U.S. semiconductor ecosystem without advancing national security,” the organisation stated.

(With agency inputs)

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