America’s ‘high fence’ around its technology ‘yard’ is getting bigger

Amid the relatively recent outbreak of excitement about the transformative potential of artificial intelligence, the United States, with some help from its allies, is doing everything it can to limit China’s access to the cutting-edge technologies needed to exploit it.

On Friday, the Dutch government announced a new set of restrictions on exports of semiconductor equipment after reaching an agreement with the US and Japan that requires companies making advanced chip-making machinery to obtain export licences.

The Dutch company, ASML, is the world’s leader in building the manufacturing equipment for the most advanced semiconductors. While – with a lot of urging from the US – it hasn’t sold its most advanced machines to China, the new restrictions mean that it won’t be able to export even its older and less advanced models without a licence.

President Joe Biden speaking about the Chips and Science Act: US industry policy is largely run with national security in mind.Credit: AP

ASML is the only manufacturer in the world able to produce the extreme ultraviolet lithography devices needed to produce seven nanometres or smaller chips. With, apparently, three of ASML’s four immersion lithography systems covered by the new restrictions, China would lose access to the machinery needed to produce chips smaller than 28 nanometres.

The US is expected to announce new export controls of its own this month. The Wall Street Journal and Financial Times have reported that the Biden administration is considering tightening its existing restrictions on the sale of advanced chips to China by targeting the AI ones made by Nvidia, other US companies and foreign companies enmeshed in the complex global supply chain for producing them.

The European Union last month released its new economic security plan, which includes the screening of investments in sensitive technologies, particularly dual-use technologies, under the general heading of de-risking Europe’s technological interdependencies.

The existing US restrictions on high-tech exports to China were imposed last October, before the release of ChatGPT ignited global excitement about the potential applications of generative AI. Those rules sought to restrict the exports of advanced chips, chip-making equipment and chip-making components to China where there was any US input into the process.

The new restrictions being contemplated are far more specifically directed at AI, which is not only seen as a critical technology but one with far-reaching military and national security applications.

Not surprisingly, China is unhappy with the tightening of the web of restrictions on its ability to access advanced technologies; the Chinese Ministry of Commerce released a statement on Saturday in which it said the Dutch should stop abusing export control measures and act in accordance with international economic and trade rules.

China’s state-owned Global Times accused the US of using “long-arm jurisdiction” to coerce its allies into restricting sales of tools that are key to China’s technological rise and described the Netherlands’ decision as an “intensified siege” of China’s semiconductor industry.

Despite devoting the best part of a trillion yuan ($225 billion) to the development of its own chip-making industry, it is still well behind the US, Europe, Japan and South Korea when it comes to designing and manufacturing advanced chips.

Taiwan Semiconductor Manufacturing Co is the world’s largest chip maker.Credit: AP

Taiwan’s Taiwan Semiconductor Manufacturing Co and South Korea’s Samsung are both close to commercial production of 2-nanometre chips; mass production by both companies is scheduled for 2025.

Given the scale of the resources China is devoting to trying to bridge the technology gap, its ability to develop its own advanced semiconductors shouldn’t be underestimated.

It does produce legacy, or commodity, chips at scale and has also been investing in research looking at methods that might enable it to use less-advanced chips to protect and enhance its leadership position in AI technologies.

The centrality of advanced semiconductors to key 21st Century technologies – not just AI but quantum computing and big data analytics and a host of dual-use, or civil and military fusion applications – means that there will be fierce competition between China and the US-led coalition of like-minded countries for dominance over the intellectual property associated with their production.

Given the complex global production ecosystem for advanced chips lies outside China and within countries that are largely aligned with the US on security issues, the “rest” have a big head start in the race.

China’s ability to retaliate against the technology restrictions is limited, although companies that have been supplying it with some of the sanctioned tech, like Nvidia and ASML, will clearly lose revenue they might otherwise have generated within China.

The Biden administration’s national security adviser Jake Sullivan has described America’s approach to limiting China’s access to key technologies as building a high fence around a small yard.

Earlier this year, China did cite cybersecurity risks for banning Micron Technology’s memory chips from use in infrastructure China deems critical, underscoring how limited China’s ability to threaten the US or its allies with a “tit-for-tat” response is. There is nothing strategic about memory chips.

More broadly, while the US and its allies make a distinction between “de-risking” their relationships with China and fully “decoupling” their economies, when it comes to some key advanced technologies, particularly duel-use technologies, they are definitely trying to decouple.

China, of course, doesn’t see any distinction and has been pushing back, trying to appeal to the affected companies to protest the restrictions rather than to the governments that are imposing the restrictions.

For the companies, the new environment creates the lost opportunity of future sales and revenue rather than erosion of their existing finances. It’s not a life or death issue for them or one with the scale of national economic interests relative to the national security interests and other geopolitical considerations that would deter their governments from imposing restrictions.

The Biden administration’s national security adviser Jake Sullivan has described America’s approach to limiting China’s access to key technologies as building a high fence around a small yard. The tightening of restrictions on technology exports in the Netherlands – indeed in Europe more broadly – and in the US means that the yard is getting a little larger and the fence a bit higher.

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