From: allin
The ongoing trade war between the United States and China has escalated, particularly concerning the export of advanced semiconductor chips. This conflict centers on preventing sensitive technologies with potential dual-use (military and consumer) applications from reaching China [00:08:01].
Recent Developments: H20 Ban
On a Monday, the White House imposed an indefinite export restriction on Nvidia’s H20 chips to China [00:07:01]. Nvidia subsequently announced an expected $5.5 billion hit to its quarterly earnings, causing its stock to drop 6% [00:07:12]. The H20 chip was specifically designed by Nvidia as a weaker version of its H100 to comply with prior export restrictions and allow some sales into China [00:07:19], but it still possessed “too good” computational power, particularly in memory bandwidth which was 20% higher than the H100 [00:09:59]. Nvidia CEO Jensen Huang has stated, “The China market is very important to us” [00:07:38].
Historical Context of Export Controls
The history of these export controls dates back to the Trump administration:
- 2019: The first Trump administration banned the export of extreme ultraviolet (EUV) lithography equipment to China [00:08:16]. This technology is crucial for printing transistors on silicon wafers in the semiconductor manufacturing process [00:08:28]. The Netherlands-based company ASML is the sole producer of these expensive machines [00:08:32]. This decision is considered “far-sighted” as it prevented China from potentially dominating global semiconductor manufacturing today [00:08:45].
- 2022: The Biden administration expanded the export control list to include leading-edge chips, such as Nvidia’s H100 [00:09:06].
- 2023: Nvidia responded by designing a modified H100 chip, the H800, which reduced computational power (flops) just below the export threshold [00:09:13]. However, the Biden administration added the H800 to the export control list in the same year [00:09:25]. This led to Nvidia’s development of the H20 chip, which was subsequently banned [00:09:30].
Rationale Behind the Bans
The primary goal of these export controls is to prevent China’s Semiconductor Strategy from gaining access to advanced AI chips that could have military applications [00:08:04]. The argument for restrictions is that some technologies are too sensitive to be sold to China [00:10:40]. Critics question where the line should be drawn, but proponents assert that selling unrestricted advanced chips would be detrimental to U.S. interests [00:10:14].
China’s Response and Indigenous Development
China has proactively invested in developing its own chip technology:
- 3nm Chip Investment: Last year, China announced and initiated a $37 billion investment into developing its own 3-nanometer chip technology [00:11:21].
- SMIC and Huawei: China’s semiconductor manufacturing company, SMIC, launched a 7-nanometer chip with Huawei for their Mate 60 Pro phone, proclaiming they had developed their own EUV technology [00:12:03]. While this was likely achieved through reverse engineering or workarounds of existing technology [00:12:29], it indicates China’s commitment to indigenous chip manufacturing [00:12:38].
- Accelerated Efforts: Some argue that U.S. bans will only accelerate China’s efforts to build its own chip manufacturing capacity [00:12:55].
- Strategic Plan: In 2017, the State Council of China published a plan to become a global leader in AI by 2030, with specific milestones for 2020 and 2025 [00:14:37].
“If you give a man a chip, he makes one semiconductor or a few. But if you teach a man to make a chip, he makes multiple semiconductors and invades Taiwan.” [00:13:19]
Allegations of Export Control Evasion
Concerns have been raised about how effectively these controls are being enforced:
- Nvidia’s Revenue: Approximately 47% of Nvidia’s revenue comes from China and Chinese-related countries [00:16:21].
- Shell Companies: There are allegations that shell companies are being set up in countries like Singapore, Bhutan, Cambodia, or Vietnam to purchase Nvidia GPUs under the guise of legitimate entities [00:17:45]. These chips are then believed to be rerouted to China, providing China with substantial performance capabilities [00:16:31].
- TSMC Case: In a past instance, TSMC was reportedly found to have produced 3 million chips that went into Huawei Ascend chips, for which they are being fined [00:18:49].
- “Plausible Deniability”: Companies like Nvidia might claim plausible deniability, stating they cannot audit where every chip ultimately goes [00:26:06].
- Chinese Initiatives: It is believed that the front companies are set up by the Chinese government or entities within China to evade export controls [00:23:44].
“The capitalists will sell us the rope with which to hang themselves.” [00:23:57]
Broader Implications for US-China Competition
The US-China trade relations and history involves a broader competition for technological supremacy.
- Scientific Research: China has significantly increased its gross domestic expenditures on science, now matching the U.S. at half a trillion dollars annually on fundamental scientific research [00:46:00].
- Foundational Research Output: Around 2019, China surpassed the U.S. in the percentage of foundational research published in English [00:46:48]. If research published in Chinese were included, China would have led significantly earlier [00:47:02].
- Economic Integration: The deeply integrated global economy makes unwinding these relationships complex [00:20:27].
- Manufacturing and Jobs: There’s a debate about prioritizing cheap goods over stable jobs. Some argue that Americans have been “sold the idea that cheap goods are more important than having a stable functioning job and family” [00:21:08].
Government Oversight and Enforcement
Effective enforcement of export controls requires:
- Clearer Boundaries: Defining boundary lines more effectively with fewer loopholes to prevent legal circumvention [00:24:40].
- Increased Monitoring: More monitoring, inspection, and enforcement resources are needed [00:24:50]. The Bureau of Industry and Security (BIS) within the Department of Commerce, responsible for these tasks, is considered understaffed relative to the importance of its mission [00:25:04].