Biden administration weighs further restrictions on AI chip sales to China

The Biden administration is considering additional restrictions on China’s ability to access critical technology, including restricting sales of high-performance chips used to power artificial intelligence, according to five people familiar with the deliberations.

The curbs would limit sales to China of advanced chips made by companies like Nvidia and Advanced Micro Devices, which are needed for the data centers that power artificial intelligence.

Biden officials have said China’s artificial intelligence capabilities could pose a threat to the national security of the United States by bolstering Beijing’s military and security apparatus. Among the concerns is the use of AI in directing weapons, conducting cyber warfare and powering facial recognition systems used to track down dissidents and minorities.

But such curbs would be a blow to semiconductor manufacturers, including those in the United States, which still generate much of their revenue in China.

The deliberations were previously reported by The Wall Street Journal. Shares of Nvidia fell about 2 percent in morning trading Wednesday after reports of potential export crackdowns. The company benefited the most from the enthusiasm over artificial intelligence, with its share price up about 180 percent this year.

Such additional restrictions, if passed, would have no immediate impact on Nvidia’s financial results, Colette Kress, Nvidia’s chief financial officer, said during a phone call with reporters on Wednesday. But in the long run, “they will result in a permanent loss of opportunity for US industry to compete and lead in one of the world’s largest markets,” she said. She added that China typically generates 20 to 25 percent of the company’s data center revenue, which includes other products besides chips that enable AI

Share prices of chip companies Qualcomm, Intel and Applied Materials all fell more than 2 percent on Wednesday morning.

Intel declined to comment, as did the Department of Commerce, which oversees export controls. AMD did not immediately respond to a request for comment.

Reducing sales of high-end chips would be the latest step in the Biden administration’s campaign to starve China of advanced technology needed to power everything from self-driving cars to robotics.

Last October, the government issued sweeping restrictions on the types of advanced semiconductors and chip-making machines that could be shipped to China. The rules were applied across the industry, but had a major impact on Nvidia in particular. The company, an industry leader, was not allowed to sell China its premium A100 and H100 chips — which are adept at running the many processes required to build artificial intelligence — unless it first obtained a special license.

In response to those limitations, Nvidia began offering the downgraded A800 and H800 chips in China last year.

The additional restrictions under consideration, which would come as part of the process of finalizing those earlier rules, would also prevent sales of Nvidia’s A800 and H800 chips and similar high-end chips from competitors like AMD and Intel unless those companies a license from the Commerce Department to continue shipping to the country.

The deliberations have led to an intense lobbying battle, with Intel and Nvidia working to avoid further restrictions on their business.

Chip companies say cutting off a large market like China will significantly erode their revenues and reduce their ability to spend on research and innovation of new chips. In an interview with The Financial Times last month, Nvidia’s CEO said, Jensen Huang, be warned that the US tech industry was at risk of “enormous damage” if it were cut off from trade with China.

The Biden administration has also debated internally over where to draw the line on chip sales to China. Their goal is to limit the technological capability that could help China’s military send weapons, conduct cyber warfare and power surveillance systems, while minimizing the impact such regulations would have on private companies.

The move, which would come as the United States is also considering extensive curbs on U.S. investment in Chinese tech companies, is also likely to upset the Chinese government. Biden officials have been working in recent weeks to improve bilateral relations following a fallout with Beijing earlier this year after a Chinese surveillance balloon flew over the United States.

Antony J. Blinken, the secretary of state, traveled to Beijing this month to meet with his colleagues, and Treasury Secretary Janet Yellen is also expected to travel to China soon.

Speaking at the Council on Foreign Relations in New York on Wednesday, Mr Blinken said China’s concern that the US was trying to slow its economic growth was “a longstanding part of the conversation we just had in Beijing”.

Chinese officials, he said, believe the US is trying “to hold them back globally and economically.” But he disputed that idea.

“How is it in our interest to let them get technology that they can turn around and use against us?” he asked, citing China’s growing nuclear weapons program, development of hypersonic missiles and the use of artificial intelligence “possibly for repressive purposes”.

“If they were in our shoes, they would do the exact same thing,” he said, adding that the US “imposed very targeted, very narrowly defined controls.”

Nvidia’s valuation had soared in light of the recent boom in generative artificial intelligence services, which can produce complex written answers to questions and graphics from a single prompt. Microsoft has teamed up with OpenAI, which makes the chatbot ChatGPT, to generate results in its Bing search engine, while Google has built a competing chatbot called Bard.

As companies race to incorporate the technology into their products, the demand for chips like Nvidia’s that can handle the complex computing tasks has increased. That momentum has helped push Nvidia’s market cap past $1 trillion, making the company the sixth largest in the world by value.

Nvidia said in an August filing that $400 million in revenue from “potential sales to China” could be subject to US export restrictions, including sales of the A100, if “customers do not want to buy the company’s alternative product offerings” or if the government does not grant licenses to company to continue selling the chip in China.

Since the restrictions were imposed, Chinese chip makers have tried to overhaul their supply chains and develop domestic sources of advanced chips, but China’s capabilities to produce the most advanced chips have lagged those of the United States for many years.

Joe Rennison And Don Clark reporting contributed.