# Analysis: US restricts GPU sales to China

What are the restrictions?
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Broadly speaking, the policy restricts the sale of GPUs and related technology to Chinese companies. The specifics remain unclear because (a) the Department of Commerce hasn't released its official press report yet and (b) licenses to sell compute to Chinese companies will be approved on a case-by-case basis. 

Here's the [NYTimes description](https://www.nytimes.com/2022/10/07/business/economy/biden-chip-technology.html) of the restrictions: 

> Companies will no longer be allowed to supply advanced computing chips, chip-making equipment and other products to China unless they receive a special license. Most of those licenses will be denied, though certain shipments to facilities operated by U.S. companies or allied countries will be evaluated on a case-by-case basis, a senior administration official said in a briefing Thursday.  
>   
> The restrictions limit U.S. exports of the cutting-edge chips called [graphic processing units](https://www.nytimes.com/2022/08/31/technology/gpu-chips-china-russia.html) that are used to power artificial intelligence applications, and place broad limits on chips destined for supercomputers in China. The rules also ban U.S.-based companies that make the equipment used to manufacture advanced logic and memory chips from selling that machinery to China without a license.
> 
> Perhaps most significantly, the Biden administration also imposed broad international restrictions that will prohibit companies anywhere in the world from selling chips used in artificial intelligence and supercomputing in China, if they are made with U.S. technology, software or machinery. The restrictions used what is know as the foreign direct product rule, which was last utilized by former President Donald J. Trump to cripple Huawei.
> 
> Another foreign direct product rule bans a broader range of products made outside the United States with American technology from being sent to 28 Chinese companies that have been placed on an “entity list” over national security concerns.
> 
> Those companies include Beijing Sensetime Technology Development Co, a unit of major Chinese artificial intelligence company, SenseTime. Also included are Dahua Technology, Higon, IFLYTEK, Megvii Technology, Sugon, Tianjian Phytium Information Technology, Sunway Microelectronics and Yitu Technologies, as well as a variety of labs and research institutions linked to universities and the Chinese government.
> 
> The rules also restrict U.S. citizens from helping to develop the Chinese semiconductor industry to advanced levels. Earlier on Friday, the administration announced that it was adding another 31 Chinese companies and institutions to an “unverified list” that limits their ability to obtain a smaller set of certain regulated U.S. items. Among them is Yangtze Memory Technologies Co., Ltd, a major memory chip maker from which Apple [has considered sourcing some products](https://www.ft.com/content/099a409a-49c2-4ed3-a630-87bf6dc8ce15).
> 
> In a briefing with reporters, senior administration officials said the measures would be limited to the most advanced chips, and thus would not have a broad commercial impact on private Chinese businesses. But they conceded that they could become more restrictive over time, given that technology will begin to outpace them.

Licenses to continue sales to China will be approved on a case-by-case basis by the Department of Commerce. Standards for these licenses will therefore be an ongoing battleground where this policy can become more or less strict. [NYTimes](https://www.nytimes.com/2022/10/07/business/economy/biden-chip-technology.html):

> Some Republican lawmakers and China hawks have criticized the department for being too willing to issue such licenses, allowing U.S. companies to continue selling sensitive technology to China even when national security may be at stake.
> 
> “If you want to stop it, you can just stop it,” said Derek Scissors, a senior fellow at the American Enterprise Institute. “When you create a licensing requirement, you are announcing to the world we don’t want to stop it. We are just pretending.”
> 
> The waivers to continue selling products to China could come under more scrutiny if Republicans regain the majority in the House after midterm elections.
> 
> Representative Michael McCaul, Republican of Texas, said he intended to use his authority as current ranking member of the House Foreign Affairs Committee to press the Bureau of Industry and Security, which reviews such licenses, on the applications and decisions.

Policy Environment
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The US has taken complementary policy actions recently, including [banning NVIDIA from selling A100s and H100s to Chinese companies](https://www.scmp.com/tech/big-tech/article/3192213/tech-war-why-us-nvidia-chip-ban-direct-threat-beijings-artificial) and [blacklisting 13 more Chinese companies from receiving any investment by Americans](https://www.taipeitimes.com/News/front/archives/2022/10/08/2003786658). 

Taiwan seems to be on-board with the plan, promising ["very firm" export controls on Taiwanese chips](https://www.taipeitimes.com/News/biz/archives/2022/10/06/2003786523) being sold to the Chinese military complex. Taiwan is a crucial player in this battle, home to Taiwan Semiconductor Manufacturing which produces [53% of the world's outsourced chips](https://theconversation.com/taiwan-dominates-the-worlds-supply-of-computer-chips-no-wonder-the-us-is-worried-188242) and all of NVIDIA's GPUs. 

The most important background is the [CHIPS Act](https://en.wikipedia.org/wiki/CHIPS_and_Science_Act) passed this August providing $52B for US chip manufacturing. Here's a [Wikipedia](https://en.wikipedia.org/wiki/CHIPS_and_Science_Act) summary of the spending: 

> The CHIPS Act includes $39 billion in tax benefits and other incentives to encourage American companies to build new chip manufacturing plants in the U.S.[^\[7\]^](https://en.wikipedia.org/wiki/CHIPS_and_Science_Act#cite_note-7) Additionally, $11 billion would go toward advanced semiconductor research and development, with $8.5 billion going to the [National Institute for Standards and Technology](https://en.wikipedia.org/wiki/National_Institute_for_Standards_and_Technology), $500 million for [Manufacturing USA](https://en.wikipedia.org/wiki/Manufacturing_USA), and $2 billion for a new public research hub called the National Semiconductor Technology Center. $24 billion would go to a new 25 percent advanced semiconductor manufacturing tax credit to encourage firms to stay in the United States, and $200 million would go to the [National Science Foundation](https://en.wikipedia.org/wiki/National_Science_Foundation) to resolve short-term labor supply issues.

How will China respond?
-----------------------

Unclear. [NYTimes](https://www.nytimes.com/2022/10/07/business/economy/biden-chip-technology.html) is maximally vague: 

> It remains to be seen whether the Chinese government will take action in response. Samm Sacks, a senior fellow at Yale Law School who studies technology policy in China, said the new rules could push Beijing to impose restrictions on American companies or firms from other countries that comply with U.S. rules but still want to maintain operations in China.
> 
> “The question is: Would this new package cross a red line to trigger a response that we haven’t seen before?” she said. “A lot of people are anticipating it will. I think we’ll have to wait and see.”

While the US is dependent on China for many imports, we do not seem to critically depend on their GPUs. (I don't have strong proof of this claim and would welcome disagreement. My understanding is that most US GPUs are designed in the US and manufactured in Asia outside China using machinery developed in the Netherlands and elsewhere around the world. See [here](https://cset.georgetown.edu/publication/the-semiconductor-supply-chain/).) 

China might respond in turn with similar GPU export controls against the US, but given the limited reach of Chinese compute in the US, I expect the US would welcome those restrictions as they further prevent American dependence on Chinese supply chains. A stronger response could include export controls against the US in other sectors or other actions against US foreign policy interests around the world. 

![](https://39669.cdn.cke-cs.com/rQvD3VnunXZu34m86e5f/images/aeef3e87b4ea11509e257bb7aec1d0fc9c0f572a7b7ed519.jpg)

Over the coming years and decades, China could gain more influence over Taiwan, South Korea, Singapore, Japan, and other Asian countries with strong chip manufacturing. This could be a real problem for the US which depends on exports from those countries. But promoting US chip independence by funding domestic manufacturing and cutting ourselves off from global supply chains seems like a good way to counter that threat. 

How does this support US strategic goals?
-----------------------------------------

These policies together support independence for the US chip supply chain. This is an important long-term goal for the US given that much of the world's compute is produced in East Asia where China could attempt to restrict our access. It's part of a [larger strategy of economic decoupling from China](https://www.cotton.senate.gov/imo/media/doc/210216_1700_China%20Report_FINAL.pdf) in preparation for another Cold War. (Another policy that would promote US supply chain independence is preventing US companies from using Chinese parts in building chips -- perhaps this is on the agenda, or will be enforced unilaterally by the Chinese government in retaliation to our policies.)

The policies also slow down Chinese AI. Some of the companies that are specifically targeted seem particularly heinous such as [SenseTime](https://en.wikipedia.org/wiki/SenseTime) and [Dahua](https://en.wikipedia.org/wiki/Dahua_Technology) which [provide facial recognition software for the concentration camps in Xinjiang](https://home.treasury.gov/news/press-releases/jy0526), while others are more neutral, such as [AMD's partnership with Chinese companies to build CPUs](https://en.wikipedia.org/wiki/AMD–Chinese_joint_venture). From a US national security perspective, slowing down Chinese growth in general and military AI growth in particular seem widely accepted as a good strategy. I would expect the same thing from an x-risk perspective, though perhaps decreasing Chinese reliance on US chips only reduces our influence during a future critical time (see [Matt Yglesias](https://www.slowboring.com/p/at-last-an-ai-existential-risk-policy)).