Federal Authorities Browse potential Restrictions on U.S. Semiconductor Exports to China via Proposed Executive Order
For some time now, there's been a significant amount of discussion surrounding export controls in the semiconductor sector. However, it appears that the largest American tech company by market cap, Nvidia, might find itself on the Biden administration's list of offenders, just in time for the holidays.
This month, the industry is witnessing a surge in reports about heightened regulatory oversight of American chipmakers selling products to China – with Nvidia specifically mentioned. The Biden administration reportedly has urged Nvidia to investigate how its chips somehow made their way to China despite specific laws prohibiting such sales.
Following communications from the U.S. Department of Commerce, Nvidia reportedly renewed its pledge to adhere to export controls, criticizing a "gray market" (some might refer to it as a "black" market) where third-party resellers bypass those regulations.
In response, Nvidia is also reportedly bolstering its lobbying presence in Washington and hiring individuals from the federal government, presumably to anticipate a new regulatory environment.
Tightening the Noose on International Chip Sales
It's no secret that companies like Nvidia and AMD have devised numerous ways to sidestep these regulations put forth by the U.S. government.
In a piece published at Ars Tecnica on Dec. 2, presumably discussing the government's inability to curb these kinds of sales, Ashley Belanger wrote, "Joe Biden's final move to prevent China from surpassing the U.S. in AI may be too little too late."
One method is manufacturing slightly altered technology so that the chips are export control-compliant. For instance, creating a lower-capacity chip enables the company to ship that technology to China. Alternatively, they could sell to third-party entities in countries like Singapore and Malaysia, who would subsequently resell to China.
The Biden administration is reportedly working on closing that particular loophole, according to Wall Street Journal reports – an executive order rumored to be pending in the White House would restrict sales of chips globally, aiming to hinder efforts to smuggle or resell to China via the gray market.
Anti-establishment figures argue that U.S. chip manufacturers are doing everything in their power to halt the execution of this executive order, as detailed in articles like this one from the NYT.
Additional Concerns
Furthermore, the U.S. government is also grappling with the issue of American ship technology ending up in Russian military equipment involved in the conflict in Ukraine.
Returning to Nvidia: a fresh antitrust probe has impacted the company's stock value, albeit the ticker currently hovers around $131 and some change as of press time.
Meanwhile, the Chinese have announced a ban on the export of certain rare earth metals – gallium and germanium – to the U.S.
Attempting to enforce U.S. chip export controls might be described as the largest, most intense version of Whack-a-Mole ever. Certain types of black markets are nearly impossible to control, and it's highly unlikely that one country, especially the U.S., where cash reigns supreme, will be able to effectively control its private-sector sales. As previously noted in this excerpt from a piece by Barath Harithas and Andreas Schumacher at the Center for Strategic and International Studies, the entire essay covers the complicated and convoluted history of U.S. export controls over the past few years:
"While a piece of semiconductor manufacturing equipment cannot be exported to China from U.S. factories, the same equipment produced in an overseas facility can legally be sold to an advanced logic fab in China, provided no U.S. persons are involved in its manufacturing, sale, installation, or servicing, even if the customer is on the U.S. entity list. This effectively created a backdoor in the control regime.
To address this, the United States introduced a Foreign Direct Product Rule (FDPR) for semiconductor manufacturing equipment (SME). The FDPR subjects items manufactured abroad to U.S. export restrictions if produced using U.S.-origin technology, software, or equipment. This move aims to prevent companies from circumventing restrictions by relocating production or relying on foreign facilities to supply restricted technologies to entity-listed Chinese firms."
Indeed, individuals with a vested interest are paying close attention. They're eager to comprehend how trade control activity between the U.S. and China will impact the next generation of data centers and LLM applications, which are significantly impacting our businesses and lives.
In conclusion, the technology race is intensifying – and semiconductor technology is taking center stage. Keep an eye out here as I continue to examine the trends shaping the market, the geopolitical forces driving those trends, and the maneuvers of all the key players as we round out a spectacular year for technology.
In light of the tightened regulations, Nvidia and other tech companies may be seeking big money investments to navigate the complex trade landscape in enterprise tech, particularly in relation to chip sales to China. The Biden administration's proposed executive order could significantly impact the gray market operations, possibly leading to shifts in trade strategies and financial investments.
Moreover, the ongoing antitrust probe against Nvidia and the Chinese ban on certain rare earth metals exported to the U.S. are also adding to the financial challenges and strategic considerations in the tech sector, highlighting the interplay of 'trade,' 'big money,' and 'enterprise tech.'
