Nobody puts innovation in a corner
How America’s hardware hangup could curb its success in the “chip war” with China
Photo credit: Chip Somodevilla/Getty Images
The Biden administration is doubling down on its attempts to cut China off from the advanced chips “needed” for AI. U.S. Early next month, Under Secretary of Commerce for Industry and Security Alan Estevez will travel to Japan and the Netherlands to put pressure on leaders in both countries to further limit their tech companies’ China operations.
Estevez’s goal is to prevent Japanese and Dutch companies (Tokyo Electron and ASML Holding NV, specifically and respectively) from providing maintenance services on their products already in China. His planned appeal is just the latest development in the administration’s months-long attempt to sway allies to get tougher on isolating China from the global chip supply and service chain. This effort has included, for example, asking Japan to limit exports to China of chemicals used in chipmaking.
The necessity of these moves is debatable – and the tradeoffs are worth paying attention to. Restoring relationships with other countries has been a major priority of the Biden administration. His predecessor did severe damage not only to the state of America’s alliances but also to the trust in the American institutionalism that underlie them.
By pressuring allies to pursue comprehensive chip restrictions on China – a major if not top trading partner for many – the administration may be squeezing the wrong lemon dry. The other prong of Washington’s two-pronged strategy to “compete with” (read: beat) China is centered on domestic progress. International partners are also necessary for that more important and more promising strategic direction. American memory chip producer Micron, for example, is considering developing a production presence in Malaysia and plans to add capacity to its facility in Taichung, Taiwan.
The AI accelerators produced by the U.S. firm Nvidia, which yesterday became the most highly valued company in the world, rely on high bandwidth memory (HBM) chips. South Korea’s SK Hynix is currently the top HBM producer. America’s Micron is one of its competitors. While American companies compete in the global marketplace, their government seeks to narrow it – and recruit to that mission the leaders of smaller countries, which have less of an interest in holding China back and more of an interest in propelling their domestic economic prospects.
Countries like Japan and the Netherlands also make the reasonable point that they’d like to see how the existent restrictions on China play out. They very well may view taking more drastic steps like cutting off maintenance of existing China-based hardware as unnecessary.
That’s especially true now, as the U.S. presidential election looms and polls are uncomfortably inconclusive. Why should they further isolate themselves from China when Trump could be revived only to isolate the United States from them? (At least, that’s one possible direction Trump 2.0 could go in. There are many others – few of them likely to contribute to global stability.)
Yet Washington’s current approach is unlikely to slow due to two potent, bipartisan motivators: China hawkishness and AI hype. Lawmakers on both sides of the aisle are pressured to make bold moves to advance both narratives. (I wrote about this in October when the Commerce Department updated its China chip controls.) Getting allies on board with cutting off China’s access to semiconductors plays to both these popular ideologies – plus a third that the Biden administration particularly cares about: international cooperation. It’s hard to think of a more cutting-edge politically salient line than: “We’re partnering with friends and allies to restrict China’s ability to develop AI because we don’t trust how they’ll use this technology, which poses existential risks.”
I still think it’s worth debating whether the U.S. should (or perhaps more aptly should have) pursued such a blatant policy of containment. But since that train has left the station, viability is perhaps a more pressing issue. For their part, Chinese experts do not appear to be shaking in their boots. Jeff Ding earlier this week published an informal translation of a speech by Fudan University professor Yin Li in his ChinAI newsletter (subscribe!) that employs history to argue all this effort to restrict China’s chip access may be for not:
“...Since the Industrial Revolution, any developed country's attempt to hinder the international diffusion of large-scale general technology has been futile in the long run. For example, in the 19th century, Britain imposed a strict technology embargo on the cutting-edge technology of the time, the power loom, but such a blockade could only last for less than half a century. When American companies launched fully automatic power looms through independent innovation in 1895, they quickly occupied the world market, and a series of industrial technologies related to cotton textiles in Britain had no chance to develop.”
The subtext is barely sub: China will, he means, develop its own chips and they might even be better. Plus, in its attempt to restrain America, Britain missed out on the industrial applications associated with automatic power looms. There are of course even more downstream commercial uses for AI.
Washington’s focus on chips also betrays its favoritism of the physical. Chinese companies are working, at presently opaque levels of success, to develop domestic chips that render international inputs unnecessary. That was Beijing’s long-term vision before the export controls were originally released in October 2022, but it has been revved up since.
In the meantime, China is investing in cultivating talent. It already produces the most STEM graduates in the world. In March, the education ministry released 24 new undergraduate majors “to cultivate urgently needed talents.” Semiconductor science and engineering was one of them. More to the point, per a report released today by the Xinhua Research Institute, China must "reduce the burden and loosen the shackles" for talented people by granting them a trusting pro-growth environment.
The report notes that for basic research and applications with extensive R&D cycles, China “must maintain strategic patience” (战略耐心). In other words, China is playing the long game. Considering the amount of political capital Washington is willing to expend on getting allies on board with what may be a doomed mission, it’s not clear the U.S. is prepared to do the same.