Tech Giants Blast Plan to Set Limits On Sale of AI Chips

"Tension between national-security hawks and the biggest U.S. technology companies over China policy has burst out into the open.

The trigger: a Biden administration plan to limit the global sale of advanced artificial-intelligence chips. It seeks to ensure the U.S. keeps control over the future of AI by blocking Beijing from accessing AI technology through third countries.

The plan drops the "mother of all regulations" and "does more to achieve extreme regulatory overreach than protect U.S. interests," said an Oracle executive vice president, Ken Glueck, in a blog post. On the other side, a Republican-led House committee urged the administration to go through with tough curbs, calling it a "once-in-a-generation moment" to block Beijing's ambitions.

The battle lines in this clash -- a Democratic president and leading Republicans squaring off together against a major U.S. industry -- are unusual enough.

Just as unusual is the timing, coming in the final days of the Biden presidency. Opponents of the new restrictions said a lame-duck government shouldn't be making sweeping policy moves.

But unlike some other areas such as oil drilling, this isn't a case of President Biden trying to thwart his successor with last-minute decisions promoting Democratic priorities. Many in the camp of President-elect Donald Trump, a Republican, are just as hawkish on China, and the battle by tech companies to forestall anti-China policies they view as harmful is likely to continue in the new administration.

The gloves came off this week because of anticipation that the Commerce Department would imminently introduce a global export license regime for graphics processing units -- the type of chip critical to AI applications -- and set sales caps for certain countries. The goal would be to close off loopholes that otherwise could allow China to access AI chips by tapping data centers in regions such as Southeast Asia and the Middle East.

While Commerce hasn't detailed its plans publicly, drafts of the rule have circulated in Washington, industry officials said.

The limits would be the capstone of the Biden White House's strategy over the past four years to stymie China's progress in technology critical to future weapons development and industrial leadership.

In October 2022, the Biden administration placed restrictions on the export to China of high-end U.S. chips and some tools used to make them. It also prohibited other countries from selling those goods if they used any U.S. technology to produce them. It followed by expanding the curbs several times, most recently in December when it banned the export to China of certain memory chips essential to the training of AI algorithms.

Both sides in the current dispute agree the rules were a milestone in U.S. policy and have at least hindered China's AI ambitions by making it hard for Chinese entities to buy the most advanced chips from AI leader Nvidia and others.

The hawks said the rules have been well-intentioned, but left backdoor routes for China to access U.S. technology. Some said U.S. officials moved so slowly that Beijing was able to stockpile much of the banned technology.

Many tech companies counter that the regulations so far risk hobbling the U.S.'s industry leadership.

Even before the public clash this week, tensions had bubbled beneath the surface. Weeks after the first round of U.S. export controls, Nvidia released new chips for the Chinese market that were modified so they didn't require a U.S. export license. A year later, the U.S. updated its controls, and Nvidia updated its China chips so they would again avoid the export ban.

Such moves drew the wrath of U.S. officials, who felt that Nvidia wasn't aligning itself with the spirit of the law, according to people familiar with the matter. Nvidia said the company complies with all applicable export-control laws and requires its customers to do the same.

In December 2023, Commerce Secretary Gina Raimondo expressed frustration at dealing with what she described as industry resistance to export controls.

"They're in the business of making money. Every time I take an action, it denies them revenue," Raimondo said. "We have to be eyes wide open about the threat from China and work together."

Now tech companies are openly fighting back against policymakers.

A "last-minute rule restricting exports to most of the world would be a major shift in policy that would not reduce the risk of misuse but would threaten economic growth and U.S. leadership," Nvidia said.

The Information Technology Industry Council, a Washington-based group that represents Google, Microsoft, Amazon and other large companies, accused the administration of failing to consult companies.

Industry officials said if U.S. companies had to go through red tape in Washington every time they tried to sell an advanced chip or server overseas, customers would get fed up and opt for more stable and reliable Chinese alternatives, even if inferior.

That, they said, would give the Chinese industry the foothold it needs to catch up and dominate the AI business globally, replicating Chinese companies' lead in high-tech areas such as electric vehicles and solar panels.

Lawmakers and former White House staffers under both Trump and Biden said that any time advanced U.S. AI technology is sold abroad, it could end up in China's hands and needs to be regulated for that reason, just as the U.S. wouldn't allow a U.S. jet fighter sold to Saudi Arabia to be resold to China.

On Jan. 2, the House Select Committee on the Chinese Communist Party said China "uses illicit methods and loopholes" to access U.S. technology in third countries and "we strongly believe the United States needs a global answer."

"In the AI competition, a few years is a lifetime," said Matt Pottinger, who served as Trump's deputy national security adviser from 2019 to 2021 during his first term in the White House.

"Export controls are one area where Biden's team expanded on Trump's original work, and Trump can expand on it again to win the AI race," said Pottinger, now head of Asia-focused research firm Garnaut Global.

The Biden administration has indicated that it wants to hear industry views on the coming rules but that ultimately national security comes first.

Trump hasn't recently detailed his position on export controls, but in his first term he blocked Chinese telecommunications equipment leader Huawei and other Chinese civilian tech companies from accessing U.S. technology.

The Trump transition team has yet to reach out to Alan Estevez, the top Commerce Department official, to discuss export controls, U.S. officials said. That leaves less than two weeks for the incoming administration to coordinate on AI and China export controls. Raimondo, however, has spoken to Trump's choice to succeed her, Howard Lutnick. A Commerce spokesman didn't respond to a request for comment.

Trump's personnel picks, including incoming national security adviser Michael Waltz, are known for their tough views on China. Jacob Helberg, Trump's choice as the State Department's top economic policy and trade official, is a founder of a consortium of tech investors and lawmakers concerned about the rise of China.

"The American people elected President Trump to stand up to China, enforce tariffs on Chinese goods, and Make America Strong Again. He will deliver," said Karoline Leavitt, a spokeswoman for the incoming administration, in an email." [1]

The same mistake as with the sanctions for Russia: Smart asses in Washington DC do not understand that the market in Global South is decisive in these matters. Trying to stop the development of the entire world economy is naive, even if you are Raimondo yourself.

1. Tech Giants Blast Plan to Set Limits On Sale of AI Chips. Lin, Liza; Ward, Alexander.  Wall Street Journal, Eastern edition; New York, N.Y.. 10 Jan 2025: A1.