U.S.-China Tech War Likely to Escalate, Analysts Say
07.17.2024
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During its final months, the Biden administration will try to implement several measures that have been in the planning stages during the last two years, according to Paul Triolo, who advises global tech clients at Washington, D.C.-based Albright Stonebridge Group.
“There’s a real fear of being seen as being soft on China in November,” Triolo told EE Times. “At the same time, the administration has tried really hard to stabilize the relationship.”
In October 2022, the Biden administration revived Cold War-like sanctions aimed at blocking China’s advancement with chip technology that is critical for both economic development and military superiority. Those measures banned exports of Nvidia and AMD GPUs destined for supercomputers in China, as well as sales of chipmaking tools and design software. Months later, the U.S. followed up by blacklisting Chinese memory maker YMTC and banning U.S. exports to Huawei. Former U.S. officials said the export controls were ineffective because other key nations in the semiconductor supply chain circumvented the restrictions.
The U.S. may persuade the Dutch government to block maintenance and resupply of parts for ASML’s deep ultraviolet (DUV) equipment (NXT 2000/2050/2100) already in China, Doug Fuller, associate professor at the Copenhagen Business School, told EE Times. ASML—the world’s only supplier of DUV and more advanced extreme ultraviolet lithography (EUV) tools that are essential to making advanced chips—does not sell EUV equipment to China.
“The key issue is what happens to NXT1980Di tools–these should be blocked under new 2023 Department of Commerce restrictions,” Fuller said. “If not, China could import these and harvest the many interchangeable parts needed for more advanced equipment.”
Strong bipartisan support in Washington for further sanctions on China will continue no matter whether Biden, Donald Trump or even U.S. Vice President Kamala Harris becomes the next U.S. president, according to Derek Scissors, resident scholar at the American Enterprise Institute based in Washington, D.C.
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Both the U.S. and China will try to decouple from each other in critical sectors, according to Burack.
“The notion that decoupling is an affirmative goal that the U.S. should seek is now increasingly accepted on both sides of the aisle,” he said. “President Trump’s former national security advisor just wrote a case for decoupling from China in Foreign Affairs magazine. At the same time, you see the Biden administration increasingly adopting a sectoral approach. Decoupling is the U.S. agenda in critical sectors. It’s also manifestly China’s agenda because they’re seeking to aggressively end their reliance on Western technology so they’re not subject to what they would see as unacceptable leverage. Things are going to continue heating up because it’s a mutual undertaking.”
The U.S. could apply Treasury sanctions, which the Treasury Department’s been very reluctant to use because they are like a “nuclear weapon,” according to Triolo.
“Cutting off companies from the financial system would be very disruptive,” he said. “That kind of action would probably cause China to take much stronger retaliatory action. The way the election goes is going to be important in determining how escalatory this becomes.”
Chinese video surveillance equipment maker Hikvision is almost certainly subject to mandatory sanctions, according to Burack.
In March, Michael McCaul, chairman of the U.S. House of Representatives Foreign Affairs Committee, and ranking member Gregory Meeks triggered the Magnitsky Law, which allows a House committee to designate an entity to Treasury for a mandatory determination.
“Hikvision, because it is involved in human-rights abuses in the PRC, is subject to sanctions, but they just haven’t been implemented,” Burack said. “It is likely that that bottle will come uncorked at some point.”
Huawei
With Chinese telecom giant Huawei in its crosshairs, the U.S. is likely to implement new export controls and restrictions on outbound investment, according to Triolo.
“There are six more companies that are on the chopping block, if you will, that the administration alleges are associated with Huawei,” Triolo said. “This includes their DRAM memory leader CXMT [ChangXin Memory Technologies], which so far has not been put on the dreaded Entity List. If the U.S. takes action against those companies, we could be in for another tit-for-tat spiral.”
China has responded to U.S. sanctions by banning the use of Intel and AMD chips from government procurement. Under the CHIPS Act, the U.S. government expects Intel to expand production capacity in the U.S. while Intel’s market in China—worth about a third of the company’s revenue—shrinks.
The tech war may become more like a zero-sum game with increasing collateral damage on both sides, according to Fuller.
“China will continue to try to displace American products from its marketplace through regulation, anti-monopoly investigations and other means,” Fuller said. “It is possible China will try to weaponize supply chain dependencies on China, but these can backfire when alternative producers enter the market.”
The semiconductor industry is pushing back on the controls, Triolo said. U.S. semiconductor tool makers like Applied Materials and Lam Research are opposed to some of the export controls, he noted. “They’re making the argument that there’s very little national security gain.”
Huawei, which in 2020 briefly became the world’s largest smartphone maker, has flouted U.S. technology bans since they were implemented. In September 2023, the company re-entered the 5G smartphone market with the launch of three phones that run the company’s Kirin 9000 chips made with 7-nm technology supplied by China’s largest foundry, Semiconductor Manufacturing International Corp. (SMIC). The production of 7-nm silicon by SMIC crossed a red line set by the U.S. government to keep China stalled at the 14-nm node.
“To the extent that there is a perception that Huawei’s ecosystem is evading controls, new ones will be imposed,” Fuller said.
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Huawei is working closely with China’s supply chain to help the industry overcome some of the U.S. restrictions over the long term, Triolo said. Huawei’s P70 smartphone released in March this year has a more advanced 7-nm chip that raised the flag within the Department of Commerce, he added.
Commerce is looking to react to that,” Triolo said. “The upcoming controls will center around a couple of things. One is these Huawei companies. So CXMT and a couple of other foundries that are just getting started in China but have some connection with Huawei. That’s one piece of it.”
The other part is high-bandwidth memory (HBM).
“There’s been a lot of concern about HBM,” Triolo said. “The industry has been a little bit concerned because they don’t really get why memory is the same level of national security as logic.”
There’s a feeling in Washington that the Chinese, like Huawei, are focusing on the same kind of roadmap that Nvidia and others are on, which is to bundle HBM with a GPU to get higher levels of performance. Huawei designs GPUs for its Ascend series of processors, Triolo says.
China’s government-funded CXMT and Wuhan Xinxin are preparing to start production of HBM, according to a Reuters report. Huawei aims to make HBM2 chips in partnership with other domestic companies by 2026, the report said. HBM2 is a generation behind the HBM3 chips made by SK Hynix, Samsung and Micron.
China has a tremendous amount of capacity at mature nodes, and that is causing a lot of concern about overcapacity, Triolo said. SMIC is trying to repurpose the most advanced DUV systems in China like the ASML 2500s and 2100s to do more advanced nodes, he added.
“They figured this out using well-known industry approaches,” Triolo said. “All these Chinese companies now that can’t get GPUs, they’re looking for a long-term stable supply. Huawei is really the only hope right now, but that means SMIC has to devote more resources, more capacity to that.”
Nvidia’s upcoming Blackwell GPU will widen the AI gap between the U.S. and China, Triolo argues.
“China is not going to be able to match that kind of capability,” he says. “Even if Huawei and SMIC are able to crank out things, they’re still not going to be as good.”
