U.S. imposes foreign direct product rule on China for AI and supercomputing

The Biden administration on Friday announced its most aggressive measures to date aimed at limiting China’s access to advanced computer chips and chip-making equipment, saying that the technology is supporting China’s military modernization and even its development of weapons of mass destruction.

The administration said it was focusing solely on the chips, activities and entities of “greatest national security concern” in China to minimize harm to the American chip industry — foundational to the U.S. economy — and disruptions to the global supply chain.

The move represents a clear flexing of U.S. muscle in its competition with China, with analysts saying it amounts to a new strategy of high-tech containment.

China builds hypersonic weapons systems using American chip technology

But officials also acknowledged the effort could backfire without buy-in from foreign partners and allies.

“We recognize that the unilateral controls we’re putting into place tomorrow will lose effectiveness over time if other countries don’t join us, and we risk harming U.S. technology leadership if foreign competitors are not subject to similar controls,” said a senior administration official who spoke on the condition of anonymity to preview the rules with reporters.

National security adviser Jake Sullivan last month said the administration was seeking to shed the old approach of maintaining a “relative” advantage in key technologies to blowing open “as large of a lead as possible.”

The export controls imposed on Russia by the United States and 37 other countries earlier this year showed such tools can do more than just prevent gains, Sullivan said. “They can be a new strategic asset in the U.S. and allied tool kit to impose costs on adversaries, and even over time degrade their battlefield capabilities,” he said in a speech at a global technologies summit.

But that collective effort’s success only underscores the need for similar support from allies with this action, said William Reinsch, a senior Commerce official in the Clinton administration now at the Center for Strategic and International Security.

“This won’t work unless the affected governments and companies are willing to cooperate,” said Reinsch. “You’re always walking a fine line between controlling too much and too little. If you control too much, then you’re kneecapping your own guys — their ability to invest in new technologies.”

The rules were released by the Commerce Department Friday.

U.S. crafting new rules aimed at curbing China’s advanced computing

The Semiconductor Industry Association, which represents nearly all of the U.S. semiconductor industry by revenue and almost two-thirds of non-U. S. chip firms, said in a statement it was “assessing the [rules’] impact” and would work with members to ensure compliance.

“We understand the goal of ensuring national security and urge the U.S. government to implement the rules in a targeted way — and in collaboration with international partners — to help level the playing field and mitigate unintended harm to U.S. innovation,” the statement said.

Rep. Michael McCaul (Tex.), the House Foreign Affairs Committee’s top Republican, who has criticized Commerce for what he says is timid use of export controls, said in a statement the new rules “are a step in the right direction and a long time coming.” If Commerce enforces them strictly, they “will strike at the core of the [Chinese Communist Party’s] strategic objectives.” Lax enforcement, he said, “would undermine” their intent.

The Chinese Embassy called the administration’s move “sci-tech hegemony.” The administration, spokesman Liu Pengyu said in a statement, is seeking “to hobble and suppress the development of emerging markets and developing countries.”

Among the new measures, the administration is deploying a draconian trade rule that has global sweep, aimed at stopping chipmakers not just in the United States but overseas from supplying advanced chips to China for use in artificial intelligence, supercomputers, and supercomputing related activities.

Use of the foreign direct product rule (FDPR) will prevent companies anywhere in the world from selling advanced chips to Chinese firms or organizations engaged in AI and supercomputing activities without a U.S. government license if the companies use American technology to make the chips, as nearly every semiconductor company globally does.

In addition, the administration is cracking down harder on 28 Chinese companies and military organizations that are already on a trade blacklist known as the Entity List, which prevents exporters from shipping them goods from the United States without a license. Those parties will now be subject to an FDPR that will also restrict their ability to obtain many foreign-produced technology products – not just chips — made with U.S. tools and designs, officials said.

Commerce is also taking steps to try to slow China’s ability to produce its own high-end chips. For now, China still lags behind Taiwan, South Korea and the United States. These controls would essentially bar exports of American-made tools needed for high-end chip production in China, and of U.S. tools or components to Chinese factories capable of making chips above or below a certain threshold.

Most of these thresholds are two to three generations behind state-of-the-art chip technology, but reflect where China is today, experts said.

Commerce will also be barring “U.S. persons” — including American factories, and Americans who work in foreign factories overseas — from providing support without a license to the development or production of such chips for China.

“My north star at [the Commerce’s Department’s Bureau of Industry and Security, which enforces export controls] is to ensure that we are appropriately doing everything in our power to protect our national security and prevent sensitive technologies with military applications from being acquired by the People’s Republic of China’s military, intelligence, and security services,” said undersecretary of Commerce for Industry and Security Alan Estevez in a statement Friday.

The technologies fueled by these chips also are used for mass surveillance and to enable human rights abuses, senior administration officials said.

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