Background
Artificial intelligence (AI) has emerged as a new avenue to limitless military advances within the last year. AI has the potential to advance a country’s capacity for technological, chemical, and traditional warfare, meaning that one power developing AI is an implicit threat to other states.[1] This incentivizes countries like the United States to chill the progress of adversarial states where possible.[2]
In October, President Biden announced the first step the U.S. would take in slowing rival countries, preventing companies from selling the most advanced microchips to China.[3] These microchips are critical to building large AI-powered language model systems similar to ChatGPT.[4] Japan and the Netherlands have since joined the U.S. in restricting chip sales to China.[5] Together these countries comprise the top three producers of machinery internationally, including the entire microchip supply chain.[6] This alliance chokes out China’s access to the most capable microchips.[7]
At the time original regulations were instituted, Microsoft had not yet released ChatGPT.[8] Since the release of ChatGPT, incentives to eliminate competitors have grown exponentially.[9] Although microchip producers have developed less capable microchips for sale to China, the Biden administration is considering additional sales restrictions, eliminating China’s last remaining avenue for growth.[10] These restrictions could further fuel hostilities.[11]
Ripple Effect
In light of the potential implementation of export regulations, the U.S. must carefully assess their impact on American, Dutch, and Japanese businesses within the supply chain.[12] Some of these effects have already come to fruition, as top chipmaking companies have suffered drops in the stock market.[13] Companies like Nvidia, ASML, and Micron believe their profits will not dip due to these regulations, as demand for chips exists elsewhere; however, losing chip sales to China represents a loss in future opportunities and growth.[14] Companies with less exposure to China are better insulated from potential risks.[15] Loss in profits for allied countries’ technology industries could increase exponentially as restrictions are added, leading to trepidation from U.S. allies.
The U.S. remains in a powerful position to encourage compliance from currently allied nations. Should the Dutch or Japanese choose to abandon shared goals, the U.S. could ban the sale of microchips featuring American technology.[16] While not a death sentence for companies looking to sell chips to China, only three countries make up the supply chain. As a result, China would face difficulty working around restrictions, as they would need to create technology they were not previously responsible for. Should the U.S., Japan, and Netherlands choose to enforce microchip export regulations, other countries could institute similar measures, such as those in the European Union and allied nations in NATO, as a show of unity and in promotion of the security of their own nations.[17]
China’s Next Moves
Increased regulation from the U.S. is likely to motivate Beijing to take chipmaking into their own hands. While they begin at a significant disadvantage, Beijing made it clear that they intend to match or pull ahead of the U.S. in the technology sector.[18] However, AI is unlike other forms of technology in that it may not require so long to catch up.[19] China has proven success in imitating American innovation in recent years, sparking concern as to their potential to produce advanced microchips on their own.[20]
China recognizes this potential as well. Chinese innovators have been hard at work to develop large AI-powered language models similar to ChatGPT in an effort to one day rival larger companies.[21] The Chinese Communist Party has coordinated efforts on this front, calling on the entire nation to serve their country by joining the push toward developing advanced chips.[22] Though Washington has yet to institute further chip regulations, the choice to do so could generate large ripple effects both in China and in the microchip supply chain.
[1] Asa Fitch, Yuka Hayashi, John D. McKinnon, U.S. Considers New Curbs on AI Chip Exports to China, The Wall Street Journal (Jun. 27 2023, 6:21pm), https://www.wsj.com /articles/u-s-considers-new-curbs-on-ai-chip-exports-to-china-56b17feb. [2] Bloomberg News, Explainer: How China Aims to Counter US “Containment” Efforts in Tech, Bloomberg Law (Mar. 30 2023, 12:00pm), https://www.bloomberglaw.com/product/ blaw/document/RRLKFUT0AFB4?bc=W1siUmVzZWFyY2ggVHJhaWwiLCIvcHJvZHVjdC9ibGF3L3Jlc2VhcmNoX3RyYWlsL3Jlc3VsdHMvMTc4NTNmZWU1YmQ2YWM4ZjkwMTE2ZmFhMWUyZjliNGIiXV0--af6c114130cf0de04383307ffaf505a9f07b0860. [3] Ana Swanson, Biden Administration Clamps Down on China’s Access to Chip Technology, The New York Times (Oct. 7 2022), https://www.nytimes.com/2022/10/07/business/economy/biden-chip-technology.html#:~:text=Perhaps%20most%20significant%2C%20the%20Biden,U.S.%20 technology%2C%20software%20or%20machinery. [4] Ian King, Jeanny Yu, Charlotte Yang, Nvidia Drops on Report US Plans More AI Chip Curbs for China, Bloomberg Law (Jun 28 2023, 9:37am), https://www.bloomberglaw.com/product/blaw/bloomberglawnews/bloomberg -law-news/X6MEA8FK000000?bc=W1siUmVzZWFyY2ggVHJhaWwiLCIvcHJvZHVjdC9ib GF3L3Jlc2VhcmNoX3RyYWlsL3Jlc3VsdHMvMTc4NTNmZWU1YmQ2YWM4ZjkwMTE2ZmFhMWUyZjliNGIiXV0--af6c114130cf0de04383307ffaf505a9f07b0860. [5] Takashi Mochizuki and Yuki Furukawa, US-Japan Alliance to Do “Great Harm” to China’s Chip Ambitions, Bloomberg Law (Apr 4 2023, 11:00pm), https:// www.bloomberglaw.com/product/blaw/document/RSMG0BDWX2PS?bc=W1siUmVzZWFyY2ggVHJhaWwiLCIvcHJvZHVjdC9ibGF3L3Jlc2VhcmNoX3RyYWlsL3Jlc3VsdHMvMTc4NTNmZWU1YmQ2YWM4ZjkwMTE2ZmFhMWUyZjliNGIiXV0--af6c114130cf0de04383307ffaf5 05a9f07b0860; Swanson, Biden Administration, NYT. [6] Id. [7] Id. [8] Fitch, et. al., U.S. Considers, WSJ. [9] Id. [10] King et. al., Nvidia, Bloomberg News. [11] Fitch, et. al., U.S. Considers, WSJ. [12] Id. [13] Jeran Wittenstein, Chipmakers Drop on Report of Potential New Chip Export Curbs, Bloomberg News (Jun 27 2023, 6:41pm), https://www.bloomberglaw.com/product/blaw/bloomberglaw news/bloomberg-law-news/X3OL98G0000000?bc=W1siUmVzZWFyY2ggVHJhaWwiLCIvcHJ vZHVjdC9ibGF3L3Jlc2VhcmNoX3RyYWlsL3Jlc3VsdHMvMGU0OTI5NWU4NTNiNjQ2OGVlYTExZDdiMWZiZDhmZTUiXV0--7658efd3dc4f52c6baa300881b3db3313a341416. [14] Eric Martin and Jenny Leonard, US Is Planning New AI Chip Export Controls Aimed at Nvidia, Bloomberg Law (Jun 28 2023, 12:29pm), https://www.bloomberglaw.com/product/blaw/document/RWZ1BET0G1K W?bc=W1siUmVzZWFyY2ggVHJhaWwiLCIvcHJvZHVjdC9ibGF3L3Jlc2VhcmNoX3RyYWlsL3Jlc3VsdHMvMTc4NTNmZWU1YmQ2YWM4ZjkwMTE2ZmFhMWUyZjliNGIiXV0—af6c114130cf0de04383307ffaf505a9f07b0860; Cagan Koc, ASML Hit With New Dutch Limits on Chip Gear Exports to China, Bloomberg Law (Jun 30 2023, 8:14am), https://www.bloomberg law.com/product/blaw/bloomberglawnews/bloomberg-law-news/XC9MFUBS000000?bc=W1si UmVzZWFyY2ggVHJhaWwiLCIvcHJvZHVjdC9ibGF3L3Jlc2VhcmNoX3RyYWlsL3Jlc3VsdHMvMTc4NTNmZWU1YmQ2YWM4ZjkwMTE2ZmFhMWUyZjliNGIiXV0--af6c114130 cf0de04383307ffaf505a9f07b0860. [15] Ian King and Peter Martin, China Hits Micron With Review of Chips, Citing Security Risks, Bloomberg Law (Mar 31 2023, 4:13pm), https:// www.bloomberg law.com/product/blaw/document/RSEID9T0G1KX?bc=W1siUmVzZWFyY2ggVHJhaWwiLCIvcHJvZHVjdC9ibGF3L3Jlc2VhcmNoX3RyYWlsL3Jlc3VsdHMvMTc4NTNmZWU1YmQ2YWM4ZjkwMTE2ZmFhMWUyZjliNGIiXV0--af6c114130cf0de04383307ffaf505 a9f07b0860. [16] Koc, ASML Hit, Bloomberg Law. [17] Koc and Baazil, ASML to Face, Bloomberg Law. [18] Mochizuki and Furukawa; US-Japan, Bloomberg Law; Bloomberg News, Explainer, Bloomberg Law. [19] Jane Zhang and Sarah Zheng, Billionaires and Bureaucrats Mobilize China for AI Race With US, Bloomberg Law (Jun 28 2023, 2:26pm), https://www.bloomberglaw.com/product/blaw/bloomberglawnews/bloomberg-law-news/X28VK14C000000?bc=W1siUmVzZWFyY2ggVHJhaWwiLCIvcHJvZHVjdC9ibGF3 L3Jlc2VhcmNoX3RyYWlsL3Jlc3VsdHMvMTc4NTNmZWU1YmQ2YWM4ZjkwMTE2ZmFhMWUyZjliNGIiXV0--af6c114130cf0de04383307ffaf505a9f07b0860. [20] Bloomberg News, Explainer, Bloomberg Law. [21] Zhang and Zheng, Billionaires, Bloomberg Law. [22] Bloomberg News, Explainer, Bloomberg Law.
[23] Photo: Suranjana Tewari, US-China chip war: America is winning, BBC News (Jan. 13, 2023), https://www.bbc.com/news/world-asia-pacific-64143602.
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