US Expects Deal With Allies To Implement China Chip Restrictions

ASML's TWINSCAN NXE:3400B semiconductor lithography tool. ASML chip

Biden administration indicates a deal is near with key allies to also apply export restrictions on chip-making tools to China

China has been handed even more worrying news after the Biden administration indicated it is extending its chip export restrictions against it.

According to Reuters, the Biden administration expects to sign a deal with allies in the near-term to bring them on board with new US rules halting China’s access to sophisticated chipmaking tools, a senior Commerce Department official reportedly said on Thursday.

Earlier this month US had extended its use of export controls that were first deployed against Huawei. It has now applied these rules more broadly to target the ability of China to produce cutting-edge semiconductors.

blacklist - Shutterstock: © Lyao

Sweeping restrictions

The restrictions also target China’s rapidly developing artificial intelligence industry and its ability to use cutting-edge technology (such as supercomputers) to develop military applications such as nuclear weapons or hypersonic missiles.

In 2020 the US had broadened a provision known as the Foreign-Direct Product Rule, effectively allowing it to place export restrictions on products made anywhere in the world that contain US technology.

The new rule was initially used to cut off technology to Huawei and then to Russia following its invasion of Ukraine earlier this year.

But now US companies are barred from exporting advanced chip manufacturing tools to China, affecting companies such as SMIC, Yangtze Memory Technologies Co (YMTC) and ChangXin Memory.

Earlier this year authorities had sent letters to US semiconductor manufacturing equipment makers such as Applied Materials and Lam Research, barring them from supplying advanced tools to Chinese factories.

The broadest of the new restrictions affects exports from US companies such as AMD, Nvidia, Applied Materials and Lam Research.

In September the US ordered Nvidia and AMD to halt exports to China of certain high-performance chips that can be used for artificial intelligence.

That same month, the Biden administration also told those receiving federal funding under the US CHIPS act, that they will not be allowed to invest in China.

The US chip export restrictions are thus designed to tightly restrict Chinese access to US chipmaking technology, ramping up its efforts to slow Beijing’s technological and military advances.

Deal with allies

But the US has also faced criticism for failing to convince key allies to put in place similar equipment curbs.

It should be remembered that Japan’s Tokyo Electron and Dutch ASML Holding NV, along with certain US companies, are key players in produce chipmaking equipment.

But now it seems that the US is about to sign a deal to close off that final avenue of access, further turning the screws on China.

“We expect to have a deal in the near term,” Undersecretary of commerce for industry and security Alan Estevez was quoted by Reuters as saying in an interview with Washington-based think tank CNAS, when asked what it would take to get allies, particularly Japan and the Netherlands, to implement similar rules.

When asked what parts of the sprawling new China export rule could be included in a deal with allies, Estevez said “we’re looking at the whole gamut,” including chips as well as tools.

The rule would also cut China off from certain semiconductor chips made anywhere in the world with US equipment.

Estevez said countries could receive carveouts from the US rules if they implement similar regimes at home.

The US export restrictions are a major concern for China, as it threatens a key sector that is vital for President Xi Jinping’s technological domination ambitions.