“Many in Washington have landed on export controls of semiconductors and advanced chip-making equipment as a critical weapon to limit China’s advancement. Last October, the administration released sweeping export controls to limit China’s capabilities in producing advanced semiconductors.
“Today, the administration doubled down on these controls, in part on an attempt to ‘close loopholes’ in the earlier controls. Limiting sales of semiconductors to China risks significantly reducing allied semiconductor competitiveness, partly by spurring even more ‘indigenous innovation’ efforts in China and by reducing allied firm sales.
“Semiconductors have high fixed costs relative to marginal costs, costing billions to design and make the first chip but far less to make the millionth. This is at the heart of the issue of export controls to China. By cutting off U.S. sales, U.S. firms will lose the most profitable part of their market, significantly reducing profits that otherwise would be invested in research and development for the next generation of chips.
The issue here is not whether the United States works to restrict Chinese innovation advancement; it’s how to do that in a way that is effective without hurting U.S. capabilities.”
Information Technology and Innovation Foundation (ITIF)
The Information Technology and Innovation Foundation (ITIF) is an independent, nonprofit, nonpartisan research and educational institute focusing on the intersection of technological innovation and public policy. ITIF’s mission is to formulate and promote policy solutions that accelerate innovation and boost productivity to spur growth, opportunity, and progress.
US imposition of new export controls
In October 2023, the Biden administration issued a set of regulations tightening controls on U.S exports of equipment and technology for advanced semiconductors to China to close loopholes in regulations announced a year ago, and further prevent China from acquiring and producing advanced chips and curbing China‘s AI development. The new regulations extend restrictions to chips types not covered by last year‘s legislation and also to additional types of chip manufacturing equipment.
