Restricting Chip Sales to China Could Backfire on U.S., Industry Group Says

The Biden administration’s potential curbs on gross sales of superior semiconductors to China might undermine enormous new authorities investments in home chip-making, the U.S. chip-industry commerce group mentioned Monday.

The Biden administration is contemplating a raft of latest curbs on the sale of chips to China, aiming to disrupt Beijing’s use of synthetic intelligence for hacking and weapons growth. At the identical time, the administration is rolling out $39 billion in grants for brand new U.S. chip-making vegetation after the passage of the Chips Act final 12 months.

“Allowing the {industry} to have continued entry to the China market, the world’s largest industrial marketplace for commodity semiconductors, is vital to keep away from undermining the optimistic affect of this effort,” the Semiconductor Industry Association, the Washington, D.C. {industry} physique, mentioned in a written assertion.

U.S. chip corporations have lengthy argued that the federal government ought to rigorously weigh the affect of export restrictions, as a result of gross sales in China help investments within the U.S. and assist fund analysis that sustains their technological edge.

Chip corporations, together with the AI-chip chief Nvidia, have been lobbying the administration to chorus from stricter export controls after a ratcheting-up of tensions between the U.S. and China that has centered on the semiconductor and electric-vehicle industries. Nvidia’s chief monetary officer warned of a “everlasting lack of alternatives for the U.S. {industry}” in China if gross sales of AI chips have been prohibited.

Restrictions the SIA described as overly broad, ambiguous and at instances unilateral “threat diminishing the U.S. semiconductor {industry}’s competitiveness, disrupting provide chains, inflicting important market uncertainty, and prompting continued escalatory retaliation by China,” the SIA mentioned. It referred to as on the Biden administration to seek the advice of with {industry} earlier than imposing extra restrictions.

The U.S. final October imposed a number of the most stringent curbs but on chips and chip-making tools, requiring chip corporations to hunt licenses from the Commerce Department to promote a few of their most superior merchandise to Chinese prospects.

The measures are aimed toward stopping U.S. know-how from advancing China’s army energy.

Biden administration officers say they consider China is utilizing U.S. chips and associated applied sciences to gasoline the modernization of its army, together with creating weapons of mass destruction, in addition to to allow large-scale surveillance actions that result in human-rights abuses.

China, in flip, has banned main Chinese corporations from shopping for from U.S. computer-memory firm Micron, and not too long ago imposed restrictions on exports of metals utilized in cellphone communication chips.

The Biden administration is now contemplating additional restrictions that may snare AI chips that Nvidia developed for the Chinese market. It can also be contemplating reducing off Chinese entry to AI chips by way of cloud-computing corporations. Biden is predicted to limit U.S. funding in superior Chinese chip-making, amongst different applied sciences, in a coming government order.

The {industry} push comes because the Biden administration tries to seek out new diplomatic openings with Beijing. Treasury Secretary Janet Yellen traveled to Beijing this month amid a flurry of visits by U.S. officers, with restricted indicators of progress.

Numerous chip corporations are planning giant chip-making tasks within the U.S. after the passage of the Chips Act final 12 months. Among them are Intel, Micron, Samsung and Taiwan Semiconductor Manufacturing Co., which collectively are plowing tens of billions of {dollars} into new vegetation that coverage makers hope will assist reverse the {industry}’s shift towards Asia in current many years.

Write to Asa Fitch at asa.fitch@wsj.com