Biden Tightens Chip Controls on China as Clock Ticks Down

The Biden administration announced Monday a long-anticipated round of restrictions on exports of semiconductor chips and chipmaking equipment to China in one of its last salvos aimed at slowing Beijing’s pursuit of self-reliance in a key national-security realm: advanced chip technology.

The package, delayed for months as the administration sought to bring foreign partners aboard and address industry concerns, is the latest in a series of controls that began under the first Trump administration. Commerce Secretary Gina Raimondo called the new actions “groundbreaking and sweeping” and said they were the “strongest … ever enacted” by the United States to degrade China’s ability to make chips to fuel its military ambitions.

The new rules block shipment to China of specialized equipment used to manufacture cutting-edge chips, as well as a type of chip called “high bandwidth memory” that is a building block of AI data centers. The Commerce Department also added 140 entities associated with China’s chip sector to a blacklist, restricting their ability to do business with U.S. companies.

The Commerce Department’s Bureau of Industry and Security said the rules would curb China’s ability to develop advanced military and intelligence applications, cyber operations, and mass surveillance technologies.

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But the latest round packs far less punch than it might have, several U.S. officials and analysts said, because of the administration’s apparent desire to accommodate American chip machinery firms and Dutch and Japanese equipment-makers and their governments. The delay those negotiations caused also allowed China to stockpile tools and components, the officials and analysts said, speaking on the condition of anonymity to discuss negotiations pursued outside the public eye.

“These controls are weaker than what the United States should have done,” said Gregory C. Allen, director of the Wadhwani AI Center at the Center for Strategic and International Studies. “You can make a halfway logical argument that says, ‘Sell everything to China.’ Then you can make a reasonable argument, ‘Sell very little to China.’ But the worst thing you can do is to dramatically signal your intention to cut off China’s access to tech but then have so many loopholes and such bungled implementation that you incur almost all of the costs of the policy with only a fraction of the benefits.''

The newly blacklisted entities include 10 that the Commerce Department said posed a “significant risk” of contributing to the efforts of Huawei Technologies, China’s leading chip designer and the world’s largest supplier of the “pipes” that make up the global internet. These entities include Shenzhen Pengxinxu Technology and SwaySure Technology, which are now barred from receiving U.S. technologies but still may apply for exceptions.

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However, the sanctioned firms to be placed on the Commerce Department’s Entity List do not include some factories or “fabs” that the administration was considering including before it encountered pressure from allies and American industries, the officials and analysts said.

Spokesmen for the Dutch and Japanese governments declined to comment. Liu Pengyu, a spokesman for the Chinese Embassy in Washington, said the Chinese “firmly oppose” the measures and would “take resolute measures” to defend Chinese companies.

Among the excluded fabs is ChangXin Memory Technologies or CXMT, which is one of China’s largest memory chipmakers and is seeking to develop AI memory chips, including for Huawei, analysts said.

Also excluded were several factories run by China’s largest chipmaker, SMIC, that were built after SMIC was placed on the Entity List by the Trump administration in 2020, according to the analysts. Those new fabs may continue to receive U.S. technology that is not otherwise banned.

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The new controls are strong in some ways, analysts say. For instance, the United States will apply a powerful rule that bars foreign firms from furnishing products to the blacklisted factories if those products have a modicum of U.S. technology in them. And in a novel use of the “foreign direct product rule” (FDPR), the administration will bar any such product from being sent to the blacklisted fab if it contains even a single chip that was designed or made with American technology.

That “see through” provision potentially gives the latest package much broader sweep. But by limiting the number of fabs subject to control, its power is diluted, Allen said. “Why in the world are you going to these incredible lengths to expand the FDPR, if at the end of the story you exempt all these fabs so they’re not going to get hit by it?” he said.

U.S. chip toolmakers waged a well-funded lobbying campaign targeting the executive branch and Congress to relax the scope of the new controls on Huawei fabs and found a receptive ear in Commerce, according to two U.S. officials. But the White House and the State, Energy and Defense departments pushed back against Commerce and the proposed relaxation was rejected, the officials said.

A third U.S. official said industry lobbying “was not part of the interagency calculus.”

Raimondo alluded to the tension inherent in building effective export controls, acknowledging that “we want American companies to innovate and be successful” while seeking to protect U.S. national security and allies’ buy-in. The latter is necessary, she said, to make the controls work.

As a result, the administration negotiated for months with the Netherlands and Japan to reach a common stance on exports of chipmaking tools to China, so that Beijing cannot circumvent unilateral U.S. controls by shifting orders to companies in those allied countries. In the end, the administration added about two-dozen tools to a Commerce list that bans their export to China. But the delay allowed the Chinese to stockpile the very items that will be barred, said an analyst familiar with the matter.

Both countries have firms essential to China’s advanced chipmaking ecosystem. The Dutch firm ASML makes specialized lithography machines, while Tokyo Electron makes other tools that are key to chip-crafting, including the processes of deposition, lithography and etching.

Allies were also reluctant to join the United States in adopting versions of a measure that the Biden administration imposed on U.S. firms in 2022, banning their personnel from servicing Chinese companies making advanced chips, said officials. The Japanese and Dutch agreed to a ban on sending specialized parts to these firms if they contain U.S. technology, but not to the full servicing controls, according to the officials.

The latter would have required the Japanese and Dutch to make legislative changes, officials said.

“Sometimes it’s just there’s no time for countries to do it, even if they were willing,” said another senior U.S. official. “It’s a political decision. It’s a legislative decision. There are legal implications.”

“Every country has different perspectives, different risks to manage,” the official added. “But I think what our partners have done is pretty significant.”

The effort to squeeze China’s advanced chip capabilities began under then-President Donald Trump, with restrictions on Huawei. The company had to shut down product lines and sell off most of its smartphone business, but it has been able to find alternate sources for components or develop them internally. And Huawei has come roaring back.

The Biden administration has made semiconductors a hallmark policy initiative, expending considerable effort to craft export controls aimed at stemming China’s development of AI for national-security purposes, while implementing a $52 billion program aimed at revitalizing domestic chip production and adding tariffs on imports of Chinese chips.

The Biden team unveiled its first round of high-tech export controls against China in October 2022, shortly after national security adviser Jake Sullivan announced that the United States was shifting from the old approach of maintaining a “relative” advantage over China in key technologies to seeking “as large of a lead as possible.”

A year later, the administration rolled out a second round aimed at closing loopholes. But the efforts were flawed, analysts say.

The 2022 controls, for instance, made U.S. intentions to cut China off from advanced AI chips “crystal clear,” Allen said, but got the performance specifications wrong so that China could continue to buy chips that were almost as good. Chinese companies then had a year to stockpile billions of dollars of those chips before the 2023 revisions kicked in.

With the Biden administration in its twilight, the pressure now shifts to the incoming Trump administration to enforce the controls and decide whether to strengthen them. Trump’s pick for national security adviser, Florida congressman Michael Waltz, is a vocal China critic and has called it a priority to re-shore critical supply chains. However, the new administration also may be influenced by prominent business executives such as Elon Musk who have extensive investment interests in China.

“The Trump administration will need to get the right people in the right seats and implement a smart export control strategy quickly,” said Meghan Harris, a former Commerce Department official in the Trump administration involved in crafting the earlier rules. “It won’t have the luxury of time.”