US applies FDPR rule to Chinese language consumers of AI and supercomputing chips

The Biden administration is preparing new rules aimed at curbing China’s advanced computing and chip manufacturing capabilities — the US administration’s most significant effort to curb China’s development of technologies critical to its military advance.

The rules, due to be announced as early as this week, will be broader than a draconian export control previously applied to Chinese tech giant Huawei.

Application of the so-called foreign direct products rule will prevent companies around the world from selling certain advanced computer chips to Chinese buyers without a US government license if the companies use American technology to manufacture the chips, according to several people who are aware of the problem Measure, who spoke on condition of anonymity to discuss the yet-to-be-announced plans, was informed.

The rule would apply to semiconductor chips used in supercomputers and certain artificial intelligence applications.

Such advanced computer systems can be used to develop nuclear weapons, hypersonic missiles and anti-missile defense systems, officials said. A loss of US leadership here would “seriously endanger national security” and “undermine profitable parts of the US economy,” according to a 2016 report by the National Security Agency and Department of Energy.

The Foreign Direct Products rule is a particularly severe trade measure because the rule imposes restrictions not only on chipmakers in the United States, but on any company or factory in the world that relies on American equipment or software to make chips. There is hardly a semiconductor on the planet today that has not been manufactured with American tools or developed with software that originated in the United States.

The government also wants to limit exports to China of chip-making tools used by Chinese companies such as the country’s leading memory chip maker, YMTC, and China’s top processor maker, SMIC. If implemented as currently planned, the rule would cut off access to American manufacturing and design tools for chips measuring 14 nanometers or smaller.

“What they’re doing is a clear departure from 30 years of politics,” said Eric Sayers, executive director of Beacon Global Strategies, a national security consultancy. “It’s a form of technology containment. Not just to stay ahead of China, but to hamper their ability to try to catch up with us.”

Restrictions on China’s biggest chipmakers could have a significant impact, said Dan Wang, a technology analyst at Shanghai-based research firm Gavekal Dragonomics. “You would harm these companies and their customers, which include leading Chinese electronics manufacturers and internet platforms,” ​​he said.

The Biden administration also plans to add more Chinese organizations to an export blacklist called Entity List.

The White House and the Commerce Department declined to comment.

Reuters had previously reported on some of these measures.

A host of Chinese companies using high-end AI chips made with American tools or designs are likely to be affected by this rule, analysts said.

Some U.S. chipmakers and manufacturing equipment vendors have said publicly in recent weeks that they have received government notifications about the new restrictions, including device makers Lam Research, KLA Corp. and Applied Materials as well as the chip manufacturers Nvidia and AMD.

The government has signaled its intention to use more of its powers to curb Beijing’s efforts to use technology to gain global military and economic advantage.

“On export controls, we need to rethink the longstanding premise of maintaining ‘relative’ advantages over competitors in certain key technologies,” National Security Advisor Jake Sullivan said last month in a speech alluding to China.

The approach of being just “a few generations ahead” is no longer tenable, he said.

When the United States used the Foreign Direct Product Rule (FDPR) to withhold chips from Huawei, it paralyzed Huawei’s production and sales.

After Russia invaded Ukraine, the United States also used the FDPR to block companies from selling certain semiconductors to buyers in Russia, a ban US officials say is hurting the Russian military.

An industry leader, who was not authorized to speak for the record, said the new rules and the government’s general concerns about China are making it increasingly “really difficult” to do business there.

“We heard from the administration that they want us to find customers outside of China,” the executive said.

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