U.S. Semiconductor Actions Toward the People’s Republic of China

By Seth Poling, University of Chicago

Since taking office, the Biden administration has crafted a foreign policy agenda for the People’s Republic of China that is realistic about the relationship between the two countries. Patricia Kim of the Brookings Institution calls this U.S. perspective “clear-eyed.”¹ Top officials of Biden’s team no longer see conducting business with the PRC in the usual fashion as tenable.² Since Nixon’s visit to China in 1972 and the restoration of diplomatic relations in 1979, successive American presidents, congressional members, and business leaders thought with more economic exchange the PRC would reform³; this was despite the fact that the Nixon administration’s more immediate goal for establishing ties with China was to counterbalance the Soviet Union in Asia.⁴ Most American leaders over the past four decades believed the PRC would convert its social and political system into a free market democracy in line with its economic progress because of similar trajectories in South Korea, Japan, and Taiwan. However, this never happened. Instead, the Chinese Communist Party has used its economic wealth to insulate and concentrate its power, ensuring stability at home while heavily investing in its People’s Liberation Army (PLA) to project power in its near abroad and carve out a sphere of influence in the Asia-Pacific region.⁵ Starting in the late 1990s, advanced technologies have enabled the PLA’s rapid modernization.⁶ American military and security officials have warned about the PLA’s evolution going back to the early 2000s, but it has only started to gain attention due to three major events. First, was the PRC’s coercive supply chain tactics displayed during the COVID-19 pandemic in 2020, second, the reinvasion of Ukraine by Russia in 2022, and third, the reemergence of great power competition predominantly between the U.S. and China, which is a core theme of this essay. 

During the early 2020s, such supplies included semiconductors, critical minerals, and pharmaceutical ingredients. For the latter two supplies the PRC has a dominant market share, and both the pandemic and Russia’s war in Ukraine have made it necessary for U.S. policymakers to ensure these supplies are accounted for and secured as expeditiously as possible.⁷ With the circumstances American decision-makers find themselves in today, this article seeks to focus on semiconductors due to their pervasive and dual-use nature in most advanced societies.⁸ Given their ubiquity in civilian and military applications — from smartphones, computers, and dishwashers to cars, military aircraft, and advanced weapon systems—life as we know it would not be possible without semiconductor chips. Every modern economy and military runs on chips. Since chips are so significant to our way of life—and its safety—one may wonder who controls this crucial and complex technology. While the companies who own the intellectual property, and have large market shares in the global chip supply chains, are from America or East Asia, it will be highlighted how these countries are all positioned to produce this small, complex piece of technology. Thus, it may be appropriate to ask: what capacity does the U.S. currently have to source its own semiconductor chips? What has the U.S. government done to limit the PRC’s ability to access American chips that are at the cutting-edge? What does this mean for the broader U.S.-China technological competition? These questions are what the remainder of this article hopes to shed light on. 

In the 1990s, America produced about 37% of chips globally. Today, the U.S. 's share of global chip production is 12%.⁹ Most of the countries responsible for producing the world’s chips are located in East Asia: Taiwan, South Korea, Japan, and China. Together, these countries account for over three-quarters of global semiconductor production capacity.¹⁰ This shows the U.S. has lost the ability to meaningfully produce chips after outsourcing production to Asian companies that can do so more efficiently. The Taiwan Semiconductor Manufacturing Company dominates the fabrication of the majority of the world's advanced chips, which power smartphones and AI applications. Overall Taiwan, as a country, accounts for 90% of global advanced semiconductor production.¹¹ China, on the other hand, has the capacity to fabricate legacy chips which go into kitchen appliances or vehicles, but does not have the capability to produce chips at the cutting edge. This has not stopped the Chinese Communist Party (CCP) from investing in home-grown companies. Through its Made in China 2025 plan, the CCP announced semiconductor investments totaling over $100 billion.¹² 

This led to the U.S. Congress passing the CHIPS and Science Act in 2022. Although the CHIPS Act is focused on U.S. domestic manufacturing and not the international sphere, it would be prudent to highlight the domestic goals of the Act because of the role it plays in America’s broader technological competition with China. Overall, the bill itself is worth $280 billion dollars, and roughly $40 billion was allocated in subsidies to attract American and international semiconductor companies to build new fabrication plants in the U.S.¹³ According to estimates from the U.S. Semiconductor Industry Association, the Chips Act has already attracted $200 billion in private investment.¹⁴ Additionally, based on an analysis done by Deloitte, the U.S. is estimated to gain back roughly 30% of global production by 2030.¹⁵ As of this article’s publication date, the Commerce Department has started to roll out planned investments, including in Bae Systems and Microchip Technology, for $35 million and $162 million, respectively.¹⁶ Commerce Secretary Gina Romando expects to announce another 12 to 14 investment awards in 2024. Commerce also established guardrails for these investments, the most notable is that any funding from the CHIPS Act “prohibits the material expansion of semiconductor manufacturing capacity for leading-edge and advanced facilities in foreign countries of concern for 10 years from the date of award.”¹⁷ China is included in the list of foreign countries of concern. With the chip race between the U.S. and China in the background, the Commerce department is the lead organization responsible for managing public investments in chips at home, and also for the more difficult task of restricting Chinese parties from accessing high-end American chips, abroad. 

Managing domestic chip investments is an easier task compared to prohibiting or reducing the supply of leading-edge chips to the PRC. Although the department began tightening controls of semiconductor technology to the PRC prior to the Biden administration, the two most recent executive actions were announced in October of 2022 and August 2023.¹⁸ On October 7, 2022, The Bureau of Industry and Security of Commerce, which is responsible for controlling and enforcing U.S. exports of dual-use technologies, announced new controls on advanced computing and semiconductor manufacturing items to China.¹⁹ The reasons these items were targeted for restriction was because they could be “used by the PRC to produce advanced military systems including weapons of mass destruction; improve the speed and accuracy of its military decision making, planning, and logistics, as well as of its autonomous military systems; and commit human rights abuse.”²⁰ In releasing the Biden administration's National Security Strategy, Jake Sullivan stated that the administration’s goals with these controls are narrow in order to protect American critical technologies through a “small-yard, high fence” approach.²¹

The subset of technologies included in these controls are indeed small—16 nanometers and below for logic chips—for both central processing units and graphical processing units. Yet, the updated rules in October 2023 expands the types of chips controlled beyond those identified in the October 2022 E.O.²² Logic chips are the brains behind any modern smart device, and as semiconductors become smaller in size they become more powerful. If the Chinese state or a Chinese corporation has access to thousands of these chips in a data center, they would have the ability to do advanced computing simulations on weapons systems like hypersonic missiles. The same collection of chips could also aid the PLA in ingesting large amounts of data and making decisions faster than its opponents, especially in a conflict where life or death can be measured in seconds. The Chinese Communist Party could also conduct mass surveillance of its population and others, by using artificial intelligence models that can only be run on similarly-sized chips numbering in the thousands. These illustrations may sound hypothetical, but the CCP is hard at work in implementing AI for such purposes, and they do not paint a rosy picture for any group of people on the other side. All the same, this is why the administration has levied the restrictions. As noted in BIS’s announcement, these restrictions apply to all of China.

Thus, it is equally important to at least mention the other side of the ledger, and that is the application of these chips in the civilian sector, which may not be all that nefarious. Because these restrictions apply to the whole Chinese mainland, they inherently also restrict China’s growth in other technological areas such as autonomous vehicles, or scientific research on climate change, which may not be threatening to the U.S.. And that is why the decision to restrict these types of chips to countries the size of China is so bold. As Greogory Allen has written, the real goal of these restrictions is to “strangle the Chinese AI industry by choking off access to high-end AI chips.”²³ Despite it not being mentioned in BIS's October 2022 announcement, the broader U.S. goal for chips vis-à-vis the PRC is to keep as large a lead as possible in emerging technology.²⁴ In the grand scheme, the U.S. is not only restricting semiconductor technologies to the PRC, but it is also making public investments to increase capacity at home to control its own chip destiny, as already mentioned above. These steps are necessary in order to outcompete the PRC in all domains, especially in the competition for military and technological superiority which also bleeds over into each country’s economies. 

Separate from restricting the actual technology, the Biden administration announced an executive order in August 2023 to restrict or require the review of U.S. capital going to the PRC in three technology fields: semiconductors, artificial intelligence, and quantum information technologies.²⁵ Money in and of itself is fungible: it can come from anywhere in the world. It is the technical expertise and management knowledge that is provided along with U.S. capital to Chinese companies in these fields that this executive order is trying to cut-off.²⁶ This executive order is still in the process of being fully implemented, but it has set the scene in warning American venture capital and private equity investors to start considering whose interests they are promoting at the end of the day.²⁷

On the defensive end, the current administration has sought to choke off China’s supply of leading-edge chips and has initiated rules to curtail American technical knowledge from investing in PRC firms that may threaten American foreign policy or national security interests. These two measures were not seen as remotely possible a decade ago, but times have changed. China’s rapid technological and military rise has been perceived as a threat to U.S. core interests, primarily in the Indo-pacific. Add on the PRC’s corerive supply chain tactics during the Covid-19 pandemic during the early stages of its spread in 2020, and Russia’s reinvasion of Ukraine two years later, and one can begin to see why President Biden and his team has implemented such game-changing technology controls. It is to reduce China's chances of catching up with the U.S. in emerging technologies. Progress in artificial intelligence, quantum computing, and autonomous vehicles is impossible without a stable and secure supply of advanced chips. Therefore, whoever is able to control the flow of chips will have a leg up in the global competition for leadership of world affairs during the 21st century. 

In conclusion, the Biden administration has made it a policy of reshoring the capacity to produce chips to ensure its national needs are met. Concurrently, the administration has also sought to restrict the export of the most advanced semiconductors to its number one foreign policy challenge: China, primarily as a result of its rapid military rise. In effect, American policymakers are attempting to claw back some portion of global fabrication for both advanced and legacy chips, while restricting high-end chips from flowing to any recipient located on the Chinese mainland. With all of this activity, three questions remain open and require more investigation. First, how will American export controls impact the Chinese civilian sector given that they apply to the whole country and not only the military and security apparatus? Second, how does the administration measure the success of these restrictions in promoting American security? Thirdly, over what time period should we measure this success? Should it be over the next 5, 10, or 50 years? These questions must be addressed to truly understand how well U.S. foreign policy is working as intended and, more importantly, that American interests are protected and promoted.

Bibliography

[1] “The U.S.-China Relationship in 2024 Is Stabilized but Precarious.” n.d. Brookings. https://www.brookings.edu/articles/us-china-relations-in-2024-are-stabilized-but-precarious/. 

[2] Blinken, Antony. 2022. “The Administration’s Approach to the People’s Republic of China.” United States Department of State. May 26, 2022. https://www.state.gov/the-administrations-approach-to-the-peoples-republic-of-china/.

[3] “Lessons from History Series Meeting: The Foreign Policy Legacy of the George W. Bush Administration.” 2023. Council on Foreign Relations. April 18, 2023. https://www.cfr.org/event/lessons-history-series-meeting-foreign-policy-legacy-george-w-bush-administration. 

[3] House Select Committee on the Strategic Competition between the United States and the Chinese Communist Party. 2023.  “The Economic and Technological Dimensions of the U.S.-PRC Competition: A Strategy for the United States,” Report, 118th Congress. https://selectcommitteeontheccp.house.gov/sites/evo-subsites/selectcommitteeontheccp.house.gov/files/evo-media-document/reset-prevent-build-scc-rep 

[4] “President Nixon’s Trip to China: Fifty Years Later.” 2022. Council on Foreign Relations. February 25, 2022. https://www.cfr.org/event/president-nixons-trip-china-fifty-years-later. 

[5] “China Is Exerting Greater Power across Asia—and Beyond.” 2022. The Economist. October 10, 2022. https://www.economist.com/special-report/2022/10/10/china-is-exerting-greater-power-across-asia-and-beyond. 

[6] Noon, Ben , and Chris Bassler. 2021. “Schrodinger’s Military? Challenges for China’s Military Modernization Ambitions.” War on the Rocks. October 14, 2021. https://warontherocks.com/2021/10/schrodingers-military-challenges-for-the-chinas-military-modernization-ambitions/.

[7] The White House. 2021. “FACT SHEET: Biden-Harris Administration Announces Supply Chain Disruptions Task Force to Address Short-Term Supply Chain Discontinuities.” The White House. June 8, 2021. https://www.whitehouse.gov/briefing-room/statements-releases/2021/06/08/fact-sheet-biden-harris-administration-announces-supply-chain-disruptions-task-force-to-address-short-term-supply-chain-discontinuities/. 

[8] Horton, Robert . 2021. “Lazard Asset Management.” Www.lazardassetmanagement.com. May 2021. https://www.lazardassetmanagement.com/de/en_uk/references/fundamental-focus/importance-of-semiconductors.

[9]  Sloun, Sherry . 2023. “U.S. Investment in Semiconductor Manufacturing: Building the Talent Pipeline.” Council on Foreign Relations. August 18, 2023. https://www.cfr.org/blog/us-investment-semiconductor-manufacturing-building-talent-pipeline#:~:text=Currently%2C%20the%20United%20States%20manufactures. 

[10] Irwin-Hunt, Alex. 2021. “In Charts: Asia’s Manufacturing Dominance.” Www.ft.com. March 24, 2021. https://www.ft.com/content/2b0c172b-2de9-4011-bf40-f4242f4673cc. 

[11]  Lee, Yimou, David Lague, and Norihiko Shirouzu. 2022. “Taiwan’s Chip Industry Emerges as a Battlefront in U.S.-China Showdown - Taipei Times.” Www.taipeitimes.com. January 1, 2022. https://www.taipeitimes.com/News/editorials/archives/2022/01/01/2003770517.

[12] Lewis, James . 2019. “China’s Pursuit of Semiconductor Independence.” Csis.org. 2019. https://www.csis.org/analysis/chinas-pursuit-semiconductor-independence. 

[13] White House. 2022. “FACT SHEET: CHIPS and Science Act Will Lower Costs, Create Jobs, Strengthen Supply Chains, and Counter China.” The White House. August 9, 2022. https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/09/fact-sheet-chips-and-science-act-will-lower-costs-create-jobs-strengthen-supply-chains-and-counter-china/. 

[14] “STATE of the U.S. SEMICONDUCTOR INDU.S.TRY.” 2023. https://www.semiconductors.org/wp-content/uploads/2023/07/SIA_State-of-Industry-Report_2023_Final_072723.pdf 

[15] Stewart, Duncan , Karthik Ramachandran, and Brandon Kulik. 2023. “Chipping in to Boost Production: U.S. and Europe Move toward Greater Self-Sufficiency and Resilient Supply Chains.” Deloitte Insights. April 24, 2023. https://www2.deloitte.com/xe/en/insights/industry/technology/semiconductor-manufacturing.html. 

[16] U.S. Department of Commerce. “Biden-Harris Administration and BAE Systems, Inc., Announce CHIPS Preliminary Terms to Support Critical U.S. National Security Project in Nashua, New Hampshire.” 2023. U.S. Department of Commerce. December 11, 2023. https://www.commerce.gov/news/press-releases/2023/12/biden-harris-administration-and-bae-systems-inc-announce-chips 

[16] National Institute of Standards and Technology. “Biden-Harris Administration Announces CHIPS Preliminary Terms with Microchip Technology to Strengthen Supply Chain Resilience for America’s Automotive, Defense, and Aerospace Industries.” 2024. NIST, January. https://www.nist.gov/news-events/news/2024/01/biden-harris-administration-announces-chips-preliminary-terms-microchip.

[17] U.S. Department of Commerce.“Biden-Harris Administration Announces Final National Security Guardrails for CHIPS for America Incentives Program.” 2023. U.S. Department of Commerce. September 22, 2023. https://www.commerce.gov/news/press-releases/2023/09/biden-harris-administration-announces-final-national-security. 

[18] Sutter, Karen M., Manpreet Singh, and John F. Sargent Jr. “Semiconductors and the CHIPS Act: The Global Context.” Congressional Research Service, September 28, 2023. https://crsreports.congress.gov/R47558. 

[19] Bureau of Industry and Security.. 2022. “FOR IMMEDIATE RELEASE BUREAU of INDU.S.TRY and SECURITY Commerce Implements New Export Controls on Advanced Computing and Semiconductor Manufacturing Items to the People’s Republic of China (PRC).” https://www.bis.doc.gov/index.php/documents/about-bis/newsroom/press-releases/3158-2022-10-07-bis-press-release-advanced-computing-and-semiconductor-manufacturing-controls-final/file.

[20] Bureau of Industry and Security.. 2022. “FOR IMMEDIATE RELEASE BUREAU of INDU.S.TRY and SECURITY Commerce Implements New Export Controls on Advanced Computing and Semiconductor Manufacturing Items to the People’s Republic of China (PRC).” https://www.bis.doc.gov/index.php/documents/about-bis/newsroom/press-releases/3158-2022-10-07-bis-press-release-advanced-computing-and-semiconductor-manufacturing-controls-final/file. 

[21] The White House. 2022. “Remarks by National Security Advisor Jake Sullivan on the Biden-Harris Administration’s National Security Strategy.” The White House. October 13, 2022. https://www.whitehouse.gov/briefing-room/speeches-remarks/2022/10/13/remarks-by-national-security-advisor-jake-sullivan-on-the-biden-harris-administrations-national-security-strategy/.

[22] Friedland, Alex. 2023. “Explainer: The Commerce Department’s October 2023 Export Control Update.” Center for Security and Emerging Technology. December 4, 2023. https://cset.georgetown.edu/article/bis-2023-update-explainer/. 

[23] Allen, Gregory. 2022. “Export Controls on AI and Semiconductors Mark a Transformation Of.” https://csis-website-prod.s3.amazonaws.com/s3fs-public/2023-04/221011_Allen_China_AccesstoAI.pdf?VersionId=V2RCmPjpR8nQOybvB2LmNIu1Yx6RlYvA.

[24] The White House. 2022. “Remarks by National Security Advisor Jake Sullivan at the Special Competitive Studies Project Global Emerging Technologies Summit.” The White House. September 16, 2022. https://www.whitehouse.gov/briefing-room/speeches-remarks/2022/09/16/remarks-by-national-security-advisor-jake-sullivan-at-the-special-competitive-studies-project-global-emerging-technologies-summit/. 

[25] The White House. 2023. “Executive Order on Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern.” The White House. August 9, 2023. https://www.whitehouse.gov/briefing-room/presidential-actions/2023/08/09/executive-order-on-addressing-united-states-investments-in-certain-national-security-technologies-and-products-in-countries-of-concern/. 

[26] Center for a New American Security. “Virtual Event | the Outbound Investment EO: What’s In, What’s Out, and What Does It All Mean?” 2023. Www.cnas.org. August 11, 2023. https://www.cnas.org/events/virtual-event-the-outbound-investment-eo-whats-in-whats-out-and-what-does-it-all-mean. 

[27] Conversation with a think tank expert.