USA vs China – Annual Event

Aiming for a coalition of like-minded countries.

• Clamping down on technology exports to China has now become an annual event and this year takes aim at quantum computing and offers incentives for other countries indicating that the USA increasingly needs other countries to help it limit China’s rise as a technical, economic and geopolitical world power.
• The Bureau of Industry and Security (BIS) which is part of the Department of Commerce has released a draft (see here) of the updates that it is planning to implement as part of the USA’s overall strategy to fight the ideological battle with China through the technology sector.
• As the technology sector is constantly moving and changing, the rules need to be updated periodically to account for technological developments as well as close loopholes.
• The main changes proposed are as follows
  • First, quantum technology. Here, the BIS is mostly targeting the human capital as this is in the shortest supply and the actual technologies themselves have not fully been formed.
  • The idea is to align the interests of the USA with those of its allies meaning that for those that align with the USA on export controls, there will be freer movement of people and technology.
  • The USA claims leadership in a range of academic fields and research partnerships in this space in which there are a large number of foreign nationals with the idea being to bring allies closer together and freeze adversaries out.
  • Second, gate-all-around: which is a new transistor architecture moving on from planar transistors and FinFETs.
  • This allows greater density of transistors, better power efficiency and performance all of which will be needed as the benefits of Moore’s Law continue to slow.
  • This architecture is mostly being deployed at the leading edge with TSMC expected to start producing this type of transistors in 2025.
  • Seeing as China is already locked out of the leading edge (as it has no EUV technology), why the BIS would target this segment is unclear.
  • However, China has been able to manufacture (albeit at very low yields) at 7nm and this could be aimed at putting pressure on that loophole.
  • Furthermore, there is nothing in theory preventing this architecture from being used at older nodes where China is not blocked, although whether this would have any benefit at all is far from certain.
  • Third, circle the wagons: While the USA has been able to block China’s access to EUV technology, it requires the help of other countries to extend these restrictions to other areas.
  • In semiconductors, this is primarily The Netherlands and Japan but in other areas like the newly targeted quantum technology, other countries like the UK, France, Germany, Australia and so on will also need to be on board.
  • The USA has not had an easy time negotiating with Japan and The Netherlands who have tended to have a more mercantile approach to China.
  • Adding in these other countries will make life even more difficult and the USA appears to looking to incentivise cooperation rather than threatening with the stick of the Foreign Direct Product Rule (FDPR see here).
  • The idea here is that those who join with the USA in posing harsher restrictions on China will find it easier to source technology and talent from the USA as well as presumably trade with the USA.
  • By swaying some of the less-willing participants, the strategy to limit China’s rise as a technological and economic power will be much more effective.
• These changes are tweaks and extensions to the existing restrictions and bring them up to date with the fast-moving technology sector as well as create a coalition of like-minded countries.
• While the restrictions are mainly aimed at China, the intention is to limit the ability of all of the USA’s adversaries of which Russia is by far the most relevant after China.
• These are only rule proposals and are now open for a 60-day comment period after which the final rule will be issued.
• This has already been widely negotiated with allies and so I expect that the rule will be issued pretty much in the form that it is today.
• This continued rivalry means that the days of global standards are numbered and, going forward, we are likely to see one standard outside of China and another, competing, and non-compatible standard inside China.
• This is bad news for everyone as two incompatible networks will generate much less value than one global network.
• Consequently, long-term growth for the entire technology sector over the next 10 to 20 years will be lower than it otherwise would have been.