December 20, 2024 – Outgoing Secretary of Commerce Gina Raimondo has been tireless and effective in her efforts to keep China from accessing the most advanced semiconductor chips and other technology used to advance artificial intelligence. Thanks to the hard work of the Department of Commerce’s Bureau of Industry and Standards, Communist China can’t buy top-of-the-line chips without a license anymore. On December 2, the BIS was applauded for releasing another round of controls on semiconductor manufacturing and high-bandwidth memory and sanctioned another 140 Chinese entities.
China is feeling the heat. Xi Jinping is stockpiling lower-grade chips and trying to boost indigenous production. Of course, the Chinese are also seeking ways to acquire chips through third-party sales, and to gin up AI business with global customers. As a result, another round of controls may be in the works as the Biden Administration packs its bags. This round might seek to limit sales or cap licenses to other countries, in a broad effort to deny Chinese access.
The problem is that rushing a new round of controls stretching to other nations could impact two precious commodities: partnerships with America’s high-tech allies and the U.S. companies that generate the cash to keep the lead in AI.
The battle against China in AI is crucial. The U.S. has a narrow lead, but cannot become complacent. Staying ahead is up to the American tech companies who make the applications and chips. It takes cash – loads of it – for the U.S. to keep and expand its lead in AI. Together, their yearly investment vastly outweighs government funding. For example, six U.S. companies in 2023 spent $253 billion on research and development compared with the $30 billion in direct funding across two years of the CHIPS Act. Amazon topped the worldwide list of all companies with $85 billion followed by Alphabet with $45 billion.
For the most part, that money is coming from sales of a range of products. That includes the ability of U.S. companies to do business around the world, which could be under threat.
It’s a noble goal to fence the Chinese out of the U.S. AI ecosystem. But if export controls clamp down too hard on overseas markets, American companies with products using advanced chips could be blocked from selling abroad. An unintended consequence could be to leave a bigger share of the world’s AI market to China’s Huawei and others. China is already trying to make inroads in tech deals with Saudi Arabia and others. Too many restrictions on U.S. businesses could effectively leave major international markets to China, giving them more money to invest in AI.
Steps such as capping licenses to key players could backfire. India is the world’s biggest open market for AI competition, and Google estimates AI could unlock $4 trillion in business there by 2030. In the Middle East, both Saudi Arabia and the UAE want to be AI leaders. Saudi Arabia has a $100 billion new fund for AI investment, the head of which said last May that “if the partnerships with China would become a problem for the US, we will divest.” The Abu Dhabi-based fund G42 pulled back from China after the U.S. House Select Committee on China raised issues, and that cleared the way for a major investment by Microsoft.
American investment in partners abroad is the best way to keep China out. It also pays off at home. Cash fuels the whole AI ecosystem in America where small businesses depend on access to cash to scale their innovations. AI start-ups attracted over $68 billion in capital during 2023.[i] Large Big Tech firms, including Amazon and Microsoft, invested heavily. The capital from large firms allows innovation to scale up and is an irreplaceable advantage in the competition with China.
This article was originally published on the Lexington Institute: Slam The Backdoor On China But Keep American Global Business, Allies In AI | Lexington Institute