A report by the Information Technology and Innovation Foundation says tightening controls on AI chip sales to China would damage U.S. semiconductor companies and boomerang against the United States’ efforts to slow China’s artificial intelligence advances.
“If U.S. chipmakers were completely cut off from selling into the Chinese market due to export controls, they would stand to lose $77 billion in the first year,” ITIF said in a Nov. 10 release flagging its new report on the risks of “decoupling” the U.S. semiconductor sector from China.
Under a full U.S. semiconductor decoupling, the report says, “South Korean firms could gain about $21 billion in sales, European Union firms $15 billion, Taiwanese firms $14 billion, Japanese firms $12 billion, mainland Chinese firms $9 billion, and other nations’ firms $5 billion of U.S. firms’ losses.”
It says “U.S. industry R&D investments in semiconductors could decrease by about 24 percent, or $14 billion, compared with the status quo after a one-time full decoupling with China.”
The Trump administration continues to mull restrictions on sales of the most advanced AI chips to China but also opposes the so-called GAIN AI Act to ensure U.S. developers are ahead of Chinese competitors in the queue to buy chips.
White House AI advisor David Sacks was sharply critical of the Biden administration’s approach to controlling Chinese access to AI technology, frequently disparaging the “AI diffusion rule” issued at the end of former President Biden’s term for blocking friendly countries from purchasing U.S. technology.
Sacks said in a recent X post, “Everyone in Silicon Valley understands that the way to win a technology race is to get the most users and developers on your platform. Yet the anti-export lobby in Washington keeps inventing reasons why America’s friends and allies shouldn’t be allowed to build on the American tech stack. This is profoundly damaging to American interests and jeopardizes our lead in the AI race.”
Stephen Ezell, ITIF’s vice president for global innovation policy, said, “Export controls are intended to slow China’s access to advanced chips and related technologies for military and high-performance computing applications. But while national security considerations are very important, policymakers need to strategically balance those concerns with the need to sustain the U.S. ICT sector’s global leadership.”
“If the goal is technological leadership,” Ezell said, “then cutting off U.S. firms from the world’s largest semiconductor market is the wrong approach. Export controls should focus narrowly on legitimate security threats while ensuring U.S. companies remain globally competitive.”
“The way to outpace China isn’t to shrink our own industry,” he said. “it’s to expand it through innovation, investment, and smart, targeted policy.”
The ITIF report notes, “Decoupling scenarios for the semiconductor industry also have knock-on effects that would reach every corner of the digital economy, since semiconductors power nearly all modern information and communications technology (ICT) -- from cloud computing and artificial intelligence to 5G networks and consumer electronics.”
The report concludes, “The U.S. semiconductor industry needs to continue to maintain its share of the Chinese semiconductor market in order to sustain ongoing R&D investment, which helps it maintain leadership in the industry and enables the United States to maintain its leadership in the digital economy. As such, U.S. policymakers should keep semiconductor export controls to a minimum in order to enable U.S. semiconductor firms to obtain high levels of revenue to invest in R&D.”