The Biden administration is considering closing a loophole that gives Chinese companies access to American AI chips. The US imposed restrictions on AI chip shipments to China in 2022 to hinder China’s military progress. Likely, these restrictions will become stricter. In the initial mandate, the Biden administration allowed Chinese company subsidiaries outside of the US to freely access AI semiconductors. However, this inadvertently led to the smuggling of AI chips into China and remote access by users in China. Chinese firms were able to acquire the prohibited chips from vendors in Shenzhen.
The existing loophole allows Chinese firms to purchase and forward AI chips, which are critical for the development of China’s military systems, to China. In addition, these chips are used in data centers abroad, where they can be procured and redirected to China. Policing those transactions are difficult. Nearly all of the AI chips acquired by the Chinese military in 2020 were from US-based companies, emphasizing the important role of US technology in China’s AI development. Washington has closed several loopholes to prevent AI chips from flowing into China, including instructing Nvidia and AMD to restrict shipments to other regions. New rules on AI chips are expected to apply similar restrictions to all companies. However, the impact of these measures on US-China relations is still a subject of debate.
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