Updated Sep 1, 2022 - Economy

U.S. restricts chip sales to China

A sign is posted at the Nvidia headquarters on May 25, 2022 in Santa Clara, California.

The Nvidia headquarters in Santa Clara, California. Photo: Justin Sullivan/Getty Images

Graphics-chip maker Nvidia announced in a Securities and Exchange Commission filing Wednesday that the U.S. government is restricting sales to China, "effective immediately."

Driving the news: The U.S. government has imposed a new license requirement "for any future export to China (including Hong Kong) and Russia" in order to "address the risk that the covered products may be used in, or diverted to, a 'military end use,'" per the filing.

Why it matters: The new rule marks a significant escalation in the Biden administration's efforts to prevent future supply chain crises and increase competition with China's government — as tensions with Beijing continue to simmer following visits to Taiwan by House Speaker Nancy Pelosi and other U.S. officials this month.

  • Chinese businesses won't be able to conduct cost-effective advanced computing used for tasks including image and speech recognition used for products ranging from smartphones to satellite imagery for weapons if they don't have U.S. chips, Reuters notes.

The big picture: The restriction affects Nvidia's A100 and H100 chips, which are designed to speed up machine learning tasks, and some products that fellow Silicon Valley firm AMD makes.

  • The restriction "may impact the Company's ability to complete its development of H100 in a timely manner or support existing customers of A100 and may require the Company to transition certain operations out of China," per Nvidia, which said it's "engaged" with the government to address its concerns.
  • A spokesperson for AMD told Reuters new license requirements would "stop its MI250 artificial intelligence chips from being exported to China," but it's MI100 chips are not believed to be affected and the firm doesn't think the new policy would "have a material impact" on business.

By the numbers: Nvidia shares fell 6.6% after hours, while AMD saw a 3.7% drop.

What they're saying: While the U.S. Commerce Department has declined to comment on the specifics of the new policy, a spokesperson told the BBC it's "taking a comprehensive approach to implement additional actions necessary related to technologies, end-uses, and end-users to protect U.S. national security and foreign policy interests."

  • That "includes preventing China's acquisition and use of U.S. technology in the context of its military-civil fusion program to fuel its military modernisation efforts, conduct human rights abuses, and enable other malign activities."

Meanwhile, Taiwan's President Tsai Ing-wen told visiting Arizona Gov. Doug Ducey (R) on Thursday she looked forward to producing "democracy chips" with the U.S. "to safeguard the interests of our democratic partners and create greater prosperity," according to a live video posted to her Facebook page.

  • "In the face of authoritarian expansionism and the challenges of the post-pandemic era, Taiwan seeks to bolster cooperation with the United States in the semiconductor and other high-tech industries," Tsai said during their meeting in Taipei.

Worth noting: Both Nvidia and AMD were among the many Western companies to halt sales to Russia after Putin's forces launched their invasion of Ukraine in February.

Go deeper: The next microchip crisis will be bigger

Editor's note: This article has been updated with comment from Tsai.

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