U.S. to Start Chip Supply Chain Survey Next January

Credit: Visual China

BEIJING, December 22 (TMTPost) -- The U.S. Commerce Department has decided to start a survey of the entire semiconductor supply chain next January.

The survey regarding the U.S. semiconductor supply chain and defense industrial base will be launched by its Bureau of Industry and Security (BIS) in January 2024 to determine how American companies procure so-called "legacy chips," which refer to the current generation and mature- node semiconductors, according to a statment of the U.S. Department of Commerce released on Thursday.

The department stated that the survey will serve as a foundation for continued analysis, which will inform U.S. policy to bolster the semiconductor supply chain, promote a level playing field for legacy chip production, and reduce national security risks. The survey is a response to findings in a Congressionally-mandated report released earlier this week and the focus will be on examining the use and procurement of legacy chips manufactured in China within critical industry supply chains in the United States.

"Over the last few years, we've seen potential signs of concerning practices from the PRC to expand their firms' legacy chip production and make it harder for U.S. companies to compete," U.S. Commerce Secretary Gina Raimondo said. She added that legacy chips are essential to critical industries like telecommunications, automotive, and the defense industrial base.

“To get ahead of these concerns, the Department of Commerce is taking proactive measures to assess the U.S. semiconductor supply chain by collecting data from U.S. companies on the sourcing of their legacy chips. This survey will empower the Department with the data we need to inform our next steps in building strong, diverse, and resilient semiconductor supply chains,”said Raimondo.

In a 107-page report released on Thursday, the US Commerce Department emphasized that US-based companies generate around half of the global semiconductor industry revenue but face intense competition supported by foreign funding. It also noted that the cost of manufacturing semiconductors in the United States might be "30% to 45% higher than the rest of the world" and called for long-term support for domestic semiconductor manufacturing and export controls.

Recently, the U.S. government has expanded semiconductor export controls to China and imposed restrictions on the AI chip industry.

On August 9, 2022, U.S. President Joe Biden signed the "Chip and Science Act," a $280 billion legislation aimed at encouraging domestic chip production through substantial industrial subsidies of $52.7 billion. This Act prohibits subsidy recipients both from U.S. and allies from building or expanding advanced semiconductor fabrication plants in China and other relevant countries for ten years.

In October 2022 and in October 2023, the BIS issued export controls on advanced semiconductors and computing devices to China, impacting China's advanced manufacturing. Subsequently, NVIDIA and AMD's China-specific GPU products were banned from sale in China starting November 17, 2023, and several AI chips could no longer be exported to China.

The People's Daily and Global Times reported that a speech by Raimondo at the Reagan National Defense Forum (RVDF) in California on December 2, 2023 was controversial.

She emphasized the importance of chips and artificial intelligence (AI) for US national security. "No way are we going to let them catch up. We cannot let them catch up, so we are going to deny them our almost cutting-edge technology,” she said.

Raimondo said that chip manufacturers should understand the purpose of government export controls, not just meeting certain technical parameters. She stated that U.S. companies would need to adapt to national security priorities, including export controls implemented by BIS on semiconductor exports. “I know there are CEOs of chip companies in this audience who were a little cranky with me when I did that because you’re losing revenue. Such is life. Protecting our national security matters more than short-term revenue,” she said.

Raimondo specifically mentioned NVIDIA. "I am telling you if you redesign a chip around a particular cutline that enables them to do AI, I am going to control it the very next day,” she said.

However, regardless of Raimondo's warnings, NVIDIA's CEO Jensen Huang announced that NVIDIA would continue providing compliant chip products to the Chinese market. Huang stated that the "special supply" AI chips would include HGX H20, L20 PCle, L2 PCle, among others. He indicated the company's commitment to fully complying with U.S. government trade regulations and seek to provide compliant data center solutions to global customers.

Subsequently, Raimondo showed a complete about-face. As reported by the People's Daily, she publicly stated on December 12 that the Biden administration was discussing details of three new AI chips developed by NVIDIA for China. The U.S. government allows the company to sell AI chips to China but not “the most sophisticated ones” to prevent China from training cutting-edge AI models.

Nvidia "can, will and should sell AI chips to China because most AI chips will be for commercial applications," Raimondo stated.

With over 90% market share in China's $7 billion AI semiconductor market, NVIDIA started developing "special supply" chips for the Chinese market after tightened US chip export controls of NVIDIA for China, which may lead to a sharp decline in fourth-quarter sales in China.

However, domestically produced AI chips in China are progressing rapidly. Huang estimated that it would take the United States at least 10 to 20 years to break its dependence on overseas chip manufacturing, despite the government's desire to bring more manufacturing back to the U.S. He emphasized that NVIDIA has seen over 50 companies in Chinese mainland researching and selling competitive technical products.

Raimondo noted Huang's "very clear" stance, stating that he "does not want to break the rules." The U.S. Commerce Department is working with NVIDIA because "they want to do the right thing. Obviously they want to sell as many chips as possible," she said.

Additionally, on December 12, a committee of the U.S. House of Representatives released a report proposing dozens of recommendations, including proposed legislative reforms aimed at enhancing U.S. economic competitiveness to contain China's rise. The report pushed the U.S. Commerce Department to impose import tariffs on traditional chips from China.

Raimondo further stated last week that she estimated the U.S. Commerce Department would make approximately 12 policies supporting semiconductor chip investment in the coming year, potentially reshaping the U.S. chip production landscape, involving billions of dollars.

In response to Raimondo's remarks, Foreign Ministry spokesperson Ma Ning stated on December 12 that China has repeatedly expressed its position on U.S. chip exports to China. She highlighted that the US' excessive use of export controls severely damages the legitimate rights and interests of Chinese enterprises, threatens the stability of the global chip production supply chain, violates market economy principles and fair competition, and is not in the interest of any party. China firmly opposes this and urges the U.S. to follow through on its commitments to not "decoupling" from China and not hindering China's economic development. China will continue to closely monitor related actions and resolutely defend its legitimate rights and interests.

Chinese Ministry of Commerce spokesperson He Yadong also noted that China has repeatedly pointed out that the U.S.' overstretch of national security and the abuse of export controls against China and limitations on bilateral investments disrupt market rules, international economic and trade order, and threaten the stability of global industrial and supply chains. China firmly opposes these measures. He said that such moves cannot hinder China's development but could make U.S. companies lose the Chinese market, damaging their own interests. China will closely monitor the developments and impact of U.S. measures and safeguard China’s own rights and interests.

(Reporing by Lin Zhijia)