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US-led Export Controls on China’s Chip-making Industry Raise Questions on Innovation and Security

Global Semiconductor Industry Faces Disruption as Trade Restrictions Impact Supply Chains and Geopolitical Tensions

The global semiconductor industry is grappling with trade restrictions that have the potential to disrupt long-established supply chains and intensify geopolitical tensions between the United States and China. As the U.S., Taiwan, Japan, and the Netherlands impose export controls on certain chip-making materials to China, questions arise about the ramifications of these restrictions on innovation, security, and the future of the global tech landscape.

Melissa Flagg, a visiting scholar at Perry World House and former deputy assistant secretary of defense for research, sheds light on the implications of these trade restrictions and the complexities associated with semiconductor manufacturing in an interview with Penn Today.

Flagg explains that the U.S.-led initiative to impose export controls on China’s advanced chip-making industry, which plays a crucial role in enhancing high-level computing operations like artificial intelligence (AI), is aimed at hindering China’s efforts to develop its own self-sufficient semiconductor sector.

“With the rise of ChatGPT and other machine learning models in recent months, computer-reliant tools in the AI space have demonstrated significant potential to disrupt various key industries that influence a nation’s economy,” says Flagg. “However, the production of semiconductors, which serve as the fundamental building blocks for computational processing and memory storage, relies on a complex global supply chain with a few key players providing specialized components.”

Flagg notes that export controls are not uncommon and are typically imposed in the aerospace and defense industries. However, the current measures may be particularly effective due to the specialized roles of key players in the supply chain. “From my understanding, the machining tools required to produce the most powerful processors are primarily limited to the Netherlands, the U.S., and Japan. So, when this already specialized bottleneck for technology is further tightened, it will undoubtedly have far-reaching effects, and it wouldn’t be surprising to expect some form of retaliation.”

She adds that semiconductors are critical to military capabilities, as many interconnected vehicles, artillery, and weapon systems heavily rely on processing and memory chips. “These restrictions are aimed at safeguarding our national security interests and preventing China from developing its own cutting-edge semiconductor industry that could potentially rival that of the U.S.”

Flagg underscores the significance of these controls, as they come at a time when the full impact of AI technology is yet unknown. “We are just beginning to comprehend what AI can do, so it’s possible that in 30 years or so, we will look back at this period and assess whether it was a crucial factor in the battlefield and if this decision was a wise move.”

One potential cause for concern is the risk of escalation in geopolitical tensions between the U.S. and China. Flagg warns that when great powers with large militaries threaten each other, the situation becomes precarious and dangerous. She points to Gen. Mark Milley, chairman of the Joint Chiefs of Staff, publicly stating the need to temper anti-China rhetoric as an indicator of concern about potential escalation.

Flagg emphasizes the importance of avoiding miscommunications, mistakes, and opportunities for misinformation from external actors that could exacerbate tensions. Despite the potential for trade restrictions to worsen the delicate situation, Flagg believes that the mutual economic interests of the U.S. and China are likely to prevent any immediate threat of physical violence. “I don’t think there’s an incentive for either country to go beyond low-level clashes in the Pacific,” she says.

Looking ahead, Flagg notes that while the U.S. has secured a significant deal involving crucial partnerships at key bottlenecks in semiconductor manufacturing, the story doesn’t end there. “Our interpretation of the current moment may differ greatly from how we perceive events historically,” she says.