A Brief History of the Crazy, Momentous, Billion-Dollar Chip Wars Between the US and China

It’s difficult to pinpoint a single opening salvo in the increasingly escalatory battle between the US and China over semiconductors. The steady drumbeat of bans, export controls and restrictions, licensing requirements, retaliatory acts, and the accompanying global tensions have become a kind of persistent white noise in the geopolitical sphere. Some have even argued that it rises to the level of a new Cold War, one framed around what is arguably the 21st century’s most vital and groundbreaking technology. 

If one were to take a stab at it, though, they might point to the U.S. Commerce Department’s announcement, in May 2020, that it would be banning companies around the world that utilize American technology from designing or producing semiconductors for Huawei, the Chinese telecommunications behemoth. (Companies that wanted to be exempt from the new rules could apply for special licenses to continue working with Huawei.) 

The ramifications of the U.S. agency’s 2020 mandate were nearly instantaneous. Within a matter of days, the Taiwan Semiconductor Manufacturing Company (TSMC)—the largest semiconductor manufacturer in the world, with a market share hovering around 55%—stopped taking new orders from Huawei in an effort to comply with the U.S.’s newly announced export controls. TSMC’s response was a consequential one for both firms. Huawei was TSMC’s second-largest client, after Apple, and the Chinese corporation relied heavily on TSMC for advanced chips. Huawei’s bottom line would be hammered by the U.S. sanctions and the resulting withering of its supply chain for the next several years. In March, the conglomerate reported annual profits from 2022 that represented a near-70 percent drop from the previous year.  

In the three-plus years since the Commerce Department’s sanctions against Huawei, the “wafer wars” have only ratcheted up further. The U.S. and China have deployed an array of strategic measures to hamper, hobble, and hamstring the opponent’s advancements by cutting off its access to critical technologies and weakening its largest and most powerful tech firms. But before moving into a deeper discussion of this multifaceted conflict and the ways it’s shaping geopolitics, the global semiconductor industry, and even how we think about the role of microprocessors on the world stage, it’s worth investigating why the U.S. felt it was absolutely necessary to take such an aggressive, even adversarial, stance against China in the first place. 

After all, for all the buzziness surrounding the unpredictability of the chip wars and the boiling tensions between the world’s two superpowers, the reality is that Washington has been extremely deliberate and decisive in its actions against the People’s Republic of China. The question, of course, is why?

The Strategic Thinking Behind the U.S.’s Restrictions Against China

Much of the writing and reporting on the conflict between the U.S. and China over advanced semiconductor technology focuses on the specific, concrete actions the countries have taken. These include sanctions, export controls, and efforts to convince other critical national partners to adopt similar restrictive measures. What does not get nearly as much coverage, however, is the reason we’ve become so deeply entrenched in this chips war in the first place. 

Clues might be gathered based on quotes from high-level government officials. National Security Advisor Jake Sullivan, for example, explained in 2022 that “we previously maintained a ‘sliding scale’ approach that said we need to stay only a couple of generations ahead. That is not the strategic environment we are in today. Given the foundational nature of certain technologies, such as advanced logic and memory chips, we must maintain as large of a lead as possible.” The Biden Administration, in other words, sees preserving its technological advantage as critical to U.S. interests and national security. A great deal of the justification behind this severe administrative stance comes from a relatively new policy in China that has American officials seriously concerned, if not outright alarmed: something called “Military-Civil Fusion.”

China’s MCF Doctrine 

As President Xi Jinping made clear last year, the People’s Republic of China aspires to transform the People’s Liberation Army (PLA) into a “world-class military” by 2049. One of the nation’s key strategies for achieving this ambitious objective is the Military-Civil Fusion. The MCF is a sweeping national project that seeks to overhaul China’s technology and science industries so that breakthroughs and innovation in those respective fields will have a direct and immediate impact on military advancement. The Chinese Communist Party (CCP) is establishing an entirely new national framework, that is, one in which the commercial technology sector will be much more closely bound to the nation’s military and defense departments. 

Specific logistical details of this transformational policy are not widely known outside the PRC. It’s increasingly clear, however, that the CCP believes certain technologies will play a critical and potentially decisive role in the next generation of warfare, statecraft, advanced national security, and geopolitical supremacy. These technologies include quantum computing, nuclear technology and, perhaps most of all, AI. 

Part of the MCF strategy is understanding and leveraging the fact that much of this semiconductor-based technology is “dual-use”—possessing both defense and commercial applications. Partnering with industry allows China to essentially funnel all of its tech companies’ advancements directly into its national security infrastructure. Put more directly, the CCP is in the early stages of what could be described as the complete militarization of its private sector. It is carrying out the MCF doctrine through a variety of methods. These include investing in private companies, guiding collaborative academic research toward military ends, gathering intelligence and, the U.S. alleges, stealing technology from global competitors. As the U.S. State Department puts it, “In a clandestine and non-transparent manner, the CCP is acquiring the intellectual property, key research, and technological advancements of the world’s citizens, researchers, scholars, and private industry in order to advance military aims.” 

Understanding the MCF and the complex circumstances that led up to the heavily dramatized feud over chips can go a long way toward explaining why the U.S. government acted in such a severe and unilateral fashion. From the perspective of the Defense and State Departments, the CCP had been violating international norms and exploiting global institutions and private firms to advance an insidious militaristic agenda. Seen in this light, the U.S. was not so much initiating a new Cold War as retaliating against a broader, multifaceted conflict that threatens to destabilize the global order. 

The Threat of China’s Military Ambitions

It’s important to remember, too, that the MCF should not be viewed in a vacuum. Rather, it must be examined and assessed in the context of China’s larger geopolitical ambitions. In recent years, the CCP has been more brazen in asserting its dominance in the Indo-Pacific, most prominently through its hostile acts in and militarization of the South China Sea. Further, it’s hardly a state secret that Xi Jinping covets Taiwan. There’s a plethora of evidence that he views its annexation or “reunification,” if you’d prefer, as nothing short of critical to the “great rejuvenation of the Chinese nation.” 

Washington perceives these escalating actions and Beijing’s clear nationalistic goals as significant threats to both our national security and the national security of other Asian nations. As the U.S. Defense Department explained in a 2022 report to Congress, “The PRC’s strategy entails a determined effort to amass and harness all elements of its national power to place the PRC in a ‘leading position’ in an enduring competition between systems.” 

Between the MCF, CCP’s “great rejuvenation,” Indo-Pacific aggression, and China’s technological espionage, the U.S. government felt it needed to carry out drastic measures to gain a strategic advantage over its rival. The largely unprecedented sanctions, in other words, are about far more than just a struggle for advanced semiconductor supremacy. They represent a shot across the bow to the CCP’s barely-concealed dreams of supplanting the U.S. as the world’s preeminent superpower. 

The U.S.’s Semiconductor Export Restrictions 

Although the U.S. had been implementing smaller-scale sanctions since at least 2020—when it first banned companies using American technology from producing or designing chips for Huawei—the first comprehensive set of export controls came down last fall. 

October 2022 Semiconductor Export Controls 

On October 7, 2022, the Bureau of Industry and Security (BIS) set forth a sweeping raft of updates intended to severely restrict the PRC’s access to semiconductors, semiconductor manufacturing equipment, and computers and computing commodities that contain high-performance chips. What follows is a brief summary of several of the key new control measures from this filing. 

Expansions to the Commerce Control List 

The BIS added certain semiconductors and “electronic assemblies” that run on those semiconductors to its Commerce Control List (CCL). The CCL is part of the Export Administration Regulations (EAR), export guidelines implemented and enforced by BIS. The EAR regulates the export of so-called dual-use items that possess commercial and military applications (including electronics, nuclear materials, and aerospace hardware). 

Items entered into the CCL are assigned an Export Control Classification Number (ECCN), which describes the scope of the classification and indicates licensing requirements. The BIS’s October 2022 filing included the following new ECCNs:

• 3A090: This new ECCN covers semiconductors with specific chip architectures, including graphical processing units and tensor processing units, that exceed established performance thresholds. 
• 3B090: The ECCN targets chip manufacturing equipment, including “specially designed parts, components, and accessories.” 
• 4A090: This is directed at computers, electronic assemblies, and components containing semiconductors outlined in 3A090. 
• BIS has further added ECCNs 3D001, 3E001, 4D090, and 4E001, encompassing software and technology associated with the development of hardware listed in 3A090 and 4A090. 

New Foreign Direct Product Rules (FDPR)

In addition to the new ECCNs, BIS created two new Foreign Direct Product Rules. FDPRs, which fall under the EAR, allow BIS to impose export controls on certain foreign-produced items that were manufactured with technology regulated by the EAR. The first new FDP rule, 15 CFR § 734.9(h), governs specific computing commodities intended to be sent to the PRC or used by organizations headquartered in the PRC for the development of semiconductors. 

The second FDP rule, 15 CFR § 734.9(i), is targeted specifically at supercomputers. It stipulates that items within the rule’s scope must be controlled if there is any “knowledge” that these foreign-produced items will be used in the design, development, production, or operation of a supercomputer or a part or component used in a supercomputer “located in or destined to the PRC.”

Changes to the Entity List 

Finally, the October 7 export controls make significant revisions to the restrictions imposed on the Entity List, a list administered by the EAR that encompasses individuals and organizations “reasonably believed to be involved, or to pose a significant risk of being or becoming involved, in activities contrary to the national security or foreign policy interests of the United States.” The update expands the scope of foreign-produced items subject to EAR, specifically targeting items destined for any of 28 individuals and organizations located in the PRC and on the Entity List.

October 2023 Expansions of the U.S.’s PRC Export Controls 

A little over a year after the 2022 export controls on the PRC came down the pike, on October 17, 2023, BIS issued a new set of rules. These rules have the explicit intention of bolstering the 2022 controls by refining their parameters; combating loopholes that have emerged over the preceding year; and, in certain instances, expanding the technology and hardware subject to licensing requirements and restrictions. 

1. Modifying Restriction Criteria: The first major update concerns the parameters for what types of advanced chips are covered under the BIS’s restrictions. The agency has said that the original parameters left room for China to access semiconductors capable of carrying out advanced AI model training. To close this loophole, IBS is now using total processing performance (TPP) and performance density as thresholds for which types of semiconductors are subject to controls and restrictions. As the Center for Strategic and International Studies puts it, this “ultimately gives BIS a much larger remit over AI chips, and it will cut China’s access to these chips dramatically.” 

2. Expanding List of Controlled Equipment: The second newly introduced rule concerns semiconductor manufacturing equipment (SME). Many new items were added to the original list of controlled SME, including specialized equipment for manufacturing logic chips under 16 nanometers. Additionally, the number of countries affected by the SME rule has been expanded to 23. 

3. Additions to the Entity List: The final new rule adds 13 Chinese firms to the U.S. Entity List. These companies, which include Beijing Biren Technology Development Co. Ltd. and Light Cloud (Hangzhou) Technology Co. Ltd., have known involvement in the development of artificial intelligence with potential militaristic capabilities that threaten U.S. national security. These newly added entities are also subject to FDPR restrictions. 

China’s Retaliatory Measures 

Although China has not attempted to match the U.S. in terms of the scope and magnitude of its rival’s restrictions, it has implemented several key sanctions aimed at punishing U.S. industry. In May of this year, China banned Micron chips from being used in key infrastructure projects in the nation, citing security threats. The Cyberspace Administration of China (CAC) said in a statement that “Micron’s products have serious network security risks, which pose significant security risks to China’s critical information infrastructure supply chain, affecting China’s national security.” 

Just two months later, in July, China announced that it would be imposing restrictions on the export of 38 products. Among these are two chemicals, gallium and germanium, that are crucial to the semiconductor fabrication process. Any Chinese entities seeking to export these chemicals must obtain licenses from China’s Ministry of Commerce (MOFCOM). (Notably, the license applications require prospective exporters to identify end-users.) 

Although the messaging out of the CCP surrounding these sanctions has been somewhat mixed and even contradictory, former Vice-Minister of Commerce Wei Jianguo sounded a fairly unambiguous note on the matter. “This is just the beginning of China’s countermeasures,” Wei told China Daily, “and China’s toolbox has many more types of measures available.” 

China-US Chip Wars Timeline

• May 2020: U.S. Commerce Department announces that it’s banning companies that utilize American technology from designing or producing semiconductors for Huawei. 
• October 2022: U.S. Bureau of Industry and Security establishes export controls on semiconductor hardware, SME, and a range of related technology. Additionally, the agency expands FDPR by imposing restrictions on certain computing commodities destined for the PRC, and strengthens restrictions on 28 Chinese entities on the Entity List. 
• March 2023: Japan and the Netherlands separately announce new export controls on semiconductor technology and advanced manufacturing equipment. Although neither announcement named China as an intended target, the measures are widely understood to be an act of solidarity and multilateralism with the U.S.’s extensive measures against the PRC. 
• May 2023: China announces that it is banning Micron chips from being used in key national infrastructure projects. 
• August 2023: The PRC imposes restrictions on the export of gallium and germanium. 
• October 2023: BIS expands its 2022 export controls on the PRC. The agency broadens restrictions on the export of SME and adds 13 Chinese firms to the Entity List. 

Consequences of Semiconductor Restrictions for Companies and Consumers 

It all but goes without saying that this dense web of measures and countermeasures is bound to ensnare individual companies and, perhaps to a more subtle degree, global consumers. Corporations like Huawei and Micron are already feeling the effects of these sanctions, in some cases to the tune of hundreds of millions—even billions—of dollars. 

U.S. chipmaker Nvidia, meanwhile, is being disproportionately affected by the U.S.’s latest slate of export controls, which are attempting to close a loophole in the previous rules by targeting many of the AI-related chips the company sells to China. These include Nvidia’s A100, A800, H100, and H800 products. Reporting by the Wall Street Journal suggests that the company could lose over $5 billion in advanced chip sales. 

The chip wars’ impact on individual consumers is slightly more difficult to parse. While global supply chains have certainly been affected by these sanctions—especially on the Chinese side—the PRC has not yet imposed restrictions severe enough to substantially influence U.S. products. In some ways, the long-term “decoupling” of U.S. and Chinese commerce and supply chains, especially with regard to semiconductor technology, may be most tangibly felt through the transformation of the domestic chips ecosystem. 

As America continues to cut off China from its most advanced technological hardware and resources, it is simultaneously hyper-focused on developing an independent supply chain founded on tens of thousands of new American jobs in the semiconductor field. As far as regular Americans are concerned—barring armed conflict or outright war—that may be this generational clash’s most enduring legacy.