Don't Deprive American AI Chip Sales

T. Rao Coca, BS, MS, MA, PhD, JD.

Admitted in NY, OH, VT, USPTO, CAFC, SCOTUS

Last week the U.S. government announced new licensing requirements for shipment of Nvidia’s advanced computing chips for artificial intelligence to China. Specifically, the restricted AI chips are the A100 and the forthcoming H100 which Nvidia designed to carry out advanced machine learning and image recognition tasks. These chips are also incorporated in other Nvidia-designated data center products.

Nvidia uses Taiwan Semiconductor Manufacturing Corporation for production of its chips.

Advanced Micro Devices was also hit with a similar ban. AMD can no longer sell its MI250 AI chips into the China market

This announcement signals a major escalation of the U.S. crackdown of China’s technological capabilities in AI. While the U.S. embargoed the chips because they may be diverted to a military end use in China, a recent study by Stanford University’s Institute for Human-Centered Artificial Intelligence concluded that China is ahead of the U.S. in AI.?

The tension that has arisen over the fate of Taiwan in the wake of the House Speaker Nancy Pelosi’s recent visit to that island may be a contributing factor.

Nvidia stated in a Securities and Exchange Commission filing last week the ban of its chips is likely to have a material impact on its business. The chipmaker stated that it had booked $400 million sales per quarter of A100-linked products to China. The annual loss of sales is projected at around $2 billion.

AMD is projecting a smaller loss due to the ban on sale of its chip.?

Why do we have Export Laws?

U.S. laws and regulations restricting the export of goods and technologies out of the country have been around since the 1940’s. They are in place for reasons of our national security to curb the proliferation of weapons of mass destruction, terrorism, drug trafficking by foreign entities and for protection of U.S. trade.?

In general, the export control laws cover four U.S. business activities: transfer of controlled information to persons or entities outside the U.S; shipment of controlled goods such as scientific equipment from the U.S. to a foreign country; disclosure of controlled scientific or technical information related to export-controlled items to foreign nationals in the U.S.; and travel to the sanctioned countries for purposes of teaching or performing research.?

Under the export control regulations the shipment of certain goods and technologies may be prohibited or a government license may be required to export them.

The U.S. Departments of Commerce, State and Treasury are involved in determining what is “controlled”.

The Department of Commerce’s Export Administration Regulation (EAR) is concerned with dual-use items such as computers or computer chips that are designed for commercial use, but have the potential for military application.

The Department of State’s International Traffic in Arms Regulations (ITAR) covers defense-related goods and services.

The Treasury Department’s Office of Foreign Asset Control (OFAC) administers and enforces economic trade sanctions that have been imposed against specific countries based on reasons of foreign policy, national security, or international agreements. ?

The penalties for violation of export regulations EAR or ITAR are severe and include civil and criminal of up to 20 years if imprisonment and $1 million in fines per violation or both.?

Who benefits from the Export Laws?

The beneficiaries of export controls are the American people as the controls curb likely belligerent acts by sanctioned countries against us.

At present the main sanctioned countries are China, Iran, North Korea and Russia.

While Nvidia and AMD are the latest U.S. multinationals subjected to restrictions on shipping AI chips to China, many other American companies are restricted from shipping their other products to the prohibited countries. These restricted companies are the losers as they heavily invested to produce the restricted products with the expectation of profiting from them. Ultimately, the investors in these restricted companies are left holding the bag.

Conclusion

An argument can be made that the loss of revenue by Nvidia and AMD due to the export controls on their AI chips which they did not foresee while designing and producing them should perhaps be compensated by the U.S. In these generous times when our government is doling out billions of dollars of cash payments to foreigners who unlawfully crossed into our country and the tens of billions of dollars to forgive loans taken by students who are in a position to repay, it seems proper that Nvidia and AMD should perhaps be compensated for actually doing public good by producing these high tech chips.?

More than this, the government should re-energize the American spirit of technological competition in the world. Our government should purchase the restricted chips and have them utilized by one or more of our seventeen National Laboratories to enhance our capabilities in the AI technology where we have fallen behind China. That spirit of American competition has served us well during World War II with the Manhattan Project to build the first atomic bomb and in 1957 when the Soviet Union took the lead in the space race. It will serve well again now in the AI race with China. ?