Can US Export Restrictions Lead to the End of the AI Boom?


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Having set the precedent by introducing export controls on AI chips in October 2022, the Commerce Department’s Bureau of Industry and Security (BIS) significantly expanded the policy on Monday. The Biden administration’s “Interim Final Rule on Artificial Intelligence Diffusion” will now apply globally to 120 countries.

This Interim Final Rule (IFR) is a part of the broader “Export Control Framework for Artificial Intelligence Diffusion” framework.  

Primarily, this regulatory action by the outgoing Commerce Secretary Gina Raimondo has the same function as the previous two export controls – to deny China’s global access to advanced semiconductor technology used in AI chip development and manufacturing.

“As AI becomes more powerful, the risks to our national security become even more intense,”

Gina Raimondo to reporters

The number of nations that would be exempt from new AI restrictions is slightly higher than the Fourteen Eyes surveillance alliance, at 18. This includes the UK, Taiwan, Japan, Canada, Australia, New Zealand, Ireland, France, Germany, Italy, Spain, Belgium, Denmark, Norway, Finland, South Korea, Sweden and the Netherlands.

Interestingly, NATO members such as Czechia, Hungary, Croatia, and the Baltic republics are not on the exclusion list, which makes this one of the world’s most exclusive initiatives.

The new regulation will have a 120-day comment period, so the Trump admin may tweak the restriction rules after his inauguration on January 20th. However, the stance against China comes from a bipartisan consensus, so that is unlikely.

The question is, will this dampen the global supply of AI chips to the point of neutralizing the rally of AI stocks?

Examining the New Caps on AI Chips

According to the White House’s fact sheet released on Monday, bulk AI chip orders with a cumulative compute power equivalent to up to 1,700 high-end GPUs will not be affected. For comparison, hyperscaler Meta Platforms announced in January 2024 that the company will acquire compute power equivalent to 600,000 H100 GPUs from Nvidia.

For such enterprises, the Biden admin introduced Universal Verified End User (UVEU) status, enabling them to acquire up to 7% of their global AI compute capacity, which is “likely amounting to hundreds of thousands of chips.”

Moreover, entities within the nations above can opt for National Verified End User (NVEU) status, granting up to 320,000 GPUs worth of compute power over the next two years. Those entities outside the VEU framework could buy up to 50,000 GPUs worth of compute power.

This 50k cap could be doubled if there is a direct government-to-government agreement, giving the USG enforcement flexibility.

Semiconductor Industry’s Reaction to New AI Restrictions

The Semiconductor Industry Association (SIA), representing 99% of the US chip sector, expressed concern that such a wide-sweeping rule is pushed “days before a presidential transition and without any meaningful input from industry.” SIA further warns that it “risks causing unintended and lasting damage to America’s economy and global competitiveness”.

The Information Technology Industry Council (ITI), representing Big Tech companies such as Microsoft, Meta, and Amazon, issued similar concerns. According to ITI, competitors would gain an advantage by placing arbitrary constraints on the US semiconductor sector.

In his blog post, Ken Glueck, executive vice president at Oracle, noted that the new framework “will go down as one of the most destructive ever to hit the U.S. technology industry.”

As reported by AP, some insiders suggested that these restrictions would even affect existing GPUs used in video gaming, in addition to curtailing the ability of US companies to expand data centers outside the listed 18 nations.

Charlie Dai, VP and principal analyst at Forrester, foresees that the new framework will have unintended consequences:

“It not only restricts China’s access to advanced technologies, pushing US firms to innovate and develop alternatives; it also limits US companies’ global market share and encourages China to accelerate its own technological advancements, altering the global tech landscape and intensifying the US-China tech competition,”

In short, the entire tech industry seems to be against the new mandate proposal.

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New Uncertainty for Companies

Given the reliance on cloud computing, which relies on GPUs and AI chips, companies worldwide are likely to face disruptions. New compliance expenditures are also expected to have a consolidation effect, as companies with deeper pockets carry extra burden.

At the same time, the USG could ostracize restricted nations while China accelerates its domestic AI chip development with open-source RISC-V architecture under the 14th Five-Year Plan. 

Although it remains the case that Nvidia’s biggest customers are hyperscalers Microsoft, Alphabet, and Amazon, all of which have a large chip-buying capacity under the new IFR, their expansion plans are now in jeopardy.

Being headquartered in the US, Microsoft’s Azure or Amazon’s AWS rollout outside the US is curtailed to half of its AI compute capacity. In non-trusted countries, this cap is only 7%, while the listed trusted nations get to have 25% of their compute power.

Therefore, a push in this direction bodes ill for Nvidia as it will likely disrupt global supply chains and existing AI infrastructure rollout plans. In a blog post, Nvidia’s representative Ned Finkle unequivocally called the new rule “unprecedented and misguided”, as it aims to “to rig market outcomes and stifle competition”. 

Given this uniform backlash across the industry, it may be the case that the incoming Trump admin will cut some of the “200+ page regulatory morass”. After all, during the presidential campaign, Trump openly courted Silicon Valley heavyweights.

In turn, they signaled their support. Mark Zuckerberg, the CEO of META, is the most prominent reversal example, as he announced the rolling back of DEI initiatives, canceling “fact-checkers,” and even removing tampons from men’s bathrooms. 

However, it remains to be seen whether the national security faction will gain more ground over the technocratic faction. One should also remember that the technocratic faction within the WEF places great importance on the global rollout of AI.

Do you think it is appropriate for exiting administrations to make sweeping regulatory changes with far-reaching consequences? Let us know in the comments below.

Disclaimer: The author does not hold or have a position in any securities discussed in the article. All stock prices were quoted at the time of writing.





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