China re-routes crucial chip supply from the third countries, bypassing the US sanctions

The export restrictions mark a new escalation in what has been termed the “chip war,” a conflict over the world’s most advanced semiconductor technology. Since last year, the United States has been attempting to limit access to this technology for certain countries. Chips are considered the lifeline of economic and military progress. Nowadays, they are an essential component in nearly every electronic device – from cars to fighter jets, smartphones to refrigerators.

Previous restrictions only applied to China and Russia, but now the Middle East is being affected for the first time. The US is prohibiting chip manufacturer Nvidia from selling certain types of chips to “specific customers and regions, including some countries in the Middle East.” The company stated this in its quarterly report, filed with the US Securities and Exchange Commission on Monday.

Specifically, this concerns the models A100 and H100, chips used by tech companies to develop applications such as ChatGPT and Bing AI. They can execute many relatively simple tasks simultaneously, which is essential for training AI models. As such, these chips, with a price tag of around $10,000 each, are crucial tools for tech companies.

Chip manufacturer AMD has also received a letter with similar restrictions, confirmed an insider to Reuters on Wednesday night. The company is no longer allowed to export MI250 chips. Neither company provided a reason for the new restrictions, nor did they specify which Middle Eastern countries would be subject to the stricter export rules.

National Security

These new export restrictions are noteworthy. The US typically imposes export restrictions under the pretext of national security. For instance, chip exports to China are limited due to fears that the chips could be used for military purposes. Since February 2022, Russia has also faced export restrictions due to its invasion of Ukraine.

However, the Middle East – a relatively small market, with the countries collectively importing only a fraction of all chips produced globally – is not engaged in any (military) conflict with the US. In fact, the US is working to mend relations with Saudi Arabia and slowly strengthen ties with Iran. The US Department of Commerce, which manages export licensing requirements, had not yet provided a response as of Thursday morning.

Netherlands has also become an unintended pawn in the chip war, thanks to ASML, the most valuable company in the Netherlands, which manufactures machines used in Nvidia chip production. The company from Veldhoven is the only one in the world capable of producing extreme ultraviolet machines. Under pressure from the United States, ASML is no longer permitted to export this advanced equipment to China starting from September 1.

Countermeasures

This might not be the end of it, as Reuters reported at the end of June. The US is reportedly considering export restrictions on older technology, such as ASML’s deep ultraviolet models. These may no longer be sold to Chinese companies in the US. This could also pose challenges for ASMI, a counterpart to ASML based in Almere.

China has consistently criticized these trade restrictions. According to the Chinese ambassador to the European Union, Fu Cong, the Netherlands “bowed to US pressure,” as he told the Financial Times in March.

Since then, China has taken countermeasures. As of August 1, Chinese exporters must seek government permission before exporting gallium and germanium. These two rare earth metals are crucial in chip and solar cell production.