Homework for week 11: read the text and answer the following questions.

Reading comprehension

America’s ‘once unthinkable’ chip export restrictions will hobble China’s

semiconductor ambitions

Published Tue, Oct 11 2022 7:33 PM EDT Adapted from CNBC - Arjun Kharpal

 The U.S. Department of Commerce introduced sweeping rules aimed at cutting China
off from obtaining or manufacturing key chips and components for supercomputers.
 Analysts said that this is likely to hobble China’s domestic chip industry.
 Washington’s export rules could touch other parts of the supply chain that use
American technology, highlighting the wide-ranging nature of the latest restrictions.

China’s ambitions to boost its domestic chip industry has likely become magnitudes more
difficult and costly after the U.S. launched some of its most wide-ranging export controls
related to technology against Beijing.

On Friday, the U.S. Department of Commerce introduced sweeping rules aimed at cutting
China off from obtaining or manufacturing key chips and components for supercomputers, in
what is seen as a huge escalation in tensions between Beijing and Washington in the
technology sphere.

America argues that such advanced semiconductors can be used by China for advanced
military capabilities. “There is no going back to the way things were,” Abishur Prakash, co-
founder of the Center for Innovating the Future, an advisory firm, told CNBC. “With the
latest action, the chasm between the U.S. and China has now expanded to the point of no
return.”

Here are some of the highlights of the new U.S. rules:

 Companies require licenses to export high-performance chips, usually designed for

artificial intelligence applications, to China.
 Even foreign-made chips related to AI and supercomputing, that use American tools
and software in the design and manufacturing process, will require a license to be
exported to China.
 U.S. companies will be heavily restricted in exporting machinery to Chinese
companies that are manufacturing chips of a certain sophistication.

“The latest chip rules are a sign that Washington is not trying to rebuild relations with Beijing.
Instead, the U.S. is making it clear that it’s taking this competition more seriously than it ever
has, and is willing to take steps that were once unthinkable,” Prakash said.

What impact will U.S. restrictions have on China?

Semiconductors are some of the most important technology products. They go into everything
from smartphones to cars and refrigerators. But they’re also seen as key to military
applications and advancing artificial intelligence.
As geopolitical tensions between China and the U.S. have ramped up in the past few years,
technology, and in particular sensitive areas like chips, have been dragged into the battle.

Artificial intelligence, quantum computing and semiconductors are all areas China has
identified as “frontier” technologies it wants to boost its domestic capabilities in. But the new
U.S. rules will make that extremely hard, particularly in the area of chips.

“The U.S. has formally shifted its goal from outpacing China in the semiconductor industry
to actively denying it access to advanced chips,” Pranay Kotasthane, chairperson of the high
tech geopolitics program at the Takshashila Institution, told CNBC. “China’s homegrown
chip sector will be hobbled by these extensive controls.”

The reason why the U.S.’s export controls could be so effective is how they could touch
several parts of the semiconductor supply chain, even those not directly based in America or
controlled by American firms.

That comes down to the global nature of the chip supply chain but also how power and
expertise is controlled by very few companies.

The United States, while strong in many areas of the market, has lost its dominance in
manufacturing. Over the last 15 years or so, Taiwan’s TSMC and South
Korea’s Samsung have come to dominate the manufacturing of the world’s most advanced
semiconductors. Intel, the United States’ largest chipmaker, fell far behind.

Taiwan and South Korea make up about 80% of the global foundry market. Foundries are
facilities that manufacture chips that other companies design.

The U.S., however, still boasts strong companies in the area of design tools, many of which
are used by other companies in the supply chain. For example, it’s unlikely that advanced
chips manufactured by TSMC won’t have used American tools somewhere along the way. In
this instance, the U.S. export restrictions to China will apply.

Washington has used this so-called foreign direct product rule before on the poster child of
the Trump-era U.S.-China tech tensions — Huawei. Under those rules, Huawei was cut off
from the most advanced chips that TSMC was manufacturing and that were designed for its
smartphones. Huawei, which was once the number one player in the smartphone market, saw
its handset business crippled. But never has such a rule been used so widely by the U.S.

“Semiconductor production is a hyper globalised supply chain. Being cut off from this engine
will mean that Chinese companies must ‘reinvent the wheel’ domestically. China’s
semiconductor industry will need much higher capital and talent infusion to absorb this
shock,” Kotasthane said.

Vocabulary- Find a synonym for each of the following terms:

To boost:

To launch:
Sweeping:

To ramp up:

To outpace:

To hobble:

To come down to:

Supply chain:

To make up:

Poster child:

1. What rules were introduced to prevent China from obtaining or manufacturing chips?

2. What is the foreign direct product rule? In what other particularly telling example has
this rule been used and when?

3. Why is the U.S. taking such drastic steps to hinder China’s access to chips?