Biden Administration Weighs Further Curbs on Sales of A.I. Chips to China

The Biden administration is weighing additional curbs on China’s ability to access critical technology, including restricting the sale of high-end chips used to power artificial intelligence, according to five people familiar with the deliberations.

The curbs would clamp down on the sales to China of advanced chips made by companies like Nvidia and Advanced Micro Devices, which are needed for the data centers that power artificial intelligence.

Biden officials have said that China’s artificial intelligence capabilities could pose a national security threat to the United States by enhancing Beijing’s military and security apparatus. Among the concerns is the use of A.I. in guiding weapons, carrying out cyber warfare and powering facial recognition systems used to track dissidents and minorities.

But such curbs would be a blow to semiconductor manufacturers, including those in the United States, who still generate much of their revenue in China.

The deliberations were earlier reported by The Wall Street Journal. Nvidia’s shares fell roughly 2 percent in morning trading on Wednesday following reports of the potential export crackdown. The company has been one of the primary beneficiaries of the enthusiasm over artificial intelligence, with its share price surging by roughly 180 percent this year.

Such additional restrictions, if adopted, would not have an immediate impact on Nvidia’s financial results, Colette Kress, the chief financial officer of Nvidia, said Wednesday on a call with reporters. But over the long term, they “will result in a permanent loss of opportunities for the U.S. industry to compete and lead in one of the world’s largest markets,” she said. She added that China typically generates 20 percent to 25 percent of the company’s data center revenue, which includes other products in addition to chips that enable A.I.

The stock prices of chip companies Qualcomm, Intel and Applied Materials all fell more than 2 percent on Wednesday morning.

Intel declined to comment, as did the Commerce Department, which oversees export controls. AMD did not immediately respond to a request for comment.

Curbing the sale of high-end chips would be the latest step in the Biden administration’s campaign to starve China of advanced technology that is needed to power everything from self-driving cars to robotics.

Last October, the administration issued sweeping restrictions on the types of advanced semiconductors and chip making machinery that could be sent to China. The rules were applied across the industry, but they had particularly strong consequences for Nvidia. The company, an industry leader, was barred from selling China its top-line A100 and H100 chips — which are adept at running the many processes required to build artificial intelligence — unless it first obtained a special license.

In response to those restrictions, Nvidia began offering the downgraded A800 and H800 chips in China last year.

The additional restrictions under consideration, which would come as part of the process of finalizing those earlier rules, would also bar sales of Nvidia’s A800 and H800 chip, and similar advanced chips from competitors like AMD and Intel, unless those companies obtained a license from the Commerce Department to continue shipping to the country.

The deliberations have touched off an intense lobbying battle, with Intel and Nvidia working to prevent further curbs on their business.

Chip companies say cutting them off from a major market like China will substantially eat into their revenues and reduce their ability to spend on research and innovation of new chips. In an interview with The Financial Times last month, Nvidia’s chief executive, Jensen Huang, warned that the U.S. tech industry was at risk of “enormous damage” if it were to be cut off from trading with China.

The Biden administration has also been internally debating where to draw the line on chip sales to China. Their goal is to limit technological capacity that could aid the Chinese military in guiding weapons, carrying out cyber warfare and powering surveillance systems, while minimizing the impact such rules would have on private companies.

The measure, which would come as the United States is also considering expanded curbs on U.S. investment in Chinese technology firms, is also likely to ruffle the Chinese government. Biden officials have been working in recent weeks to improve bilateral relations following a fallout with Beijing earlier this year, after a Chinese surveillance balloon flew over the United States.

Antony J. Blinken, the secretary of state, traveled to Beijing this month to meet with his counterparts, and Treasury Secretary Janet Yellen is also expected to travel to China soon.

During a Wednesday appearance at the Council on Foreign Relations in New York, Mr. Blinken said that China’s concern that the U.S. sought to slow its economic growth was “a lengthy part of the conversation that we just had in Beijing.”

Chinese officials, he said, believe the U.S. seeks “to hold them back, globally, and economically.” But he disputed that notion.

“How is it in our interest to allow them to get technology that they may turn around and use against us?” he asked, citing China’s expanding nuclear weapons program, its development of hypersonic missiles and its use of artificial intelligence “potentially for repressive purposes.”

“If they were in our shoes, they would do exactly the same thing,” he said, adding that the U.S. was imposing “very targeted, very narrowly defined controls.”

Nvidia’s valuation had soared in light of the recent boom in generative artificial intelligence services, which can produce complex written answers to questions and images based on a single prompt. Microsoft has teamed up with with OpenAI, which makes the chatbot ChatGPT, to generate results in its Bing search engine while Google has built a competing chatbot called Bard.

As companies race to incorporate the technology into their products, it has increased demand for chips like Nvidia’s that can handle that the complex computing tasks. That momentum has helped to push Nvidia’s market capitalization past $1 trillion, making the company the world’s sixth largest by value.

Nvidia said in an August filing that $400 million in revenue from “potential sales to China” could be subject to U.S. export restrictions, including sales of the A100, if “customers do not want to purchase the company’s alternative product offerings” or the government failed to grant licenses to allow the company to continue to sell the chip inside China.

Since the restrictions were imposed, Chinese chip makers have been trying to overhaul their supply chains and develop domestic sources of advanced chips, but China’s capabilities to produce the most advanced chips remains many years behind that of the United States.

Joe Rennison and Don Clark contributed reporting.