There is widespread belief in Washington that the United States should block China from obtaining advanced chips.

How to deal with the rest of the world is a thornier question? Two years ago, the United States banned China from buying America's best chips, reshaping the global semiconductor market. Twelve months later, it expanded the restrictions to include more technologies and covered an additional 43 countries. The move hopes to prevent China from using middlemen in the Middle East, Africa or Asia to obtain chips. So far, the move has had the effect of essentially blocking imports of advanced chips from much of the world. For months, officials have been slowly approving Nvidia and other companies to ship chips to data centers around the world as they debated what conditions should be attached to those licenses. The lengthy policy process has caused some awkwardness.

01 Microsoft said months ago

Five months after Microsoft Corp. announced a $1.5 billion investment in Abu Dhabi AI company G42 — backed by Commerce Secretary Gina Raimondo — a senior company official said the U.S. still needs to "get comfortable" shipping AI chips to the UAE and Kenya. Vietnam, meanwhile, is one of eight countries the U.S. has picked to bolster its semiconductor supply chain. But it's also on the list of countries where export controls raise national security concerns, so license issuance has slowed. There are signs things could start moving soon. Last week, the U.S. unveiled a framework under which companies can seek pre-approval to ship goods to specific locations, subject to corporate commitments and security assurances from national governments. 

Those will be adjudicated on a case-by-case basis, but could include allowing U.S. inspections, limiting computing power available to so-called entities and countries of concern, and barring employees from those places, meaning China, from facilities. Geoffrey Gertz, a senior fellow at the Center for a New American Security, said the U.S. is now saying: Don't worry, the rest of the world, you'll still be able to get advanced AI chips as long as you agree.

02 The truly problem

The question is whether this gives people peace of mind about eventually getting the chips, or whether it raises "more concerns that the United States will put itself in the middle of every international transaction." Not everyone likes the pre-approval process rather than a unified license for every shipment. A Republican spokesman for the House Select Committee on China said the arrangement has been "repeatedly exploited" and "should be abolished completely." The move is particularly confusing in the Middle East and requires strict monitoring and enforcement. The U.S. calculation is roughly as follows: AI is clearly global, and the world should rely more on American technology than Chinese technology. The world also wants to use American technology—and will spare no effort to get it—which gives the United States leverage, such as getting G42 to divest from China. But this influence only works as well as it does with technological leadership.

Officials who worry that Chinese vendors may soon, or even eventually, become viable alternatives to Nvidia generally want AI chips to ship more widely and more quickly. Those who don't believe China's claims of progress in semiconductors or are skeptical of other countries' commitments to reduce ties with China argue that stricter measures should be taken and stronger commitments should be obtained from countries seeking to obtain the best technology assets. It's a live debate with real consequences for businesses. Microsoft quickly realized that Raimondo's positive view of its move into the UAE would not necessarily be accepted by Congress or even other parts of the United States. Export controls generally bring uncertainty about approval timelines, which could further discourage customers from choosing or developing alternatives to avoid dealing with "onerous conditions." At least that's the worry of semiconductor startup Cerebras Systems, which detailed two pages of risk factors related to export controls in its proposed initial public offering. Why worry? Cerebras gets 87% of its revenue from the G42.

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