Tuesday of this week, the US Commerce Department announced new regulations on the kind of chip-manufacturing machines that can be sold to China. This had an immediate impact on companies like Nvidia.

The Biden administration is reducing the types of semiconductors that American companies will be able to sell to China, citing the desire to close loopholes in existing regulations announced last year…

Nvidia said the rules imposed new licensing requirements for exports to China and other markets such as Saudi Arabia, the United Arab Emirates and Vietnam.

The company said its A800 chip, which was reportedly created for Chinese customers in order to circumvent last year’s restrictions, would be among the components affected.

A statement released by the Commerce Department made it clear these new restrictions were about limiting China’s military use of advanced chips.

Today’s rules reinforce the October 7, 2022, controls to restrict the PRC’s ability to both purchase and manufacture certain high-end chips critical for military advantage. These updates are necessary to maintain the effectiveness of these controls, close loopholes, and ensure they remain durable.

These controls were strategically crafted to address, among other concerns, the PRC’s efforts to obtain semiconductor manufacturing equipment essential to producing advanced integrated circuits needed for the next generation of advanced weapon systems, as well as high-end advanced computing semiconductors necessary to enable the development and production of technologies such as artificial intelligence (AI) used in military applications.

But the main goal of the new restriction is to keep high-end EUV lithography machines made by ASML out of China’s hands.

In particular, U.S. rules will now stop shipments of some machines that use deep ultraviolet, or DUV, technology made mainly by the Dutch firm ASML, which dominates the lithography market…

After being thrust into geopolitics yet again, ASML has been careful in its response, saying in a statement this week that it complies with all laws and regulations in the countries where it operates. Peter Wennink, the chief executive, said the company would not be able to ship certain tools to “just a handful” of Chinese chip factories. But “it is still sales that we had in 2023 that we’ll not have in 2024,” he added…

Although Beijing is pouring money into the semiconductor industry, Chinese chip-making equipment remains many years behind the prowess of ASML and other key machine suppliers, including Applied Materials and Lam Research in the United States and Tokyo Electron and Canon in Japan.

China has access to tech that is several years behind the current state of the art. President Trump convinced ASML not to sell their latest machines to China in 2019 and President Biden has continued and expanded that policy.

Last month, China’s Huawei released a new cell phone using a more advanced chip produced in China. The release of that phone was timed to Commerce Sec. Gina Raimondo’s visit to China. That new chip was made using machines from ASML. But I’ve seen some commentary from chip designers suggesting that China was probably pushing their older tech to the limit using a technique which requires burning multiple images on a single wafer. That tech can create more advanced chips using older tech but it also dramatically increases the number of failed chips from every batch. It’s not very efficient.

Naturally, China is not happy about these changes. The actually responded to the Biden administrations new sanctions the day before they were officially announced.

“The US needs to stop politicizing and weaponizing trade and tech issues and stop destabilizing global industrial and supply chains,” spokesperson Mao Ning told a press briefing. “We will closely follow the developments and firmly safeguard our rights and interests.”

The free world is in a difficult position. All of these western tech companies have a huge market in China which they would be happy to milk for all it’s worth. The problem is that China’s is a belligerent communist dictatorship which will use whatever western tools they can buy (or steal) to create weapons that will be used against their own citizens and the west. Selling AI tech to China is practically begging for an even more powerful police state than the one they already have. Better to forego the short term benefits and limit China’s ability to weaponize this tech.