US Tech Industry Faces Risk of “Enormous Damage” in Escalating US-China Chip Battle

escalating chip battle

The chief executive of Nvidia, the world’s most valuable semiconductor company, has raised concerns about the potential “enormous damage” to the US tech industry amid the escalating battle over chips between Washington and Beijing. Jensen Huang, speaking to the Financial Times, expressed the negative impact of US export controls on Chinese semiconductor manufacturing, leaving Nvidia unable to sell advanced chips in one of its major markets.

Huang emphasized that Chinese companies were increasingly developing their own chips to compete with Nvidia’s leading processors in gaming, graphics, and artificial intelligence. He warned that if China faced difficulties purchasing chips from the US, it would resort to building them domestically. Acknowledging China’s significance as a crucial market for the technology industry, he urged the US to exercise caution in its approach.

The US’s efforts to limit China’s access to advanced chips have become the most aggressive front in the ongoing tensions between the two global powers. Huang’s comments came shortly before Chinese authorities announced a ban on US memory chipmaker Micron’s products from critical infrastructure, signaling a significant retaliation against Washington’s export controls.

The Nvidia CEO cautioned US lawmakers to consider the consequences of imposing further restrictions on trade with China. He stressed that being deprived of the Chinese market would have severe implications as there is no alternative to China. Huang highlighted the potential for enormous damage to American companies if they were unable to trade with Beijing.

Moreover, blocking the US tech industry’s access to China would undermine the Biden administration’s Chips Act, a $52 billion funding package aimed at promoting the establishment of additional semiconductor manufacturing facilities (known as “fabs”) within the US. Huang explained that if the American tech industry experienced a one-third reduction in capacity due to the loss of the Chinese market, the demand for American fabs would diminish significantly.

Nvidia holds a pivotal position in the global race to develop the next generation of artificial intelligence tools, supplying chips used for training large language models like OpenAI’s ChatGPT. The company’s market capitalization has more than doubled this year, surpassing $770 billion, making it larger than its US counterparts Intel and Qualcomm. Despite recent gains in some chip stocks, Nvidia remains significantly larger than its nearest rival, Taiwanese chipmaker TSMC.

Since August, Nvidia has been barred from selling its most advanced chips to Chinese customers due to US export controls on AI technology. Compliance with these rules has compelled the company to reconfigure its chips to meet performance limitations imposed by the US for products sold in China.

China represents approximately one-third of the US tech industry’s market, making it indispensable as both a source of components and an end market for tech products. While it is theoretically possible to manufacture chips outside of Taiwan, where most advanced chips are currently produced, Huang stressed that the Chinese market cannot be replaced.

As tensions continue to rise between the US and China over chips, the potential ramifications extend beyond the tech industry. Analysts express concerns about severe disruptions to global production, impacting various sectors from automotive to computing, should an unprovoked conflict arise between China and Taiwan.