Stay out of our clouds. (There’s a balloon joke there.)
The Biden administration is poised to cut Chinese companies off from Amazon Web Services and Microsoft Azure, or at least constrain their access to the platforms when used for the purposes of A.I. development.
That’s according to The Wall Street Journal, which contextualized the prospective move by reference to the new restrictions on chip exports discussed here+ last week. The White House, the Journal said, is trying to “clos[e] loopholes in chip export controls.”
The reporting came just hours after Beijing moved to place restrictions on two key metals used in semiconductors and EVs, among other applications. Those restrictions go into effect early next month, when exporters will need to get a license from the Commerce Ministry before sending the metals and associated compounds out of the country. Anyone who manages to obtain a license will be subjected to extensive reporting requirements.
That felt a bit desperate, frankly, given that the metals aren’t especially hard to source. By choking off supply, China can drive up prices, but it depends on end user stockpiles and it could also be self-defeating if it brings other supply online, which it invariably will. Russia faces the same risk with natural gas. Generally speaking, Xi Jinping wants less so-called “de-risking” from China’s trade partners, not more.
One or both of the two metals — gallium and germanium — are produced in several other countries, including Belgium, Canada, Japan, Russia, South Korea, Ukraine and the US. I’m going to assume Russia is out when it comes to making up for any lost Chinese exports, and Ukraine is a bit preoccupied currently.
Here’s the quandary if you’re Xi: Anything you do to hit back at US export controls gives US officials more “evidence” to cite in conversations with US allies, who are being asked to participate in the effort to stymie China’s technological ambitions.
Retaliation, justified or not, also scares multinationals already anxious to diversify supply chains following the pandemic. Because the Party is a black box, every decision looks mercurial to the outside world. That’s extremely vexing for foreign CEOs and also for foreign capital.
Janet Yellen is due in Beijing this week. Her visit comes shortly after what US officials were (very) keen to pitch as a successful trip by Antony Blinken, and less than three months after Yellen delivered what counted as a foreign policy speech explaining the rationale behind US investment restrictions in key areas of the Chinese economy. “These national security actions are not designed for us to gain a competitive economic advantage, or stifle China’s economic and technological modernization,” she said in April+, during a marquee address. “A growing China that plays by international rules is good for the United States and the world [but] healthy economic competition… is only sustainable if that competition is fair.”
As far as the plan to restrict access to US cloud services, the new rule would apparently require Amazon and Microsoft to ask for the White House’s permission before letting Chinese corporates use the platforms to train their A.I. models.
I was going to make a joke along the lines of, “What’s next? Netflix?” Then it occurred to me that China is one of only five places in the world where Netflix isn’t available. The other four: Crimea, North Korea, Russia and Syria.
It is starting to look to me to like this is escalation of tensions for escalation sake by the Biden administration, I will give them the benefit of the doubt, but I would also like to see an honest effort to engage with China, not just curtail and sanction.The current path only leads to confrontation, not pretty or beneficial to either country. Have sanctions really been effective in Russia or Venezuela so far? We have weakened those regimes but they persist, is regime change the ultimate goal in China? Diplomacy seems to have perished along with common sense in the US. I don’t like a lot of what is going on in China nor do I approve of the way China conducts internal and international policy, but I don’t like the odds of trying to bully Xi and the party into submission, there has to be a middle ground.
The US-China trade war is closely linked to the China-Taiwan dispute and Taiwan’s semiconductor capacity. If China lacks advanced semi capacity, then China should be less willing to risk destroying Taiwan’s semi capacity in a war. When the US has advanced semi capacity, then the US should be less focused on preserving Taiwan’s semi capacity. As more advanced fabs and the rest of the semi ecosystem are built in the US over the next several years, the motivations may evolve. Perhaps not in Taiwan’s favor.
A minor detail on rare earth minerals. Supplies are, indeed, abundant around the world. What are not abundant are refineries to create useful metals from the ores. At the moment, most of that refinery capacity is in China. That’s partly because the refineries are very polluting. Few countries or localities have welcomed them, though two projects are under construction in the US. Not sure how soon they will produce meaningful amounts.
Gallium and germanium seem to be available from non-China sources, including the refined material.
https://www.asahi.com/sp/ajw/articles/14948979
So China has less leverage than with rare earths. Even with rare earths, alternate sources have been/are being developed (Australia, US).
A couple of projects under construction, not currently producing refined metals. Sorry, but even when the MP & Lynas smelter projects in Texas are finished, they will hardly be producing enough to replace Chinese supply.
Large production projects, and at least one refining project, in Australia too.
Despite what the China hawks in the US say, we are far from self-sufficient in logic chips and rare earth minerals. For instance, the completion date for the TSMC fab in Phoenix keeps getting pushed back. And even when it is up and running it will not supply anywhere close to US needs.
Rare earth mineral smelters remain in the planning or under construction stages.
For years our friends in the GOP fought against any aid to domestic chip producers, rare earth minerals, solar panel technologies etc = “We don’t pick winners. Don’t you remember Solyndra?”
Leaving it all to the private sector ….