10 December 2024
Yesterday China announced it is investigating US chip giant Nvidia for anti-competitive practices. Simultaneously in the US, Chinese social media behemoth TikTok launched an appeal against a court order that would require its sale or banning in the country.
These are two of the latest high-profile tensions between the US and China over technology, including:
Bans and investigations of large companies
Embargoes on the supply of minerals and microchips
Investigations into companies linked to enforced labour, and
Mounting tensions over Taiwan
This post will take a look at some of the key developments in the growing trade war between the US and China: a war that will shape the AI and tech industries in 2025.
The good news: agreement on AI Safety
To start with the positives, both China and the US attended the AI Safety Summit at Bletchley Park in the UK in November 2023, and both agreed the Bletchley Declaration on AI Safety.
Similarly, both the US and China supported one-another’s non-binding resolutions on AI at the UN General Assembly earlier this year:
UNGA Resolution on Seizing the opportunities of safe, secure and trustworthy artificial intelligence systems for sustainable development, A/78/L.49 (11 March 2024) (US-proposed, China-supported)
UNGA Resolution on Enhancing International Cooperation on Capacity-building of Artificial Intelligence, A/78/L.86 (25 June 2024) (China-proposed, US-supported)
The effect of the UNGA Resolutions and Safety Summit Declaration is essentially to agree high-level principles on AI safety and availability, but not to compel specific actions by either nation.*
In spite of the broad consensus on safety, however, a number of trade and legal developments signal major divergence between the US and China....
Bans and investigations: TikTok and Nvidia
China vs Nvidia
Yesterday (09 December 2024) China’s State Administration for Market Regulation announced that it is investigating the US chip designer Nvidia over potential violations of its regulatory approval for acquisition of Israeli-based Mellanox Technologies in 2019.
Nvidia, based in California, is the world’s leading chip designer; its chips are used by over 40,000 companies across sectors, including Amazon, Apple, Alphabet (Google’s parent), Tesla, Microsoft and OpenAI.
The outcome of the investigation is still unclear, but could result in Nvidia’s operations in China being restricted, which currently account for 15% of Nvidia sales. Last month, Nvidia’s revenues were reported as $35.1 billion; its shares closed 2.6% down in New York on Monday evening.
US vs TikTok
Yesterday TikTok’s owner ByteDance launched an appeal against Friday’s decision by a US Federal Appeals Court to uphold a law requiring the sale of TikTok’s US operations.
The Appeals Court held that the law, signed by President Biden in April, was not unconstitutional because: “the government acted solely to protect that freedom from a foreign adversary nation and to limit that adversary’s ability to gather data on people in the United States.”
TikTok has 170 million users in the US (and an estimated 1 billion globally), with the US Justice Department arguing the Chinese Government has access to all data collected. This is in spite of TikTok’s commitment to move US user data to US-based servers provided by Oracle in June 2022.
Although the ruling will be appealed to the Supreme Court, ByteDance currently has until 19 January to divest TikTok or face a US ban. Whilst President Biden could grant a 90-day extension, there is no indication that he will.
TikTok have requested that the court freeze the current order until after the inauguration of President Trump on 20 January. Although Trump was the first to propose banning TikTok in 2020, in March he opposed the ban saying: “If you get rid of TikTok, Facebook and Zuckerschmuck will double their business.”
TikTok would face to lose substantial revenues from the ban, with ripple effects across businesses who depend on the platform’s sales functions to drive their revenues.
Minerals, semiconductors and trade embargoes
According to a Citi Bank report from January 2024, the US market accounts for “25% of total semiconductor demand” but “the U.S.’s total semiconductor manufacturing capacity is just 12%, down from 37% in the 1990s.”
With semiconductors at the core of every advanced computing system, trade tensions on the minerals and manufacturing equipment to produce these chips could have profound consequences for the AI and tech industry.
US restrictions on exports to China
On 02 December, the Biden administration added 140 Chinese companies to its restricted trade list. It also banned the sale of some semiconductors, and equipment for producing them, to Chinese companies, including transshipment bans (preventing goods being shipped onwards to China after being sold to another country). This includes chipmaking equipment made in Singapore and Malaysia.
The CHIPS and Science Act of 09 October 2022 prevented any US government superconductor manufacturer receiving tax breaks or subsidies from exporting any chips or chip-producing technology to China.
In September, the US Department of Commerce gave notice of proposed rulemaking under Biden’s Executive Order 14110 to require AI providers to share significant information with the Department, including any sale of foundation models to foreign customers.
China restrictions on exports to the US
On 03 December, China responded to the most recent US restrictions with a full trade embargo on several critical minerals in chip manufacturing to the US. The ban also prohibits companies outside the US from shipping minerals mined in China to US companies.
This transshipment ban has the potential to divide global supply chains “by forcing companies to choose whether products with certain materials and components can be supplied only to the American market or only to the Chinese market” according to the New York Times.
On 03 December, four government-linked trade associations in China were directed to avoid buying US-produced microchips, and two days later the Ministry of Finance announced reforms to Chinese government procurement to favour Chinese companies.
The minerals embargoed are gallium, germanium, graphite and antinomy; China dominates world production of all these minerals, which are essential to most semiconductors.
Broader supply chain investigations: Xinjiang province
Both the US and China have launched investigations into companies whose supply chains may involve labour from Xinjiang province, where many Uyghurs are subject to enforced labour.
US action against forced labour
In December 2021, the US passed the Uyghur Forced Labor Prevention Act which prevented any goods produced in the Xinjiang Uyghur Autonomous Region (XUAR) of China from entering the US. The Act went into force in June 2022.
In May 2024, BMW, Jaguar Land Rover and Volkswagen were found to have purchased vehicle parts originating from a supplier in China that had been flagged by the US for links to forced labour in Xinjiang by a US congressional investigation.
Similar investigations have taken place in the UK and EU, with the UK warning consumers against purchasing goods from Temu that may have been produced using forced labour.
China’s response
China has, by contrast, started investigations into companies for discriminating against materials produced in Xinjiang province. In September, the Ministry of Commerce opened an investigation into PVH (owner of US fashion brands Tommy Hilfiger and Calvin Klein) for "boycotting Xinjiang cotton and other products without any factual basis.”
Cullen Hendrix, Senior Fellow at the Peterson Institute of International Economics told the BBC that the tech sector trade wars were “spilling over" and “affecting a growing number of supply chains across different sectors of the economy."
The most worrying development: Taiwan
Perhaps the most concerning aspect of growing US-China tensions is the fragile position of Taiwan, which still produces over 60% of the world's semiconductors and more than 90% of the most advanced semiconductors.
This week, Taiwan is on high alert after China deployed the “largest fleet in decades” in its surrounding waters. Probably designed as a signal of Chinese strength to the incoming Trump administration, it is a worrying development in a world still largely dependent on Taiwan for over 90% of its advanced microchips.
President Trump has signalled that he wishes Taiwan to increase defence spending, but some of his cabinet picks appear to favour confronting China.
So where does this leave us?
There is no sign of abatement in the growing trade tensions between the US and China.
Avoiding semiconductors altogether is certainly not an option for tech companies, as almost all computing technology is dependent upon them.
Companies in the AI and tech sectors must consider their supply chains carefully, and seek legal advice on any national notification requirements around their customers and suppliers.
As tensions rise, and the future of Taiwan becomes increasingly uncertain, perhaps the rest of us will have to hope that both the US and China abide by the pledge made in the Bletchley Declaration: “to sustain an inclusive global dialogue that engages existing international fora and other relevant initiatives and contributes in an open manner to broader international discussions.”
“Broader international discussions” may not be much to pin our hopes on, but perhaps at the moment they are the best thing we have....
*It should be noted that the UNECE is producing a series of Common Regulatory Arrangements (CRAs) on AI under the General Assembly Resolution, which will require more specific regulatory action by signatory states. These include the Overarching common regulatory arrangement for the regulatory compliance of products and/or services with embedded artificial intelligence or other digital technologies from June 2024.
Additional CRAs are expected for particular sectors using AI. If both the US and China were to sign future CRAs, and adopt the principles they contain, this may be another source of hope for future US-China relations around AI....