Nvidea warns of consequences Chip war
The US has long been concerned about the potential geopolitical threat posed by an emerging China. The competition is fierce in several areas, but one of the most important is perhaps the ability to produce state-of-the-art computer chips. Recently, plans have been drawn up to limit the export of certain types of chips, and the machines that can make them, to China so that the current superpowers can maintain their lead.
According to a recent publication by The Wall Street Journal (paywall), new export restrictions are currently being discussed. Nvidea is now grumbling that extensions of current export restrictions will result in a “permanent loss of opportunity” for US industry.
Begun, the Chip Wars have
Last October, the US government announced that it would restrict the export of chip-making machines to China. It was a deal in which the Netherlands was directly involved. ASML, based in Veldhoven, is a major player in this market, and participation in the company’s constraints is essential for Americans. ASML is one of the largest suppliers of machines for the semiconductor industry.
China currently does not have a domestic industry that can make such machines itself and is therefore dependent on foreign supplies. Under the current agreements, the export of the most modern technology is restricted. For example, ASML is no longer allowed to export the most advanced DUV (Deep Ultra Violet) machines. Such equipment prints the smallest parts that form the basis of a microchip.
New restrictions around AI chips
According to the Wall Street Journal, the new restrictions that are currently being discussed mainly concern chips that are used specifically for making so-called AI models. The move is seen as another attempt by Washington to keep technologies out of the hands of the Chinese that could bring their arms industry up to par with their own. Such an action mainly affects companies such as Nvidea. This is not about a few cents. Due to the huge boom in the chip industry, Nvidea recently temporarily reached a market value of 1 trillion. It is a feat that only 9 companies have achieved before.
“In the long run, restrictions on sales of our data center graphics processing units (GPUs), if implemented, will result in a permanent loss of ability for the US industry to be competitive and leading in one of the largest markets on Earth and will affect our future business and financial results.” said Colette Kress, chief financial officer of Nvidea.
China is one of Nvidea’s most important markets, accounting for 22% of the company’s profits over the past year. The argument that export restrictions specifically aimed at the company and its business in China can have major financial consequences will not be contested by anyone. The market is already reacting to the rumours. Last Wednesday (6/28), Nvidea’s share already fell 3.2%,. Although it has since recovered somewhat. Chinese equities suffered more from the news. The biggest loser there was Chengdu Information Technology of Chinese Academy of Sciences, which fell by 12%.
Consciously cutting your own flesh?
Policymakers in the US will certainly not have missed the financial consequences of import restrictions for their own market. It is therefore highly questionable whether Nvidea’s complaint will change the current course. In the foreground, it mainly concerns economic interests. But behind that front, definitely different sentiments are bubbling. The Carnegie Endowment for International Peace think tank is deeply concerned about what it describes as a superpower rivalry garnished with a heavy dose of nationalism.
That China and the US have different views of what the world will ideally look like in the future is an indisputable fact. There is therefore a good chance that America is willing to sacrifice the profits of a few companies if that means that arch-rival China lags behind in technological developments. Joe Biden may present himself in a decidedly different way compared to his predecessor Trump, in this matter the men follow the same line. If I were CEO at Nvidea, I would have already shifted my focus to other markets.
