The Biden administration has issued final rules aimed at preventing chip companies from using federal funds to carry out certain business expansions, partnerships, and research in China as a measure to protect national security. These regulations come as the administration plans to disburse over $52 billion in federal grants and tax credits to strengthen the US chip industry. The new rules aim to prevent chip makers benefiting from US grants from sharing technology, business know-how, or other benefits with China.
The final restrictions prohibit firms receiving federal money from constructing chip factories outside of the United States. They also limit companies from significantly expanding semiconductor manufacturing in “foreign countries of concern,” including China, Iran, Russia, and North Korea, for a period of 10 years after receiving an award. Additionally, companies that receive funding are prohibited from carrying out specific joint research projects or licensing technology that could raise national security concerns in these countries.
If a company violates these rules, the government has the authority to revoke the firm’s entire award, according to the Commerce Department. “These guardrails will protect our national security and help the United States stay ahead for decades to come,” said Gina M. Raimondo, the Secretary of Commerce.
The chip industry has lobbied heavily on these restrictions, as approximately one-third of its revenue comes from China. Chip makers have expressed concerns that overly restrictive measures could disrupt supply chains and hinder their global competitiveness.
The Commerce Department officials responsible for writing the detailed provisions of the rule have taken the perspective of chip makers and others into account. The department made several changes in the final rules, including the elimination of a specific dollar threshold for transactions that would expand chip companies’ manufacturing capacity in China, Russia, North Korea, or Iran.
Companies such as Taiwan Semiconductor Manufacturing Company suggested that the Commerce Department should monitor the physical expansion of semiconductor factories as a standard, a proposal that was adopted. It remains to be seen if any of these changes will lead to a backlash from Republicans on Capitol Hill who have criticized the Biden administration for not taking a strong enough stance against Beijing.
In an interview, Commerce Department officials stated that they received requests from the industry to relax certain guidelines but maintained or strengthened provisions as necessary to protect national security. The national security goal of the program is to have successful US-based companies, and the department aims to work with companies to ensure they are executing on US grants.
“My sense is that they struck a reasonable balance between trying to be restrictive but also not trying to be draconian with the impact on existing facilities in China,” said Chris Miller, an associate professor of international history at the Fletcher School at Tufts University.
